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Description
Its party time; the domestic currency has started flexing its muscles. The rupee has been, for quite some time, showing a consistent appreciation in its value as compared with the currency major, the US dollar. However, the basic question that still remains unanswered is, why are we concerned (if at all) with this appreciation? This article tries to address some of the key areas pertaining to this phenomenon of rising rupee, and tries to derive some insights from the same."The rupee breaches the psychological 45 level", "rupee touches 44 months high", "rupee appreciation continues", etc., were some of the news headlines in recent times for almost all the financial newspapers in the country.
The phenomenon of rupee rising can be attributed to the continuous appreciation of rupee value against the dollar for quite some time. And this was only the start, as much more was yet to come, thus bringing in mixed sentiment to the common man. As a matter of fact, the appreciation of rupee does not bring in good news for all. To cite an example, the exporters who bill their invoices in dollar terms ultimately have to pay more in rupee terms. The appreciating rupee on the other hand, makes the importers a cheerful lot, as they gain in terms of rupee value. But before discussing the details of this and where we (out country) stand today, it is important to first get the basics right.
Let us take the example of a garments exporter, who bills invoices in dollar value. For every 10 paise the rupee gains, the exporter stands to lose Rs. 1 lakh. Thus, for every $1 mn of export, the company with $30 mn export of garments stands to lose as much as Rs. 30 lakh. On the other hand, an opposite scenario is likely to be observed from companies that tend to import raw materials for manufacturing. In such situations, the importer effectively pays less in dollar terms and thus stands to gain in the process.
