Reason for Indian rupee calculated against the US Dollar
Ever wondered why the rupee quotes at 53.2 or 50 and not at Rs. 20 or Rs. 80 to a dollar? It’s not much different from how the prices of your mangoes are determined, for example. Whether currency movements or prices of mangoes, the most important factor determining their price is the same – market forces of demand and supply. If the demand for dollars increases, the value of dollar will appreciate. As the quotation for Rs/$ is a two way quote (that is, the price of one dollar is quoted in terms of how much rupees it takes to buy one dollar), an appreciation in the value of dollar would automatically mean a depreciation in Indian rupee and vice-versa. For example, if rupee depreciates, a dollar which once cost Rs. 47 would cost, say, Rs. 50. In essence, the value of dollar has risen and the buying power of rupee has gone down. Besides the primary powers of demand and supply, the rupee-dollar rates are determined by other market forces as well. Market sentiments During turbulent ma...