A Study of Determinants of Indian Rupee Valuation against US Dollar
The value of the Indian Rupee (INR) is generally affected by demand and supply economics. India’s demand for oil and gold creates a demand for US dollars to settle the payments, as these payments need to be settled in hardcore currency. Along with this, any Indian firm’s investment outside the country also creates the demand for US Dollars for paying for the investment. On the other hand, the export of Indian goods and services, foreign direct investments (FDIs) by companies in Indian companies and subsidiaries, and the investment by foreigners in Indian stock and bond markets typically create the supply of US Dollars. Whenever the demand of INR exceeds the supply of INR, the currency appreciates and vice versa. The present paper is an effort to understand the major determinants of Indian rupee valuation conceptually. Inputs given in the paper are based on many previous studies on the same.