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Is appreciation of the Indian Rupee against US Dollars good for the Indian economy?

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Wiki User
2011-10-20 17:03:10

Before I answer the question, let me provide a simple example

relating to exchange rate. For example, if 1 Indian Rupee equals to

2 US Dollars today, after the appreciation of the Indian Rupee it

will equal to 5 US Dollars. ( please understand that I do not know

the exchange rate betwen dollars and Indian Rupee, hence this

example could look weird ). The appreciation means that the Indian

Rupee can purchase more US dollars. If this happens, you can look

at it from the perspective of the buyer and the seller. If you are

a buyer from US and would like to buy things in India, the

appreciation will be disadvantages to you, as you need to use more

US dollars to buy things from India. If it is disadvantage to a

buyer from US, it means a seller from India will be at a

disadvantage, as the price of goods sold to foreigners are now more

expensive. Hence the first conclusion can be drawn, it will be bad

for sellers in India and bad for buyers in US. On the other hand,

an appreciation, means that more US dollars can be exchanged with

the Indian Rupee. This can be good for buyers in India, as now they

have more buying power. If this happens, then it will be good for

sellers in US. Hence, the second conclusion can be drawn, it will

be good for buyers in India and good for sellers in US. It's

important to understand that the above explanation is rather

theoretical. In real life we can argue, the economy consists of

both buyer and seller, and there will be a shift in advantages or

disadvantages when the exchange rate changes. When we consider

buyers and seller, you can expand your thinking and relate to

students, tourists and workers. Students coming to study in your

country, or tourists visitng your country can also be affected. (

use the same analysis on buyer and seller above ). Another

important thing is to consider the economy at hand. And changes in

the exchange rate will also depend on the economy and its

development. Exchange rates are a huge topic in some Economics

topic, and a major topic in International Finance.


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