Give two reason of low power of Indian currency .
Answers
1.Global economic slowdown. ...
2.Crude oil prices. ...
3.India's trade deficit. ...
4.FIIs and DIIs. ...
5.The difference in interest rates. ...
6.Persistent Inflation. ...
7.Current account deficit.
Currency wars
A currency war occurs when countries try to boost exports by devaluing their currencies. Currency wars tend to harm all the nations that engage in them. However, when one country devalues its currency to make its exports cheaper, other countries are forced to retaliate.
The Dollar Index
The Dollar Index (DXY) is an index of the US dollar’s strength against a basket of hard currencies. It also measures the weakness of other currencies against the US dollar. The Indian Rupee moves in line with the other currencies against the US dollar. If the Dollar Index strengthens, the Indian Rupee weakens, and vice versa.
The Fed’s monetary stance
The monetary stance of the Federal Reserve (Fed) of the US decides the future direction of interest rates. The Fed’s stance affects the course of action of global investors. If they can earn higher returns by investing in safe US bonds, there is no need for them to in emerging markets. When the Fed raises interest rates, the US dollar strengthens,
Government debt
The central government’s debt is also known as the national debt, public debt, or government debt. A country with high government debt is less likely to attract foreign capital, resulting in inflation. Overseas investors will sell their bonds in the open market if government debt is expected to rise, causing a decline in the value of the currency.
Inflation rate
Changes in the rate of inflation can make the exchange rate go up or down. The currency of a country with a lower inflation rate is likely to appreciate. When inflation is low, the prices of goods and services go up at a slower pace. The currency of a country with consistently low inflation tends to appreciation.
Terms of trade
The “terms of trade” is the ratio of export prices to import prices. It is related to the balance of payments and current account. If export prices increase at a higher rate than import prices, the terms of trade of the country improve. Better terms of trade increase the revenue, causing more demand for the country’s currency