how does rupee strengthen when the Reserve Bank of India
sells dollars in the market????
please i need an answer
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Answer Posted / venu
IN MONEY MARKET ONE OF THE DETERMINANT OF VALUE OF CURRENCY IS "SUPPLY AND DEMAND". WE ALL KNOW THAT WHEN DEMAND IS MORE ITS VALUE WILL GO HIGH, ON THE OTHER HAND IF SUPPLY IS MORE THAN DEMAND THEN ITS VALUE GOES DOWN.
THE SAME PRINCIPLE CAN APPLY IN THIS CASE. BY SELLING DOLLAR RBI PUMPS DOLLAR CURRENCY IN TO MARKET WHILE AT THE SAME TIME IT BUYS BACK RUPEE(BY SELLING DOLOR)THIS ACTIVITY CREATES MORE DEMAND FOR RUPEE.... BECAUSE OF THESE EFFECTS WE CAN OBSERVE CHANGES IN DOLLAR VS RUPEE VALUE....
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