There is an entire branch of study in various colleges that deal with foreign imports and exports and how they are connected to the strength of the Indian rupee. However, in this article we will not go into depth but I will try to give you a very simple explanation about the relation between rupee and our foreign exports.
As the Rupee depreciates, it becomes lucrative for various companies to export things. Why is it so? Well, the mere reason being the local value of the currency that is being used to do the trade, which in our case is US dollars. When companies in India export goods to other countries, the payment for these deals are usually done in US Dollars. Now since the value of the Rupee has depreciated, these companies will get more Indian rupees for every dollar that they convert here.
For instance if we consider a company that was having export incomes of US $500 would be making around Rs. 25,000 after the conversion considering $1 = Indian Rs. 50. Now when the Rupee value has depreciated, the new value of $1 = Indian Rs. 60 (lets consider). This means that the same company which was making Rs. 25,000 earlier in earnings will now be making Rs. 30,000 owing to the depreciation. The amount of goods exported stays same and so does the amount of dollars earned!
Now lets say that the rupee has appreciated against the dollar and the value of $1 = Indian Rs. 40/- In this case the above company which is still exporting the same amount of goods and getting paid US $500 will get less money after converting the american dollars to Indian currency, approx. Rs. 20,000 considering our scenario.
Thus we can see from the above case scenario as to how the Depreciating rupee is good for exporters and how the appreciating rupee is a lot less lucrative for the exporters in India. In our next article we will talk about how the appreciating and the depreciating rupee affects Imports in the country. You may have taken a guess already now 🙂
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