11 July, 2022
8 Min Read
Recently, there has been a fall in the rupee’s exchange rate (nearing 80 to a US Dollar), as well as a fall in the forex reserves. The relationship between the forex reserve and rupee exchange rate is:
Rupee’s exchange rate:
[The basket of Indian imports includes crude oil, coal, plastic material, chemicals, electronic goods, vegetable oil, fertilizer, machinery, gold, pearls, precious and semi-precious stones, and iron and steel]
Relationship between Forex Reserves & Exchange Rate:
When the RBI buys the dollars, they become India’s forex reserve.
This exchange reduces the presence of dollars and increases the presence of the rupee in the forex market, thus holding back the rupee from becoming stronger against the dollar.
One of the key reasons why RBI intervenes in the forex market is to smoothen the volatility of the exchange rate.
Source: The Indian Express
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