Ask Me Help Desk - Why is Indian Rupee depreciating?

Quote:

Originally Posted by Kahani Punjab

I have the following questions –
1. Why is the Indian rupee depreciating against dollar?
2. What is Euro crisis and what are the reasons behind it?
3. USA economy is on the wane while that of China is on the rise. Is it fact? While USA is suffering liabilities to the tune of 18 billion dollars, china has around 5 billion dollars of surplus capital. Is it a truth?

The value of various currencies move relative to the balance of trade between countries and the level of soveriegn risk. India may be exposed to a number of influences such as availability of raw materials, fuel and food and the level of international borrowing as well as diminishing markets for their exports

The Euro crisis is a problem of countries overextending their borrowings and using those funds for short term purposes. The Euro crisis was triggered by the global financial crisis which arose in the US as a result of the collapse of the market for mortgage backed securities. These securities had been sold throughout the world. The impacts have therefore been felt in various countries in contraction of credit and trade. Greece is a particular case of serious fiscal mismanagement

The US economy is in recession, that recession has also affected China since a strong market for their exports exists in the US. The US is a nation that has overextended its borrowings but not to the same extent as Europe. China has had a positive trade balance with the rest of the world for some time and has built up currency reserves. That money must go somewhere and China has invested this money in various places including the US. Much of the US problem is structural since it has outsourced manufacturing to third world countries such as China. Therefore the US and China sink or swim together.

Recession is a period of negative economic growth typified by fall in demand, unemployment and restrictions in the availability of credit. The GFC meant that building activity, a mainstay of internal economic activity, has fallen to very low levels in the US and has an impact on other industries, whilst investment failures wiped out the savings of a large number of people restricting the availability of credit. All nations experience recession on a cyclical basis.