Every country has its own currency. One currency is converted into another currency with the help of a conversion rate between these two currencies. These are done either by a bank or an authorized currency dealers. For example: – If we have Rs.5, 000/- and we wish to get US $ by surrendering the above INR one has to go to a bank or an authorized currency dealers for this conversion. The conversion will be done at that day’s rate. Thus, there exist foreign exchange markets where one can buy and sell currency in lieu of another currency. The rate at which this happens is called conversion rate. This rate fluctuates on daily basis which is highly dependent on the demand and supply of each currency.
The real problem is that most of the people get confused when there is a rupee depreciation but it shows that it has moved from Rs.66 per US$ to Rs.66.82 per US $. A look at this change indicates value has increased but reports read that INR has depreciated. No doubt, it is confusing. For removing this confusion we will try to understand what appreciation and depreciation refers to when we read or hear such news on daily basis with the help of an example:-
We went to a bank with an intention to buy US$ 100 and ask the bank how much INR is needed to buy the requisite dollar. The banker reverts back that Rs. 6600.00 need to be paid. This means we can buy one [email protected] Rs.66 per dollar. This is the selling rate of the said bank for US$ for that day.
Again, we went to the bank but this time after a month and asked the bank that we wish to buy US$ 100 and the bank reverts back this time that Rs. 6682 need to be paid. This shows that we have to pay more to receive the same amount of US$. This concludes that local currency has depreciated. This is known as Depreciation of Indian Rupee. On the other hand, had the bank quoted Rs. 6500 it would be considered as appreciation of INR as this time we have to pay less amount to buy the same amount of US$.
Impact of Depreciation and Appreciation of Rupee on Indians Living in India.
|Effect on||If Rupee Depreciates(for example, from Rs.60/$- to Rs.65/$)||If Rupee Appreciates(for example, from Rs.60/$- to Rs.55/$)|
|Exporter||Exporter will have higher revenue||Exporter will have lower revenue|
|Importer||Imports become costlier||Imports become cheaper|
|Student Studying Abroad||For each dollar sent abroad, parents have to cough out Rs. 5 more and thus study becomes costlier.||For each dollar sent abroad, parents have to pay Rs. 5 less and thus study becomes cheaper.|
Trend of US$-INR in August 2015:
The above statistics shows that INR has depreciated between 10th August 2015 and 24th August 2015. At the beginning of 10th August, the conversion rate was Rs.63.7590 whereas on 25th August, it has depreciated to Rs. 66.5093. This means that now Indians have to pay more for all imports even if the prices of these goods in US$ had remained the same.