Why there is a huge difference in INR and US dollar value? Can a common man reduce it?

Many a times when students join Vidyasagar Academy and ask for fees of different robotics courses and when it comes to the fee structure of the courses, they ask why there are fluctuations in course fees as compared to the previous years.

And the simple answer is that the course fees contain the price of the practical course kit material. The electronic components which Vidyasagar Academy uses are imported components and due to US Dollar value fluctuations in International marked the total course fees fluctuates.

Now students ask that how come this US Dollar value fluctuates? For that we thought to write this article for our students to understand exchange rate policies between two currencies. Please read on…

The Indian Rupee INR and the United States Dollar USD have great difference among their values due to a variety of economic and financial factors. The exchange rate between two currencies is determined by the foreign exchange market and it reflects the relative value of one currency in terms of another. So there are many different reasons for the differences in the values of INR and USD.

Supply and Demand

The most fundamental factor influencing exchange rates is the supply and demand for a particular currency in the foreign exchange market. If there is a high demand for USD compared to INR, the value of the USD will increase relative to the INR, and vice versa.

Economic Performance

The economic performance of a country plays a significant role in determining the strength of its currency. Strong and stable economies tend to have stronger currencies. The United States has one of the largest and most stable economies in the world, which contributes to the strength of the USD. On the other hand, India’s economy is also significant but may not be as robust as the U.S. economy.

Inflation Rates

Differentials in inflation rates between countries can affect exchange rates. A country with lower inflation rates typically sees an appreciation in the value of its currency. If inflation in India is higher than in the United States, it can put downward pressure on the INR relative to the USD.

Interest Rates

Interest rates set by central banks impact currency values. Higher interest rates can attract foreign capital, leading to an increase in demand for a country’s currency. If the U.S. Federal Reserve, for instance, raises interest rates, it can make the USD more attractive to investors.

Government and Central Bank Policies

Government and central bank policies, such as monetary and fiscal measures, can influence exchange rates. Interventions by central banks to stabilize or influence their currency’s value can also impact exchange rates.

Political Stability

Countries with political stability and low levels of risk are more likely to attract foreign investment, which can lead to a stronger currency.

Speculation

Traders and investors in the foreign exchange market often engage in speculative activities that can influence short-term fluctuations in exchange rates.

Trade Balance

A country’s trade balance, or the difference between its exports and imports, can have an impact on its currency. A trade surplus (more exports than imports) can lead to an appreciation of the currency, while a trade deficit (more imports than exports) can lead to depreciation.

Exchange rates are influenced by a complex interplay of these factors and more. It’s important to note that exchange rates can fluctuate frequently due to these variables, and they are influenced by market sentiment and global economic conditions. As a result, the exchange rate between INR and USD is subject to change over time.

Can a common man take some measures to reduce this difference?

While individuals cannot directly control or influence exchange rates, there are several measures they can take to mitigate the impact of currency value differences or to manage their finances effectively:

Diversify Investments

Diversifying your investment portfolio across different currencies or assets can help spread risk and minimize the impact of exchange rate fluctuations. Consider investing in assets denominated in various currencies, such as international stocks, bonds, or mutual funds.

Hedging

In some cases, you can use financial instruments like currency hedges or options to protect yourself from adverse exchange rate movements, especially if you have significant foreign currency exposure. Consult with a financial advisor to understand if hedging is appropriate for your situation.

Budget and Plan Wisely

If you are a frequent traveler or engage in international transactions, plan your expenses wisely to take advantage of favorable exchange rates. Timing your currency exchanges can make a difference.

Bank Services

When converting currency or transferring money internationally, compare the exchange rates and fees offered by different banks and currency exchange services. Some financial institutions may offer more favorable rates and lower fees than others.

Open a Multi-Currency Account

Some banks offer multi-currency accounts that allow you to hold and manage multiple currencies in a single account. This can be useful for international transactions and minimizing currency conversion costs.

Stay Informed

Keep yourself informed about the economic and political factors that influence exchange rates. This knowledge can help you make more informed decisions, especially when planning international travel or investments.

Use Currency Exchange Apps

Utilize currency exchange rate apps and websites to monitor exchange rates and track historical trends. These tools can help you make informed decisions regarding currency exchange or international transactions.

Limit Speculative Activities

Avoid engaging in speculative currency trading if you are not a seasoned investor or trader. Currency markets can be highly volatile, and inexperienced individuals can incur significant losses.

Consult a Financial Advisor

If you have complex financial needs involving foreign currencies or significant currency exposure, it may be beneficial to seek advice from a financial advisor or currency specialist who can provide tailored guidance.

Finally I would say that the exchange rates are influenced by a complex interplay of global economic factors and predicting their movements with precision is challenging. As a common individual, your goal should be to manage the risks associated with exchange rate fluctuations rather than trying to directly control them. Taking the measures mentioned above can help you navigate the impact of currency value differences on your financial situation more effectively.

Global Websites

If you’re looking for more in-depth information on exchange rates, currency markets, and related topics, you can explore the following reputable websites and online resources.

Investopedia (www.investopedia.com): Investopedia provides a wide range of articles, tutorials, and resources on currency exchange, forex markets, and related financial topics.

XE.com (www.xe.com): XE is a popular currency conversion and exchange rate tracking website. It offers real-time exchange rate information, currency news, and currency conversion tools.

OANDA (www.oanda.com): OANDA is a forex and CFD broker, but they also provide valuable resources, including a currency converter, exchange rate data, and forex analysis.

The Balance (www.thebalance.com): The Balance offers articles on personal finance, including sections on currency and forex markets.

Forexlive (www.forexlive.com): Forexlive is a source for up-to-the-minute forex news, analysis, and live forex market commentary.

Bloomberg (www.bloomberg.com): Bloomberg covers a wide range of financial and economic news, including updates on exchange rates, currency markets, and international finance.

Financial Times (www.ft.com): The Financial Times provides in-depth coverage of international finance, currency markets, and global economic news.

Currency News (www.currencynews.co.uk): Currency News offers news and insights on the foreign exchange market, currency trends, and economic events impacting exchange rates.

Central Banks’ Websites: For more official and detailed information on currency policies, you can visit the websites of central banks, such as the U.S. Federal Reserve (www.federalreserve.gov) or the Reserve Bank of India (www.rbi.org.in).

Academic Journals and Research: If you want scholarly research on the topic, you can access academic journals and research papers on platforms like Google Scholar or your local university’s library resources.

Indian Websites

If you’re specifically looking for Indian websites that provide information on the comparison between the Indian Rupee (INR) and the United States Dollar (USD), you may find the following sources useful.

Reserve Bank of India (RBI) (www.rbi.org.in): The official website of the Reserve Bank of India provides a wealth of information on currency exchange rates, including historical data and official exchange rates.

MoneyControl (www.moneycontrol.com): Money Control is a popular financial news and information website in India. It offers currency exchange rate data and financial news related to the INR and USD.

The Economic Times (economictimes.indiatimes.com): The Economic Times covers economic and financial news, including exchange rates and currency market updates.

Business Standard (www.business-standard.com): Business Standard is a financial and business news website in India that provides currency exchange rate information and financial news.

LiveMint (www.livemint.com): LiveMint, a subsidiary of The Wall Street Journal, covers business, finance, and economics and often includes articles on currency markets and exchange rates.

ICICI Bank (www.icicibank.com): Many Indian banks, including ICICI Bank, provide currency exchange rate information and services for customers looking to convert INR to USD or vice versa.

HDFC Bank (www.hdfcbank.com): HDFC Bank’s website offers currency exchange rate information and services for customers dealing with currency conversion.

SBI – State Bank of India (www.sbi.co.in): The official website of the State Bank of India provides information on currency exchange rates, especially if you’re an SBI customer.

The exchange rate information on these websites may vary slightly based on the source and the specific services offered. Always double-check exchange rates with official sources or financial institutions if you are planning financial transactions or investments involving currency exchange.