Exchange Rate of Rupee1

8/14/2019 Exchange Rate of Rupee1

1/10

The Indian rupee (INR) was historicallylinked with the British pound (GBP) in

view of indias political relations withthe united kingdom

The RBI was empowered to buy and

sell foreign currencies as needed.


2/10

When IMF was created and membercountries was asked to specify the parvalue of their currency, the Indiangovernment expressed the par value of

the INR at 4.14514 grains of fine gold,which corresponded to the exchangerate of INR 1=1s.6d (in the old system(s= shillings, d= denoted pennies which

were smaller denominations of Britishpound


3/10

The RBI maintained the par value of the INRwithin the permitted range of +or -1 percentusing the GBP as the intervention currency

The indian rupee was devaluated in 1966

june and the rupee-british pound exchangerate was revised to INR100/GBP4.7619.

The par value of the INR was brought downto 1.83 grains of fine gold.

The U S dollar parity of the rupee was alsofixed at INR100/USD13.3333


4/10

After the collapse of the Bretton woodsystem in 1971, major world currencieswere brought under floating exchangerate regimes.

In December 1971 the INR was linkedwith the GBP.

As major currencies including the GBPwere floating in the foreign exchangemarket , the RBI felt the need to peg theINR to a basket of currencies in order toensure the stability


5/10

Accordingly with effect from 25 september1975, the INR was pegged to a basket ofcurrencies

the currencies included in the basket and

their relative weights were kept confidentialin order to avoid speculation

It was understood that they were thecurrencies of indias major trading partners.

However the GBP continued to be theintervention currency of RBI


6/10

With widening inflation differential betweenindia and rest of the world, the Indian rupee wasdevaluated in July 1991

During 1992 RBI instituted a dual exchange rate

according to which 40% of export proceeds andimport remittances were to be purchased at theofficial exchange rate as determined by RBI , theremaining 60% of receipts and all paymentswere to take place at market exchange rate


7/10

As the spread between official exchangerate and market rate widened GOIdecided to converge the dual rates witheffect from 1 march 1993

The INR was allowed to float but withinthe framework of RBI

With this india had a managed float andthe RBI could intervene in the market bybuying and selling foreign exchange asneeded


8/10

Thus INR is determined by demand andsupply forces in the foreign exchange market

However RBI closely monitors exchange ratemovements and intervenes when needed

Exchange rate policy of RBI is to ensure thatexchange rate of INR moves in an orderly waywithout much volatility


9/10

On august 1993, foreign exchangetrading in india switched over fromindirect quote to direct quote, with USdollar as base currency

Following globalisation indian rupee hasshown a strong correlation with othercurrencies

Because of greater interdependence onfinancial market INR has significantlyinterrelated with other Asian currencies


10/10

The exchange rate of

rupee is largelydependant on cross rate

of currencies

Documents

Exchange Rate of Rupee1