How does Share Market influence the value of rupee?

[crazyboy]

A basic question...

How much value of Rupee depends on the share market??? and what's its importance is??

Thanks in Advance..
--Crazy

[mayurpathak]

Originally Posted by crazyboy

How much value of Rupee depends on the share market??? and what's its importance is??

--Crazy

Hi Crazyboy,

Here I'll try to answer your question, but I'm not sure if I'm completely right.
See, you cant say that value of Rupee completely depends upon the developments on the share market. Value of Rupee is more a function of "PPP" (purchase power parity), which means that at a given standard level of income, what quality of life can we lead.. (I'm talking about material quality). Simple example, a glass of Tea is Rs. 5 in India where as in US, we might have to pay about Rs. 80. Because the standard of living there is high.

Now PPP directly reflects the economic status and growth of the country. Another very strong indicator of our economic growth is "Stock Market". Only few months back, we were riding very high with an overvalued index. Indirectly, we had an overvalued Rupee. How? Since our stock market was soaring high, our econimic position was at its peak. (Remember, stock market is a function of FDis FIIs and Domestic investments). Hence dollor value had come down to as low as 1$=44.5 Rs. However as the correction came into force, now the dollor value is about Rs.46. That means, Rupee has devalued.. and the primary reason was the fluctuation in the stock market.

Although stock market is not the best indicator for calculating Rupee value. There are other stronger parameters such as PPP and Inflation.

I hope I answered your question.

FDI=Foreign Direct Investment.
FII=Foreign Institutional Investment.
PPP=Purchase Power Parity

[crazyboy]

Originally Posted by mayurpathak

(Remember, stock market is a function of FDis FIIs and Domestic investments). Hence dollor value had come down to as low as 1$=44.5 Rs. However as the correction came into force, now the dollor value is about Rs.46. That means, Rupee has devalued.. and the primary reason was the fluctuation in the stock market.

Although stock market is not the best indicator for calculating Rupee value. There are other stronger parameters such as PPP and Inflation.

I hope I answered your question.

FDI=Foreign Direct Investment.
FII=Foreign Institutional Investment.
PPP=Purchase Power Parity

Now a days value of rs. is 45.81 I gues.. Whatever it is.... My query is...

Why on daily basis value of Rs. is changing....
And why the dollaar is taken as bench mark why not YEN....

??

Thanks in advance..
--Crazy

[mayurpathak]

Hi Crazy,

you are right, if u want exact value of dollor today, its 46.04 Rs. currently and the median price is 45.79. (courtesy Bloomberg and Oanda)

Now your question is why only dollor to be taken as a bench mark and why not Yen? Well there is no specific answer to this. Normally benchmark, or what we also call reference on middling currencies are the ones who are fully convertible. That means they are valued in all parts of the world. When the world currencies were established, the convertibility was one of the major issues that was to be dealt. As this was done by Bank of America (today's name) and International Monetory fund (both in US) so they took dollor value as the reference. Dollor, at that moment was the only fully convertible currency. Now today we also have EURO, Pounds and Yen. But still dollor remains the reference. I can explain more on currency convertibility, but frankly speaking, I'll have to read about it first. I dont want to pass on half knowledge.

Wait for 1-2 days.
Cheers !!

[Sameer]

I guess value of rupee depends only on Demand and Supply factor meaning if the demand of rupee is high in world market then its value goes up and vice versa .

Eventually the factors which affect the demand and suppyly of ruppe will determine the value of rupee

[mayurpathak]

Sameer,

You are right. But it would not be correct to say that value of rupee depends only on the demand and supply. I guess it is a phenomenon which reflects the economic condition of any country. Why would the demand for rupee increase in the market? Possibly because more number of foreign companies are interested in investing in India. So as the transaction with India increases, more amount of money is involved in Rupee terms. So the demand for Rupee will rise. It again boils down to the economic growth of the country (whether actual or projected)

May be I'm wrong, as I said, I'm not a Finance expert.

Your views........ !