Economy 10: Currency Exchange Rate & Forex Video Lecture | General Knowledge (GK) for LIC AAO Exam (English) - Banking Exams

hello I'm gonna share my from Ed Balls
i.com
and welcome to this lecture in which we
shall cover certain paths of
international economy which are foreign
exchange reserves
what is composition the uses and
currency exchange rates let's begin with
the currency exchange sweet what do you
mean by currency exchange rate basically
it's a relationship between two
currencies and it is we'll see the price
of a national currency in terms of
another currency for example dollar with
respect to rupees or yen or Euros there
are basically three types of
representations that are used there is
direct quotation in direct and cross
quotation now we shall study these with
an example now in India in order to buy
a commodity we use rupees status our
national or domestic currency now if for
example if case we need to import
something then we need to give dollars
for that because in international
foreign trade rupees is not generally
accepted but on the other hand dollar is
a very liquid currency so if in India we
need to buy one dollar then thing amount
of rupees that we'll need to give out is
this now this representation is called
as direct quotations now if we reverse
this that is in order to buy one rupee
this amount of US dollars will be
required now this is in direct
quotations now if we relate it like for
example US dollar is related with Great
Britain pound so indirectly we are
relating rupees with with pounds so it
comes out to be this relationship now
this representation is called as
cross-petition now if we all know that
in foreign trade we are exporting and we
are importing and therefore we need to
change our indian rupees in two
different currencies now what are the
various regimes or the parameters which
determine this exchange rate now
initially there was the fixed currency
regime which was followed by floating
currency regime and the current which
most countries use is called the managed
float now fixed
can be simply understood as a central
bank which for example in case of RBI
decides to determine one dollar will be
equal to eight rupees now irrespective
of demand of dollars or the surplus of
Indian rupees this exchange rate is
fixed for all in pools as well as expose
so this is called as fixed currency
regime whereas if the market forces
determine this exchange rate this will
be depreciating or appreciating that
means that Ruby might be strong to be
might get weak beside getting into the
market forces now this is called as
currency exchange rate regime and the
mixture of both fixed plus floating is
called as managed good now if we shall
understand these in detail using
examples but first let us see the
evolution of such regimes
now from the 1870s onward there was
something called as the gold standard
which was followed a gold standard can
be understood as if fun gram of gold
could have been bought using one he was
taller and similarly one gram of gold
could have been caught using two francs
that was the currency of France before
eurozone came into existence so that
would equate one US dollar to two francs
and this would be the currency exchange
rate a bet is coming to be a work at the
mode gold you have the stronger your
currency will be a Biscay value though
low currency scheme will be decided by
the amount of gold the country has now
initially there was only good but after
a while silver was also added and thus
the regime was called as bimetallism now
this gold standard lasted till the first
world war and between period between the
First World War and the Second World War
was very tumultuous for the global
economy there was a Great Depression and
subsequently after the Second World War
Bretton Woods system came into be the
origin of Bretton Woods system was can
be attributed to a Penton with
conference which happened in nineteen
44 and subsequently which led to a
formation of a tomb the earth system now
what was this two-tier system the first
tier of the system was that the monetary
authority of United States of America
that is the Federal Reserve will
guarantee the conversion of US dollars
into gold which initially was set as $35
that we used to buy one ounce of gold so
this was the first year the second year
was that the monetary authorities of all
the Member States of IMF shall guarantee
the conversion of their currencies into
dollars so this was the second year that
would mean that dollar was equated to
gold and all the other currencies were
equated to dollars so this was the
Bretton Woods system now we know that
the availability of gold is not
unlimited so eventually there will be a
liquidity crunch which will involve that
the gold will be reduced and the
requirement for money will be quite high
so UK Britain with warned to exchange
their US dollars with gold but the
monetary authority of us will eventually
stop this system and bring an end using
a system called as STRs this will happen
in 1967 now as DRS are called as Special
Drawing rights these were initiated by
the IMF now this is how the retinal
system came to an end because u.s.
monetary authorities declined to convert
their US dollars into gold and give that
gold to the other countries and this
eventually broke down the system and a
new system which involved a floating
currency regime came into being now
currently most countries follow managed
or dirty food that is they artificially
changed this
currency exchange rate but at the same
time they do follow a market orientation
as well kid demand and supply could
affect Erica 16c Rico but if this other
fluctuation na ho is Lee a to monetary
authorities head whose exchanger cook
managed currently let's just understand
what fixed exchange current regime is
fixed exchange regime is when the
monetary authority of a country decides
what the currency extremes rate should
be up this is also called as pecking
mainly China Ricardo thinkin fun dollar
was pegged or made equal to it yuan
now if the dollar rises or weakens
irrespective of the fluctuation in the
market this exchange rate shall remain
constant China cationic a majority of
export reduce cassava us against up to
other dollar may fluctuate Corrado's
cassava you on keeping fluctuation he to
create cultural balance the mission when
tainted of the trade stability on the
helium currency peg in quor'toth it the
currency exchange rate of a currency was
fixed by comparing the currency with a
basket of important world currencies UK
pounds US dollar Japanese yen German
frog and this is replaced by the
floating currency regime a big hockey
omne ik currency regime Lydia how many
couscous up fixed Korea cave one dollar
is equal to fifty rupees of govt
transactions one here who is and since
rate regime hungry this is the fixed
currency exchange rate let's begin with
the floating currency exchange
currencies can be understood in a manner
of commodity k currency a commodity of
market forces whose pay Castle Houska
effect cutting he we shall see that
let's say give one dollar was equal to
fifty rupees a market maker working
hungarians other import kara india is a
majority importing country up if we want
to import something we will have to pay
in u.s. dollars cooking birth or rupee
chilling any bar selling it so what we
do is we buy
dollars if we are buying dollars that
means that the demand of dollar is
increasing now if the demand of any
commodity increases the sakowskis value
for j'tia
if the demand increases then its price
also increases if the supply remains
constant so excuse my yoga for buying
the same commodity that is buying one
dollar
we'll have to shell out more rupees of
this condition when Cathy rupee is
weakening that means you have to pay
more rupees to get the same commodity
the rupee we Koga you get the
depreciation and vice versa again man
Loki hum exports other cognitive
ergonomics ports other caring hands for
example a key industry a Tata Tata
Gardi export Korea a export Colonel
co-payment can we million dollars me but
obviously Tata
Kerchak is my culture rupees Li and
they'll have to pay the wages of workers
in rupees the electricity is in rupees
their land
rent is also on rupees so the major
expenditure is in rupees so they
converted in the dollars into rupees a
market Megara dollar asada or a or rupee
key demand to these other burger a year
are we saying orga rupee hemara strong
Vijaya yogi rupee homemade Changi
sada so this is called as appreciation
of rupee and depreciation of dollars of
this all is called as floating floating
exchange rate regime the market forces
are determining the exchange rates of
different currencies now let's begin
with the managed exchange rate manage
exchange rate says is a hybrid of fixed
and floating regime and if the
government attempts to affect the
exchange directly by buying or selling
of foreign currencies are indirectly by
monetary policy now let us understand
what how the man is currency exceeds
actually
functions no let's assume that one
dollar is equal to fifty rupees now as
we are importing sick yoga import
knesset dollar key demand berea
therefore Kamaraju rupee have would
depreciate camera three condition acai
harmonica car making indium investment
be Arya India Magan FII FDI investment
are a year though obviously again hamari
FTIR and yarmulke even the pencil akira
so a girl who stayed passively Karla so
in this case who so cumbersome Malaga
okay the value of rupee has weakened Joe
rupees house key value inherently
Kaimuki three be getting lesser dollars
his condition may other all's other
person was today one dollar becomes
equal to 70 degrees so India will be
invested Ikaruga qkq skeeto value have
investment key would decrease of the
degree of his condition could avoid to
Kearney Kelly a RBI Calgary key RBI will
artificially start to sell dollars above
dollars selling a market may order who
peak of by occurring it to artificially
Joe dollar coz-theta the dollar repeated
demand fever company supplying 100 miss
me supply agar even so on the company
but Hadiya those key demand stabilizer
jegging or from the vara ec condition
Amaya
so this is how the currency exchange
rate is managed to get services called
as managed currency exchange regimes
whenever a currency depreciates or
weakens it is called as the appreciation
or devaluation now these two terms are
related with floating currency exchange
ring and this with fixed so if a
currency weakens it is called as
depreciation or devaluation and if a
currency becomes strong not as
appreciation or a revaluation now in
India foreign exchange regulation is
basically controlled by SP of RBI
Reserve Bank of India and there are
certain acts called the Foreign Exchange
Management Act
Semih of 1999 which
the plates foreign-exchange a regulation
which is primarily when we shifted from
a fixed regime to a floating regime and
then later on to a managed floating
regime now of course the basic
operations of this exchange rate are
managed by the Reserve Bank of India
which is the FX Authority which controls
the exchange rate now let's just quickly
go through a few types of currency so
the terms of currencies which are used
there is the hard currency hard currency
primarily denotes the strong currencies
of developed countries foreign for
example the US dollar pound euro yen
these are all the hard currencies which
have a strong economic and political
system and this the currency is
relatively stable to the global effects
or the global changes on the on the
other side the opposite of hard consists
often start is a weak currency for
example the Indian rupee we are affected
by the fluctuations of the international
of the international order these are the
two hardens of currencies and hot
currencies are those currencies this
primarily deals with the foreign
exchange US dollar became a hot currency
with respect to Southeast Asian
countries this houses is Asian countries
when they started to developed they
started to increase their foreign
exchange reserves they wanted to
increase their foreign exchange reserves
so as to improve their exchange rate and
thus promote their exports now the in
this case US daughter became a hot
currency because the foreign exchange
reserves accumulated with us so in u.s.
owners so this is hot currency visually
- foreign exchange with a heated
currencies again a hard currency
purchase under heat under you heat mess
up there under pressure from a
depreciation une key value which is
allah depreciate karate here
Yaphet depression given us a recession
session key value has unique economic
growth health that starts to subside so
their currency is under heat that is
called as heated currency not cheap
currency and dear currency is related to
policies monetary policies that is cheap
money policy or beer money policy for
example cheap means if we want to
increase the liquidity of liquidity of
money in the market hum chanting hanky
the amount of money that is available
boobers I'm Tom Carnegie hum bond buying
spree cannot start cutting it is akin to
the quantitative easing what happened
after 2008 crisis and you were safe I'm
Gary born to buy a carnation leukorrhea
that means more amount of money is being
pumped into the economic system market
masada reservoir total value of money
here whoa Kawasaki but money surplus was
ie cheap money not cheap currency and
opposite is dear money dear mannequins
of inflation go hot solder padronia
inflation better yet on cha thank you
money kill ability high in the market
that has to be to reduce so what we'll
do we start selling government
securities open market operations
currently consume market my surplus many
have that is taken by the government and
thus inflation reduced okay so these are
the few terms which are related to the
currencies now let's begin with what
foreign exchange reserves are what are
they needed why are they needed is there
a major requirement and basically what
do we consider one of the basic
consonants of a foreign exchange reserve
basically foreign exchange reserves are
the monetary assets held by the central
bank's of a country they basically mute
foreign currency assets foreign currency
assets like dollars yen pounds euros
these are our foreign currency assets
then of course Gold Special Drawing
rights which are also called as paper
gold which are issued by International
Monetary Fund and of course they reserve
transposition in the IMF this is the
amount which can be taken as loan by any
country
in case of a palace women crisis we have
already done that the Brenda mug system
it was required to balance or determine
the foreign exchange reserve so after
the Second World War some countries use
it amending the external value of their
currencies are the fixed rate now the
more dollars you had the stronger your
currency will be therefore the higher
your currency exchange rate will be but
later on after the collapse of red
nervous system in 1970s there is these
reserves were generally maintained for
meeting the payment obligations that is
to maintain a balance of payment and
also to avoid any risks or to safeguard
against external shocks and
contingencies now let us quickly go
through a few questions that were asked
earlier the price of any currency in
international market is decided by World
Bank demand for goods services provided
by the country concerned okay
the stability of the government of the
concerned country the economic potential
of the country potential has nothing to
do with it so these are the correct
demand for goods and services and
stability of the government as you see
the hard currency soft currency so with
that the value of currency is determined
second question virtual of the following
groups of items is included in India's
foreign exchange reserves now we have
followed on that there are full
consequence of foreign exchange reserves
one is forensic foreign currency assets
yes special triangles yes loans no
foreign currency assets goals yes yes
but it's not the complete thing so
foreign currency asset stones so this is
the correct answer
loans are a part of capital account in
balance of payment which we have covered
in a separate lecture but this we come
to the end of this lecture well studied
what foreign exchange reserves were why
they were used what was the purpose and
what are the basic constituents we also
have said how the currency exchange
rates work what was floating exchange
rate was
Regine's what were fixed rate regimes
and how the current manage FLOTUS of
cooperates in the subsequent lectures we
shall also shed some light on other
economic factors till then good luck
work hard and hit the bull's eye thank
you