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What is the meaning of Depreciating & Appreciating Rupee Against Dollar?

A lot is being talked about the Rupee and the Dollar these days owing to the current unstable economy of India. The rate at which US Dollar is currently priced in Indian currency is increasing gradually and is showing no signs of coming down.

Among all this, there are certain people between us who are getting confused with terms like the Appreciating and the Depreciating rupee that seem to be very common across news channels these days. This article is an attempt towards clarifying the same.

Many of us have the following myth:

When the value of 1 US Dollar increases in terms of INR (Indian National Rupee) then the rupee is appreciating instead why do we say that the rupee is depreciating?

Well, let us break this myth and explain the rupee appreciation and depreciation using a day-to-day example. We assume that the current value of $1 is Indian Rs. 50.

Relation between the Rupee and the Dollar

Relation between the Rupee and the Dollar

This means $1 can buy 50 indian rupees. If we replace these indian rupees with a commodity – say biscuits. Now the situation becomes, $1 can buy 50 biscuits. So when the dollar value rises and becomes inr 60, now we can buy 60 biscuits.

This means, the value of the biscuits have reduced or depreciated which is enabling us to buy more with the same 1 dollar. Same goes with the Indian Rupee.

So when the value of $1 increases in terms of Indian Rupees, we say that the the rupee has depreciated. A similar explanation holds true for the scenario when rupee appreciates.

If this is clear to you, then you might want to go ahead and find out how the appreciation of rupee affects imports and how the depreciation of rupee affects exports. You might also want to know the co-relation between rupee-dollar and the fuel prices.

image source – prateekkhamesra.wordpress.com

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