With 180 currencies around the globe, it is no surprise that the value of currency of every country never remains static. When pegged with other currencies, the value of money changes every moment. However, the US dollar is the strongest currency in the world, according to the International Monetary Fund (Source: International Monetary Fund). To explain fluctuations in rupee value in comparison to the US dollar, we have to examine the economic conditions and policies affecting the value of a currency. These could range from interest rates, growth rate, inflation, geopolitical conditions or employment rates.
The rate at which one currency is exchanged for another is considered the exchange rate between two currencies and is known as the foreign exchange rate. As stated earlier, it is influenced by several factors like political stability, supply and demand of currencies, inflation, economic performance, capital flows, interest rate differentials, etc. As these factors are volatile, the value of currencies keeps fluctuating.
Earlier, the Indian Rupee was pegged to a basket of currencies, dominated by USD. In 1993, his changed from a fixed exchange rate system to a market-based floating exchange rate system. The liberalization measures adopted then, resulted in a rise in the volatility of the Indian Rupee. To remain stable in the foreign exchange market, the Reserve Bank of India adjusts domestic liquidity through bank rate, cash reserve ratio, repo rate, and the sale & purchase of currency.
A floating exchange rate and a fixed exchange rate are the two ways that currency prices for any economy can be determined. The floating exchange rate is determined by the supply and demand in the forex market as practiced by most advanced economies that allow their currencies to freely float in the market. The fixed exchange rate on the other hand is predominantly determined by the governments of countries like China.
There are some key reasons behind the Indian Rupee fluctuation:
The Indian rupee has been weakening against the dollar almost consistently. A weak currency impacts the economy in various ways:
A depreciated Indian rupee has a positive impact on inward remittance. Be it USD, AUD, CAD, British Pound or any other currency, remitters get better value in terms of the rupee. For instance, if you had sent $1000 when the USD to Indian Rupee rate was 68, your family would have received 68000 Rupees. Now, if you send the same $1000 when the USD to Indian Rupee is 72, your family will receive 72000 Rupees. Put simply, it would be the ideal time to convert your dollars into rupees.
With $79 Billion, India was the top recipient of remittances in 2018! By the sheer magnitude of the industry alone, the Remittance industry of India attracts many players making it one of the most competitive markets in the world. Be sure to look out for deals and coupons offered by different money transfer when you send money online.
This depends on your priority. Do you need to send money for an emergency? Or are you looking for the best exchange rates and can wait for a few days for your money to reach India? Firstly, regardless of your priority, make sure you compare the top money transfer companies on CompareRemit side-by-side. Secondly, make a selection after taking into account the exchange rate, transfer fees and the time taken to remit using filters like “Fastest” or “Best Rate.” And finally, pick the best deal that suits your needs.
We have compared TransferWise and Xoom using CompareRemit below. Please note that the data is for sending $1000 from the US to India as on 6th of September, 2019.
As you can see, TransferWise offers a higher exchange rate at ₹71.69 for $1 but takes 2 days of transfer time. Whereas, Xoom can move your money within 4 hours but offers a lower exchange rate at ₹70.82 for $1.
In this example, if your recipient needs the money urgently, use Xoom. If you can wait 2 days and want a higher exchange rate, use TransferWise. Currency movement has a wide-ranging impact on the economy. Investors and remitters of funds who are exposed to it should monitor their movement to make the most of the fluctuations.
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