Exchange Rate Management and Working (International Experience) Video Lecture

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as it is always a race in currency
exchange market for dollar versus
repeats every Indian wish that why can't
be a one rupee is equal to one dollar
this is the question quite similar to
why can't we just print money and pay
all the dead there are some pros and
cons to the situation but let's see what
happens if overnight or in very short
period of time dollar equates to rupees
first of all the high value of currency
does not mean the economy of the country
is stronger if that was the case then
Bangladesh would have had a stronger
economy than Japan because one
Bangladeshi taka is equal to 1.4 yen now
the pros of the situation buying goods
will be cheaper for Indians in
international market because this will
make imports cheaper which is quite good
for the developing country buying luxury
is good will be very easy for Indians
simple example and iPhone 6 will cost
only 650 rupees which is quite cheaper
than the current market rates as imports
are cheaper then petrol price will be
cheaper resulting in reducing the
transportation cost of the goods around
the country this looks like a quite good
scenario but this will not last long for
this situation because other side of the
story is completely different
now cons of the story the exports will
be quite expensive because Indian
products will be expensive compared to
other competing nations as the Indian
export is booming quite a lot since
recent years if it's expensive why any
country would buy things from us if they
can buy it from the other competitors
with lower cost
no foreign investment the number one
reason for the foreign investment in
India is the cheaper labor cost foreign
companies will not be investing in India
if they can invest in other country for
cheaper price investment in IT sector
and service sector which contributes in
huge amount of Indian economy will be
gone now has rupee is equivalent to
dollar why any company would pay to an
employee seventy five thousand rupees
per month if they can hire someone
outside who will do the same work for
$3,000 or rupees also people wouldn't
pay four thousand rupees per month to a
maid instead they will buy a nice
thousand dollar vacuum cleaner so
eventually people will lose jobs which
will increase unemployment plus the
investment is not coming to a country
resulting into a complete economic
slowdown the outsourcing of jobs in
India will be stopped also the companies
which are present in India we start to
move out as it will be not profitable
for them similar situation happened in
2008 when dollar was quite strong around
40 the imports were good but the BPO
sector and the IT sector suffered a lot
the situation of one rupee equal to one
dollar it just not affordable for
growing or developing country now
someone will say what if we don't need
foreign investment
we use all the Swadeshi stuff well that
will not work either we have done that
till 1990 and the economic growth
happened when we let go that idea after
1990 if we boycott foreign products then
others is also boycott our products
which will reduce exports because we
reduce imports not beneficial it is
called protectionism which is completely
opposed to free trade also less exports
mean less foreign reserves for imports
Japan also suffered a huge economic loss
when their currency was overvalued in
1986 China has the fixed rate system in
which government decides the value of
currency and they devalue their currency
against the dollar all the time just to
capitalize on the export market in the
beginning of 2016
China has done the same our finance
minister and RBI governor is not worried
about the falling rupee but they are
worried about the fluctuations in the
market the stabilization of Indian rupee
is important thing whether it might be
on 50 60 or 70 today if rupee is 60 and
tomorrow it is 70 it's too much
fluctuation in short time and not good
for economy as we have adopted floating
rate system since 1975 the finance
minister and the RBI governor and
government cannot decide the value of
currency it is the market supply and the
demand of rupee decides the value but
the finance minister and RBI governor do
have control over the policies and
maintaining the forints reserves of the
country through this they try to
maintain the value of rupee constant by
controlling the inflation rate so that
the currency does not get completely
depreciated
as an Indian we do want our currency to
be high valued but at what cost the cost
is too much and the main reason is as I
mentioned earlier the cost of the
currency is not the scale which
determines the economy of the country it
is just a different way to measure value
a mile is 1.6 kilometer but if you run
16 kilometer or 10 miles the distance is
the same eventually it will happen with
the growing economic activities
manufacturing and production at much
more scale but no sooner than four to
five decades or maybe more
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