Words: 730
Examine any foreign currency of your choice (preferably one from an emerging market), and provide an analysis of that currency against the U. S. Dollar over the 5-year period ending with 2010. To complete this assignment, examine an exchange-traded fund (IETF) for that currency, perform any additional research you need to do in order to understand the topic, and then write a 750-word paper that summarizes the results of your macroeconomic analysis. In our paper, we will choose Indian Rupee (INNER) as a foreign currency of our choice of discussion.
According to the requirement of the topic, first of al, we will try to project the trend of movement of Indian Rupee against US Dollar (US$) for the time period of 2005 – 2010 in figure: 1 below: Figure: 1 From figure: 1, it is evident that within the time period of 5 years (2005 – 201 0), the Indian Rupee hovered in the range between 44 (approximately) to 46 against the US Dollar displaying its maximum appreciation in value in the first quarter of 2008 when the CSS economy was suffering from its worst phase of recession triggered by the ‘bubble -? bust’ in the housing sector due to sub -? prime crisis.
However, the first two quarters of 2009 observed the steady appreciation of US Dollar against Indian Rupee again followed by gradual declines and finally stabilizing around the nominal exchange rate of 1 US Dollar = 46 Indian Rupees by the end of 2010. Hence it is evident that within the time span of 5 years (2005 – 201 0), the Indian Rupee depreciated by approximately 4. 5 percent against the CSS Dollar although the Indian economy fared quite well compared to the US and major European economies in terms of economic growth in the era of severe global recession.
This apparent contradiction may be defined primarily by the reason that the then Indian government failed to implement some key reforms which were strongly advocated by the World Bank, MIFF and other major financial institutions of the West. In any case, this trend of continual depreciation of Indian currency continued (against the US Dollar and other major hard currencies like Euro, British Pound etc. ) and by the end of the second quarter of 2014, the nominal exchange rate between US Dollar and Indian Rupee stood at 61 (approximately).
Thus if we take into account the mime span of 9 years or so, we will be amazed to find out that the Indian Rupee depreciated by 39 percent (approximately) exhibiting the worst – ever freely of Indian currency against the US Dollar. The reasons for this abysmal and deplorable downfall of the value of Indian Rupee were many – however, the two major reasons were: 1. The almost, if not complete, policy – paralysis of the erstwhile Indian government – both in terms of governance and policy implementation and reform measures, and 2.
Sluggish growth rates of the core industrial sectors of Indian economy accompanied by rampant irruption and reports of scams where a number of high – profile politicians from the ruling parties got involved thereby tarnishing the image Of Indian socio – political system in an extremely grave manner. Although the freely of the Indian currency has been somewhat arrested after the change of government took place in the General Elections, 2014, but still a significant recovery of value of Indian Rupee is a distant dream especially when take into view the four – and – half years’ accumulated depreciation in the region of 38 39 percent.
One of the major economic theories proposes that a appreciation in the value of home currency (herein referred to as Indian Rupee) helps to boost the gross exports demand of the home country (herein find out that within the time span of 9 years (approximately) from 2005 – 2014, the gross exports of Indian economy has increased from 8 billion US Dollars to 29 billion US Dollars – an approximate increase of 2. 6 times related to a depreciation of 39 percent in the value of Indian Rupee.
This incident is an eye – opener to everybody in the sense that it gives us a clear picture of the Indian stock market where more and more investors are preferring Debts’ (most preferably Gold) compared to company related equities as the previous financial instrument yields steadier and better returns compared to the latter one. References: http://www. Tragicomedies. Com/India/currency http://WV. Tragicomedies. Com/India/exports