MORE / #General Awareness

April 04, 2017 @ 01:15 PM

April 04, 2017 @ 01:15 PM

K. J. Somaiya Institute of Management Studies and Research, Mumbai

9 Easy Steps to register for SIMSR (Infographic)

Download Now

Depreciation Phenomenon of Rupee vs. Dollar

Depreciation Phenomenon of Rupee vs. Dollar

Published : Tuesday, 17 January, 2017 10:30 AM

Depreciation Phenomenon of Rupee vs. Dollar

MBA aspirants must be updated with General Awareness on current affairs. Current Affairs topics with analytically drawn conclusions will benefit you in Post exams screening Tests like  WATGD & PI , Essay writing

Read Current Affairs Topic:  Depreciation Phenomenon of Rupee vs. Dollar

When the value of Indian Rupee (INR) against another currency says US Dollar (USD) decreases in the foreign exchange (forex) market, it is called as depreciation of Rupee and on the contrary if the value of INR increases against USD, it is called as appreciation of Rupee. In the post-independence history, the government of India has also deliberately decreased the value of Rupee three times once in 1966 and twice in 1991. When the government officially decreases the value of its currency, it is called as devaluation of currency.

Working Of Depreciation or Appreciation Of Rupee

In the forex market, when the demand of foreign exchange say USD exceeds the supply, it will result in the increase in the price of USD in terms of rupee. In other words, value of rupee will decrease against USD and it is called as depreciation of Rupee.

For example, in a forex market, if USD 1 can be purchased with INR 67 but after some time later its price in increased to INR 68, then Rupee is said to be depreciated by one Rupee. Again, after some time if USD price decreases to INR 67, then Rupee is appreciated by one Rupee.

Factors Affecting Depreciation

Factors responsible behind the depreciation of Rupee are actually the factors which affect the supply and demand for dollar in the forex market. Some of the major factors affecting the price of USD in the forex market or in other words factors which affect the value of Rupee in forex market are as under:

Balance of Payment Surplus or Deficit

The account of international trade of a country is called as balance of payment (BOP) account. In a BOP account, if the aggregate of credit column is larger than aggregate of debit column, it means that supply of foreign exchange is higher than the demand for foreign exchange, In that case, the domestic currency will appreciate against the foreign currency. On the contrary, if there is BOP deficit, i.e. cumulative entries in debit section are bigger than that of credit section, it means that there is net outgo of forex and value of domestic currency will depreciate. In gist, demand for USD is more than the supply of USD.

Exports vs Imports

This is also related to the BOP account. The goods and services exported by a country brings the foreign currency into the country while the goods and services imported into the country requires the payment to the foreign suppliers in an internationally accepted currency like USD. If a country’s imports are more than the exports, then Rupee will depreciate as the USD required to pay the foreign suppliers will exceed the USD brought into the country by exports.


If a country is undergoing high rate of inflation, then the currency of the said country is expected to depreciate in the forex market. Inflation means a consistent increase in the general price level or decrease in the value of currency. An increase in the price of goods and services in domestic market will make them less competitive in the international market and thus the exports will reduce. Also, during the high inflation period, imports will increase as it will be cheaper to import corns than to produce them domestically because of high price. Thus, inflation will increase imports and decrease exports thus strengthening the depreciation of the currency.

Rate Of Interest

High interest rate is not considered good for the economy while low interest regime is considered business friendly. However, there are many foreign institutional investors (FIIs) in the world who park their funds where they get better interest rate. If the Reserve Bank of India (RBI) lowers the rate of interest to improve business environment, then such FIIs will pull out their money from the Indian market and invest in some other country where interest rates would be higher. Thus there would be an outflow of the foreign currency and would cause depreciation.


There are many speculators in around the globe who invest in different international currencies in anticipation of rise or fall in their prices in future. There are many factors which may affect the speculators anticipation like expected economic growth, inflation, business policies etc. If a country's currency value is expected to rise, investors will demand more of that currency in order to make a profit in the near future resulting in the increase in the value of currency.


Almost all the aforesaid factors and several other minor factors simultaneously act to depreciate or appreciate the value of a currency. However, their affect is more visible if a country is under flexible exchange rate regime like India. In the fixed exchange rate regime as in China or in pre-reform India, exchange rate is artificially fixed by the government and these factors don’t affect the exchange rate but put the strain on government finances.

Fixed exchange rate regimes do not have appreciation of depreciation of currency but government changes the value of currency by devaluation or evaluation. In fixed exchange rate regime, government had to maintain forex reserves to maintain the fixed rate of a currency. However, nowadays, governments with flexible exchange rate also keep forex reserves to provide cushion against exchange rate shocks.  

Read 500 plus topics on current affairs

Stay informed, Stay ahead and stay inspired with MBA Rendezvous

Crucial Dates, You Should not Miss

TAPMI, Manipal
Admission Application closes on January 16, 2018 for 2018-20
BIMTECH, Greater Noida
Admissions open for PGDM Programmes at BIMTECH. Apply Now !
Lal Bahadur Shastri Institute of Management
Admissions are Open at LBSIM, Delhi. Apply Now !
FORE School of Management
Apply for PGDM & PGDM-IB Programmes. Application Deadline is December 22, 2017.
Goa Institute of Management
PGDM Admissions Open at GIM. Apply Before January 5, 2018
Last Date to Apply for MBA (Full Time) Programme at NIRMA is January 09, 2018
XAT 2018
Application Last Date 15th December 2017 ( With Late Fee )
IMI New Delhi
Application closes 4th December 2017
XIM Bhubaneshwar
Last Date 8th December 2017
SIBM Bengaluru
Apply for SNAP 2017 to be held on Dec 17 and apply for SIBM-Bengaluru through the SNAP Form
Institute of Rural Management Anand
IRMASAT will be conducted on February 4,2018, Apply Before December 31,2017
IBSAT 2017
Last date for IBSAT registration is December 12 , 2017
SIBM Hyderabad
Apply for SNAP 2017 to be held on Dec 17 and apply for SIBM-Hyderabad through the SNAP Form
Institute of Public Enterprise
Last Date to Apply for IPE, Hyderabad is 31st December 2017
K J Somaiya Institute of Management Studies & Research, Mumbai
Last date for Application is 31st Jan, 2018
Application for PGDM 2018-20 at SDMIMD is open till February 28, 2018
MDI Murshidabad
Applications for PGPM 2018-20 at MDI Murshidabad are open

Admission Open Now

Following Colleges are accepting applications.


Admissions open for 2018-20

PGDM, PGDM (HRM), PGDM(B & FS), Executive PGDM

Apply Online