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The Global Influence of Currencies – Examples

• Global Forex Market largest financial market daily trading volume of over $5 trillion • The Asian crisis of 1997-98 :Asian crisis began with the devaluation of the Thai baht in July 1997 • Financial collapse that spread like wildfire to the neighboring economies of Indonesia, Malaysia, South Korea and Hong Kong • The currency contagion led to a severe contraction in these economies as bankruptcies soared and stock markets plunged

and other nations that China was artificially suppressing the value of its currency to boost exports. from over 8 to the dollar in 2005 to just over 6 in 2013.• China’s undervalued yuan: China held its yuan steady for a decade from 1994 to 2004 export juggernaut to gather tremendous momentum from an undervalued currency • This prompted a growing chorus of complaints from the U. .S. China has since allowed the Yuan to appreciate at a modest pace.

S.• Japanese yen’s gyrations from 2008 to mid2013:Japanese yen has been one of the most volatile currencies in the five years to mid-2013 • Favored currency for carry trades because of Japan’s near-zero interest rate policy • Yen appreciated by more than 25% against the U. . dollar in the five months to January 2009 • Abenomics” – led to a 16% plunge in the yen within the first five months of the year.

led the euro to plunge 20% in seven months. causing it to disintegrate. .19 in June 2010. Portugal.• Euro fears (2010-12):deeply indebted nations of Greece. • A respite that led the currency retracing all its losses over the next year proved to be temporary. Spain and Italy would be eventually forced out of the European Union.51 in December 2009 to about 1. • Level of 1. as a resurgence of EU break-up fears again led to a 19% slump in the euro from May 2011 to July 2012.

25. • It will make its products & services uncompetitive in international market and the balance of payments will suffer from a deficit. • June 2012. the Indian Rupee breached the 57 per International trade and investment • Decisions become more difficult Dollar mark & reached to 57.Currency Impact on Indian Economy • Excessive volatility causing depreciation against major dominating • Indian Rupee was devalued two times in July 1991 in order to stabilize the foreign exchange market.its all-time low against Dollar .

• There has been a strong and significant negative impact of this currency volatility on many sectors • Indian rupee weakens many times and reached to a level of 61.045 for a dollar • India may face worst financial crisis if it fails to stop the slide in the rupee .

Exchange Rates .

Critical Situation Due To Fluctuations 1) Dollar On A Strong Position in global market  Immense strength of the Dollar Index. which has touched its three-year high level  Performance of US equities and the improvement in the labor market 2) Recession in the Euro Zone Is Back on the move  Rupee feeling the pinch of recession in the Euro zone  Focused on selling Euros and buying dollars  Outward flow of currency or a decrease in investments put a downward pressure on the rupee exchange rate .

3) Decreasing rating by Rating Agencies & slow growth projection by IMF  Uncertainty prevailing in Europe and the slump in the International markets  Investors prefer to stay away from risky investments.6% growth rate for the economy 4) Impact of Commodity Prices in Global Market  Sharp fall in the commodity prices (of gold and crude oil)  Large part of the import bill is driven by other resources as well  Fertilizer imports surged by 30% and coal imports have doubled. .  Moody has downgraded the India to BBB  IMF also signed 5.

importers buying large quantity to hedge their position  Exporters kept on holding their dollar reserves 6) Unattractive Indian Market  FII in the developing markets has decreased considerably  Strict political policies are also reason .5) Speculations from Exporter and Importer  Fall in rupee largely attributed to speculations  Increasing dollar rates.

25%  Limit of lending overnight borrowing from RBI fixed to rs75000cr Year 23-10-2001 Bank Rate 6.25 6 9.7) Bank rate Fluctuations:  Fluctuating bank rate from 8.5 9 29-01-2013 19-03-2013 03-05-2013 16-07-2013 8.5 30-10-2002 30-04-2003 14-02-2012 17-04-2012 6.25 10.25% to 10.5 8.25 .75 8.

8) Lack of reforms:  Direct Tax Code (DTC)  Goods and Service Tax (GST)  Retrospective tax law (GAAR) lot of flak from the business community  Investors sentiment negative 9) Interest Rate Difference:  Increasing pressure on RBI to decrease the policy rates.  Effects the capital account flows of India  Depreciating pressure on the currency .