The Indian Rupee-US Dollar Exchange Rate: The Economic Impact of a Strengthening Currency
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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ThemesEconomics, Politics and Business Environment
In 2007, India experienced rapid appreciation of its currency
against the US dollar. The reasons for the appreciation of the rupee were a
generally weak dollar in international currency markets and sharp increase in
dollar inflows into the country, partly due to India's increasing attractiveness
to foreign investors. Although India had been seeing a steady rise in dollar
inflows into the country for quite some time, on earlier occasions, the Reserve
Bank of India (RBI) had intervened in the foreign currency market and purchased
excess dollars so as to prevent any appreciation in the value of the rupee. Now,
the RBI decided not to intervene, mainly to control inflation which was around 6
percent in early 2007.
The case discusses the reasons for the appreciation of the
rupee and its possible impact on the Indian economy. It also discusses the
measures taken by the RBI and the government to control rupee appreciation and
to try offset the negative impacts of a strong currency on the economy. The case
ends with some views on the future movement of the rupee.
» To understand the importance of exchange rate management.
» To examine the reasons for the rapid appreciation of rupee in 2006-07.
» To analyze the impact of rupee appreciation on the economy.
» To critically analyze the role of the central bank in the foreign exchange
» To assess the possible future movement of the rupee vis-à-vis the US dollar.
Indian rupee, US dollar, Rupee-Dollar exchange rate, Impact
of a strengthening currency, Foreign Direct Investment, Inflation, External
commercial borrowings, Export competitiveness, Exchange rate management
The Indian Rupee-US Dollar Exchange Rate: The Economic Impact of a Strengthening
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