Rupee vs Dollar

How can dollar determine the strength of Indian rupee?? This had been a question which ponder's me whenever i look into the newspaper reading that rupee slide down by 0.x/p against a dollar...

There had been some frequent case ,which has compelled me to think that is it really about the dolllar that determines the strength of rupee or there some more factors as well .No doubt the dollar has become the standard parameter to measure the strength of once own currency and economy but the question which now arises is that why not the Indian rupee be used as  such parameter .Although it is quite early to say that Indian economy or currency can be a standard measure of strength of a nations economy but here are some of the facts that determine the avg condition of rupee

In the current situation What could India’s business people possibly do where  the rupee is depreciating against the dollar  ,Perhaps one solution to counter with the downside would be is to increase trade with Europe USA Euro zone and others ,this could possibly bring relief in export import sector but one must see these econimis zones are doing no better these days .

 INR is still not fully convertible and also global trade can not be done with INR. USD, Euro and JPY , UKP are the standard currencies. Bulk of the international trade is being done with USD. ....thus giving a +1 to dollar 

One of the first major hits that the economy takes when rupee tumbles is the rise in cost of imports.
India imports 70% of its crude oil and a falling rupee means that the government will have to pay more.Although oil and petroleum prices are controlled, as unfortunately the end consumer bear the burderened  of this increase costs.

Some Negatives of Falling Rupee is that We know that higher fuel prices can spiral into  increase in inflation as industries across the board take a hit. This dreadful cycle of higher costs for crude oil resulting in losses for government units and higher fuel costs for industries and the end consumer is a challenging situation for the Indian economy. The falling  rupee also hits companies which rely heavily on foreign currency outflows to keep business operations running. Take for example the airline industry. For airlines that service 
international routes – International airport fees, lease of airplanes, salaries of expat pilots, jet fuel prices and many more relatively fixed costs are dollar driven. Such outflows in dollar terms become costlier when realized when local currency falls.

A further hit in demand for foreign travel is taken as the common man is likely to cancel outbound overseas trips during these times. Flights, hotel stays and every other service in foreign countries becomes more expensive as the purchasing power of rupee falls.

Even domestic airlines scramble to keep fuel and airline lease costs under tab by implementing measures like avoiding flying at high altitudes, sourcing cheaper on-flight meals, hire local pilots and taxing 
aircrafts with one engine only.

A falling rupee is also bad for the share market as the negative trend not only portrays a grim picture from a pure number crunching approach but also weighs in on investor sentiment. Foreign Institutional Investors (FII) may suddenly go on sell mode if fear of future losses outweighs likelihood of gain.On the upside, times 
like these are excellent buying opportunities. The stock market is currently trading in the vicinity of 4 month lows and blue chip stocks are bottoming out.There could be an enormous gain potential for such stocks in the long run. Investors who have made their millions from the share markets wait month after 
month for opportunities like these to buy-in at lower prices and sell when markets rebound.

There are some Positives  of Falling Rupee In the midst of this chaos as the rupee tumbles, industries with dollar dominated revenues may in fact benefit from the depreciation of local currency. A prime example 
is the Indian IT sector which relies heavily on overseas revenue.As a majority of revenue comes from overseas markets, companies like Wipro, Infosys, TCS, etc may witness higher realization of their dollar dominated revenue. However with low global demand and weaker growth forecasts, the full potential of the upside of rupee depreciation for the IT sector is yet to be seen.Sectors like domestic travel 
could witness a boost as travellers will prefer to stay away from foreign destinations where they will get a subdued bang for their buck for the time being. Even Indian expats  living and working abroad benefit from rupee depreciation. If they are paid in dollars, the realization potential of their salary in rupee spikes.
The rupee has lost about 22% since the beginning of 2012 and more than 11% since February this year.Certain analyst camps blame the downfall on global concerns while other claim domestic woes are fuelling the drop. The government and mainly the RBI will need to intervene and clamp down on the sliding rupee to add stability to already volatile markets.The poor performance of rupee is a drag on the Indian economy however there are definitely certain upsides to a falling currency which represent gain opportunities if investment decisions are taken at the right time.

Although keeping an Optimistic view I am not sure about what will happen to rupee in next 6 – 12 months, but I can tell you will confidence that Indian rupee is only going to get stronger in longer term (5 – 10 yrs timeframe), which is based on the fact that Indian economy is going to grow much stronger than any other economy of the world (except China).