Factors Affecting Exchange Rate of Indian Rupee The value of rupee against dollar is fixed in the foreign exchange market. Let us know in detail in this report how it works.
The value of rupee against dollar changes daily. International business is done according to this rate. It fluctuates continuously due to the foreign exchange market. To understand the daily changes in the value of dollar and rupee, we have to understand the concept of foreign exchange market. Come, let’s know.
What is Foreign Exchange Market? (What is Foreign Exchange Market)
Foreign exchange market is a market where trading takes place between all the international currencies of the world. Every currency trades at a fixed rate against some other currency. This is called the exchange rate. It changes everyday.
How is the exchange rate determined?
The value of the currency of almost all the countries of the world is determined by the floating exchange rate. It depends on the demand and supply of a currency. The currency which is more in demand, its value will be more. On the other hand, the one whose demand is less, its value will be less.
For example, the rupee is trading around 82 against the dollar. Whenever the dollar index indicating the strength of the US dollar falls, the rupee appreciates.
Currency fluctuations are controlled
All countries try to keep exchange rates under their control. Whenever there is a sharp fall in the rupee against the dollar, the RBI sells part of its forex or US dollar reserves to keep the rupee in a range against the dollar.
All countries’ central banks hold foreign exchange reserves, which include major currencies such as the dollar, pound and euro, as well as gold and bonds.
