Finance Made Easy: How Appreciation/Depreciation of the Rupee Hurts/Helps Capital Advisor (and Exporters and Importers In General)?

by Vinaya HS

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Finance Made Easy is my new initiative for helping you understand in really simple terms all that economic jargon you read about daily in the media. If there’s some jargon that you’d like me to explain simply drop a comment and I’ll address it in a future post in this series.

USD_INR_Chart

Suppose, on Capital Advisor, I place (i.e. sell) a sponsored ad at a going rate of USD 100 (I wish!) per month. In a sense, I’d qualify as an exporter because I’m offering some kind of service (ad space) to a foreign entity.

To begin with, if on November 01, 2011, the USD to INR currency exchange rate was 1:50, then I’d receive USD 100 x INR 50 per USD = INR 5,000.

But if, on December 01, 2011, the Rupee has appreciated (less INR for the same USD) to 1:45, then I’d receive USD 100 x INR 45 per USD = INR 4,500. I doubt if I’d appreciate that one bit!

But if, on December 01, 2011, the Rupee has depreciated (more INR for the same USD) to 1:55, then I’d receive USD 100 x INR 55 per USD = INR 5,500. I really would appreciate that!

But what if I were to be an importer?

Suppose, I place (i.e. buy) a sponsored ad for Capital Advisor on another leading personal finance website at a going rate of USD 100 (I wish!) per month. In a sense, I’d qualify as an importer because I’m buying some kind of service (ad space) from a foreign entity.

To begin with, if on November 01, 2011, the USD to INR currency exchange rate was 1:50, then I’d pay USD 100 x INR 50 per USD = INR 5,000.

But if, on December 01, 2011, the Rupee has appreciated (less INR for the same USD) to 1:45, then I’d pay USD 100 x INR 45 per USD = INR 4,500. I really would appreciate that!

But if, on December 01, 2011, the Rupee has depreciated (more INR for the same USD) to 1:55, then I’d pay USD 100 x INR 55 per USD = INR 5,500. I doubt if I’d appreciate that one bit!

Noticed the difference?

That’s why Exporters love Depreciation of the Rupee but hate its Appreciation.

That’s why Importers hate Depreciation of the Rupee but love its Appreciation.

Was the explanation helpful?

But in mainstream media, you’d read something along the lines of:

Price of crude in the international market has gone up from USD 109.65 to USD 111.50 per barrel. On the other hand, the rupee has depreciated from 49.02 to 50.61 against the dollar.