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The Indian Rupee Fell to a Historic Low

EconEye Admin

India’s currency fell to a historic low of 88.62 rupees per U.S. dollar on September 23 as higher U.S. visa fees hurt India’s IT sector and prompted foreigners to sell Indian stocks. Additionally, the United States imposed tariffs of up to 50% on Indian goods.—khaleejtimes.com

 

Answer the following questions to check your understanding of the story.

What is the effect of American investors selling Indian stocks on the market for Indian rupees?

Wrong! - When Americans sell Indian stocks, they receive rupees in payment. How do they use the proceeds to buy U.S. dollars?

Good Job! - When Americans sell Indian stocks, they receive rupees in payment, which they supply in the foreign exchange market and use to buy U.S. dollars. The rupee depreciates.

What are the effects of U.S. tariffs of up to 50% on Indian exports and on the market for Indian rupees?

Wrong! - U.S. tariffs on Indian exports make Indian goods more expensive in the United States. Do U.S. consumers buy more Indian exports? Does the demand for Indian rupees increase?  Does the supply of Indian rupees change?

Well Done! - U.S. tariffs on Indian exports make Indian goods more expensive in the United States, so U.S. consumers buy fewer Indian exports and the demand for rupees decreases.

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