{"id":20,"date":"2021-03-10T11:58:55","date_gmt":"2021-03-10T11:58:55","guid":{"rendered":"https:\/\/blog.paymeindia.in\/?p=20"},"modified":"2023-09-25T06:18:39","modified_gmt":"2023-09-25T06:18:39","slug":"how-is-the-value-of-the-rupee-decided-with-respect-to-the-dollar","status":"publish","type":"post","link":"https:\/\/www.paymeindia.in\/blog\/how-is-the-value-of-the-rupee-decided-with-respect-to-the-dollar\/","title":{"rendered":"How is the value of the rupee decided with respect to the dollar?"},"content":{"rendered":"\r\n

Once upon a time, there were three countries. A, B and C.<\/strong><\/p>\r\n\r\n\r\n\r\n

When they established they were all self-sufficient. They all were producing rice, vegetables, bricks, and clothes required for all their inhabitants. Everything was going great.<\/p>\r\n\r\n\r\n\r\n

Now,\u00a0Country C<\/strong>\u00a0found a new, faster way to make bricks. Thus, they started producing faster than the villagers there could buy. So, they thought they could sell some of them to\u00a0Country B<\/strong>\u00a0as it was going through a rainy season. In return for the bricks,\u00a0Country B<\/strong>\u00a0thankfully gave some extra rice.\u00a0Country C<\/strong>\u00a0was willing to offer only one extra brick for every 10 bags of rice they will receive from\u00a0Country B.<\/strong><\/p>\r\n\r\n\r\n\r\n

Meanwhile,\u00a0Country A<\/strong>\u00a0was going through a drought season went to\u00a0Country C<\/strong>\u00a0for help so that they can receive bags of rice from them, in return for rice\u00a0Country A<\/strong>\u00a0offered the large pile of clothes to\u00a0Country C<\/strong>.<\/p>\r\n\r\n\r\n\r\n

The exchange process became complex and\u00a0Country C<\/strong>\u00a0decided to set a common thing (Currency) for exchange.\u00a0Country C<\/strong>\u00a0sets 1 brick equals 1\u00a0Currency C<\/strong>. Thus,\u00a0Country A and B<\/strong>\u00a0need to get\u00a0Currency C<\/strong>\u00a0to buy stuff from C.<\/p>\r\n\r\n\r\n\r\n

Not to be left behind,\u00a0Country A and B<\/strong>\u00a0gave the names to their currencies and Currency A and Currency B.<\/p>\r\n\r\n\r\n\r\n

1 Currency A is set as 10 pairs of clothes
1 Currency B is set as 10 bags of rice.<\/strong><\/p>\r\n\r\n\r\n\r\n

These currencies then used among the villagers to buy and sell stuff among themselves. At the current rate:<\/p>\r\n\r\n\r\n\r\n

1 Currency A = 1 Currency B = 1 Currency C \u2014 Equation 1.<\/strong><\/p>\r\n\r\n\r\n\r\n

It\u2019s party time for\u00a0Country C<\/strong>\u00a0guys as they are getting a lot of, clothes and rice without working much. So,\u00a0Country A and B<\/strong>\u00a0guys keep working hard,\u00a0Country C<\/strong>\u00a0guys start relaxing more.<\/p>\r\n\r\n\r\n\r\n

The drought in A ends and they start producing a lot of rice. Now, they are not in that need for the rice from C and have a less need for\u00a0Currency C<\/strong>. As rice is required less,\u00a0Country A<\/strong>\u00a0guys are willing to offer only 5 clothes for every 10 bags of rice. By previous equations, now\u00a01 Currency A (10 clothes) = 20 bags of rice = 2 Currency C.<\/strong><\/p>\r\n\r\n\r\n\r\n

In the meanwhile,\u00a0Country B<\/strong>\u00a0has adopted a part of the brick building process and have started producing enough bricks. They are now less willing to buy bricks from C. They now set\u00a01 Currency B(10 bags of rice) = 3 bricks = 3 Currency C.<\/strong><\/p>\r\n\r\n\r\n\r\n

This leaves the Country C with no options but to devalue their currency to accept the reality that\u00a01 Currency C = 0.5 Currency A = 0.33 Currency B<\/strong>.<\/p>\r\n\r\n\r\n\r\n

This spurs the local farmers and weavers who can no longer buy rice and clothes from outside and start getting back to work again.<\/p>\r\n\r\n\r\n\r\n

Today 1 US Dollar = 70.72 Rs.<\/strong>\u00a0| You can now imagine the journey. Why? because India is a net importer and we produce less and import more.<\/p>\r\n\r\n\r\n\r\n

Have you ever encountered what India actually imports and exports majorly?<\/p>\r\n\r\n\r\n\r\n

India\u2019s Major Imports:<\/strong><\/p>\r\n\r\n\r\n\r\n