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Is Depreciation of Rupee Good?

  • Date Submitted: 01/10/2014 05:54 AM
  • Flesch-Kincaid Score: 53.7 
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On August 28, 2013, The Indian rupee hit new historic low level of 68.75against the US dollar. Year 2013 has been a very eventful year. But If I were an MBA Institute’s GD evaluator, I would chose the topic “How the Depreciation of Indian Rupee Impacts India- Good or Bad?” before anything else. After all, Its MBA and I will definitely give more preference to someone who understands the Indian Financial Domain. This topic is very very very important this year. Expect questions in PI round as well from here.

The concept maybe very confusing at first but what Depreciation of Indian Rupee simply means is that we need to spend more rupees to get the sameamount of dollar. Easy… Right? But you will be further clear when you read the points below.  

BACKGROUND:
During Independence, the value of $1 was equal to Re.1. And now it is lingering in the sixties. In a nutshell, that’s never a good sign. But there are certain advantages to certain people from this.

NDTV Profit on Aug 22 2013, highlighted following main reasons behind the Rupee Depreciation:

  * Growth slowdown: India's gross domestic product (GDP) growth fell to a decade low of 5 per cent in 2012-13. The situation is unlikely to improve much this year. Foreign investors are pulling money out of the Indian markets due to slow growth.

  * Widening current account deficit: This is resulting in creating more actual as well as speculative demand for the dollar and other convertible currencies.

  * Dependence on foreign money:India's current account deficitwas financed by foreign money for the last many years. Withdrawal of money by overseas investors is leading to the weakness in the rupee.
  * Recovery in the US: The slow but steady recovery in the US is making the green buck stronger against other currencies.
  * Capital controls: The decision by the Reserve Bank and the government to impose temporary restrictions on capital flows has not gone down well with the markets, as it will not only...

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