TISS 2008 GDPI preparation- A Topic a Day !

[isha_raravis]

A very gud initiative i must say ... a great thread for everyone .... here is my contribution for what rupee appreciation actually means... Appreciating Rupee means that now the Dollar is now cheaper than what it used to be earlier (from $1~50 Rs, now to 40 Rs.), in other words you can buy more from the international market spending the same amount of Rupees. There are very direct effects of the appreciating Rupee in both national and international scenarios.To put it simply we must consider the whole situations through two points of view:------ Import and Export...Import: When you import (buy from foreign markets) goods, you have to pay in dollars. India's chief import is crude oil. Suppose a barrel of oil costs $100, as per earlier rates a company would have to pay aout 4800 rupees($1=48 Rs) to buy a barrel, now can buy the same for 4000 Rs ($1=40 Rs.). so oil companies are the biggest gainers from the appreciating rupee...According to an IOC official -“For every 1 Re appreciation the input cost of crude dips by 2%” They are now getting oil at reduced prices but selling them to the customers at old rates, hence increasing their profits.-----------Export: When you sell goods/services in foreign market you get payed in dollars. A lot of companies that have been asking the govt. and RBI for control of the appreciating rupee, are export driven companies like big IT cos. who export software solutions and provide out-sourcing services. There are many others too like garment exporters and even automotive companies. the scene here is that, supposing a BPO company charged $100 for its services, it would be getting payed an equavalent amount to Rs 4800 as per old exchange rates, but because of the appreciating rupee, it now gets payed Rs 4000, and as the market gets increasingly competative the company cannot increase the fee it charges the client to $120 to cover this loss, as it risks losing the client to some other company. Garment exporters are hit even stronger as they mostly survive on large dedicated orders and charging more to cover their losses can even result in cancellation of large orders and massive loss to a garment exporter.
ATTACHING A FILE... EVERY WORD WORTH NOTING... http://www.indiainfoline.com/content...preciation.pdf

[I Must]

Originally Posted by GeminiGal

1) Rupee appreciation basically means rupee getting more expensive vis-a-vis other currencies esp dollar.
2)In recent past we have see the rupee has appreciated from Rs 46 in July2006 to current Rs39.9. Usually a country's currency moving up is a sign of country well doing economy.

Boon:
1)It is a boon for those involved in imports. e.g India's chief import is crude oil. Say the cost of one barrel of oil costs 100$ (just for calculation purpose) so earlier with Rs 46=1US$ it would have costed us Rs.4600. But now since rupee is Rs. 39.9 , its costs us Rs.3990

2)One of the biggest beneficiaries of this rupee appreciation are borrowers from international banks. Due to appreciation of rupee, the amount to be repayed to them in terms of dollars is reduced.

Source:attached

Regards,
GeminiGal

Hi all,
I need a little clarification in the bolded part.

Borrowers will be benefitted in intrest rates also?Say 100$ is the intrest amount now he can pay only Rs.3990. Am i right? Or international banks will adjust the intrest rates based on rupee appreciation?

[isha_raravis]

Originally Posted by I Must

Hi all,
I need a little clarification in the bolded part.

Borrowers will be benefitted in intrest rates also?Say 100$ is the intrest amount now he can pay only Rs.3990. Am i right? Or international banks will adjust the intrest rates based on rupee appreciation?

One of the biggest beneficiaries of rising rupee stands out the borrowers who haveborrowed from international banks.The companies like Tata steel, Mcdowell toname a few for their take-over plans of Corus and Whyte & Mackay .As onDec.2006 the country has an external debt of $142.65 billion dollar so a 7%appreciation in dollar means the external debt is reduced to $132.66 billion(assuming no more borrowings are taken and no repayments made). This is againpositive for increasing Gross Deficit of the country.SOURCE - see attached file in the previous post

[isha_raravis]

Can someone please explain how the increase in ECB(to the extent of 20 million USD) has added to the dollar supply in the economy??? Kindly explain what ECB is before answering the ques... thanks in advance...

[surabhi1984]

The ECB is the central bank for Europe's single currency, the euro. The ECB’s main task is to maintain the euro's purchasing power and thus price stability in the euro area. The euro area comprises the 15 European Union countries that have introduced the euro since 1999.

[wanistar]

Hey frenz...Gr8 initiative!...Take me in too....I too ve got a call!

[isha_raravis]

Originally Posted by surabhi1984

The ECB is the central bank for Europe's single currency, the euro. The ECB’s main task is to maintain the euro's purchasing power and thus price stability in the euro area. The euro area comprises the 15 European Union countries that have introduced the euro since 1999.

thanks a lot ... bt i actually meant the external commercial borrowing... dint quite understand the concept... the european central bank has nothing to do with increased dollar supply in our economy ...

[surabhi1984]

External Commercial Borrowings (ECB) are defined to include

1. commercial bank loans,
2. buyer’s credit,
3. supplier’s credit,
4. securitised instruments such as floating rate notes, fixed rate bonds etc.,
5. credit from official export credit agencies,
6. commercial borrowings from the private sector window of multilateral financial institutions such as IFC, ADB, AFIC, CDC etc. and
7. Investment by Foreign Institutional Investors (FIIs) in dedicated debt funds

Applicants will be free to raise ECB from any internationally recognised source like banks, export credit agencies, suppliers of equipment, foreign collaborations, foreign equity - holders, international capital markets etc. Offers from unrecognised sources will not be entertained.

[isha_raravis]

Some excerpts from an article that featured in the economic times in december 2007- Swaminathan S Anklesaria Aiyar here questions the claims of job loss owing to the rupee appreciation that are being bandied about:Hundreds of columns have been written on the exchange rate policy of the Reserve Bank of India, and its decision to let the rupee appreciate sharply this spring. However, what was earlier a debate mainly between technocrats has suddenly assumed populist, alarmist tones.In Parliament, commerce minister Kamal Nath has said the appreciating rupee has hit labour-intensive exports such as textiles, leather goods and gems & jewellery, and that one to two million workers may have lost their jobs. Following up, industrialist and Rajya Sabha member Rahul Bajaj has written in this newspaper suggesting that 2.8 million people have lost their jobs.The numbers are so huge that, if they were anywhere near the truth, we would have a major human tragedy on our hands. In fact, we have only tall stories and data inflation aimed at scaring people rather than informing them.Gujarat is a major centre for exporting both textiles and gems. If indeed workers were being thrown out of work by a strong rupee, this would have been a huge election issue. In fact, it was a non-issue.ET correspondents have reported job losses running into thousands in Tiruppur. Clearly, there is some distress in some areas. But it is not an all-India calamity. There is a world of difference between losing a few thousand jobs and two million. Some job losses are inevitable, indeed desirable, in a market economy, and constitute transitional pains, not human disaster. Those who claim that a strong rupee is costing millions of jobs are talking through their hats. We need to shout this from the rooftops, since many media folk are falling for false propaganda on this score.Indeed, the notion that modest changes in the exchange rate can produce such huge swings in employment is obviously false. If a modest rise in the rupee can kill two million jobs, a corresponding fall in the rupee should create a similar number of jobs. Alas, that did not happen when India had big currency declines in the past. Nor will it happen if the rupee now falls by 13%.Export growth in April-September was 26.9% in dollar terms, and provisional data suggest 35.6% growth in October. Even allowing for rupee appreciation of 13%, this constitutes solid export growth. Exporters may be under somewhat more pressure than before, but are not throwing millions out of work. With an overall workforce of roughly 500 million, fluctuations of 1 million or roughly 0.2% are lost in the imprecision of most statistical systems. So even though the word `million' sounds like a lot, on an Indian scale, it isn't.------------------------------ c mon guys, pour in with ur contributions...this thread seems to be so inactive....follwing is the link where all the postive points of rupee appreciation have been briefed up pretty nicely(thanks to this thread, i seem to have become a pro in this topic)..........The other side of Rupee appreciation

[GeminiGal]

Originally Posted by I Must

Hi all,
I need a little clarification in the bolded part.

Borrowers will be benefitted in intrest rates also?Say 100$ is the intrest amount now he can pay only Rs.3990. Am i right? Or international banks will adjust the intrest rates based on rupee appreciation?

Hi,

Well let me try explaining. Lets say i take a loan from an international bank say 100$. That time wen i took the loan the rupee value was Rs 48. So wen those 100$ come to India it will be converted to Rs 4800. Now its the time to repay the loan....so wen i have to repay the loan...i will have to give back 100$ which according to current rate is Rs.3990. So i save Rs. 810.


Regards,
GeminiGal