Why Indian Rupee is Falling Against US Dollar when the US Economy is in a Mess ?

I hope at least some of you would have been curious about this topic at some point of time. The whole world is screaming about US economies inefficiencies and evident deficiencies and yet our currency is falling further down against it. And to make the confusion worse we are one among the few markets touted to grow at a healthy rate of 6-7% in 2009 and hence we should have the better side of the bargain. We have a strong domestic demand and have immense potential of growth in all the industries considering the under penetrated market left in the country. So this question drove the researcher in me to analyze the situation and bring it down to the layman understanding.

I know it is a boring topic and will do utmost justice to make it look as interesting as possible. So initially i will put forward some of the basic factors affecting currency valuation

Balance of trade - the difference between the total import and export in the country,Demand for the Currency,Interest rates, Investments in stock markets, Interference from Central bank and Financial Authorities, Political Stability, Economic growth rate, Crude Oil prices etc.

S, o where are we going wrong to get our currency devalued, to analyse this we have to consider the various political and economic situations. The economic meltdown has led to fall in demand and consumption world over resulting in falling imports, exports and demand projections. To emphasize on the impact of meltdown consider the basic indicator of crude oil prices. The crude has fell from an all time high of 150 $ in mid 2008 to a drastic low of 35 $.

So lets come back to our main point, when the crude oil prices fell so much, the currency in which it has been traded world over has got an instant demand and hence the circulation of the currency has widened. Another reason can be that due to the economic meltdown a lot of institutional investors like banks and insurance companies from USA has withdrawn their investment from our stock markets approximately 9 $ billion against the inflow of 2 $ billion so this has led to a negative balance of fund influx. And due to the withdrawal of financial investments from the market the demand for our our currency has also reduced to a large extend.

Adding to the financial factor we have impending elections, brutal terrorist attack, a hostile neighbour and a falling stock indices has created a instable image in the world market. This is compared to the baston of hope and expectations which has risen under the brand name Obama in our comparative market. They have also influxed a total of +1 trillion into the economy as a bailout package which has created further currency circulation. This amount is almost equal to our annual GDP and can further affect our currency negatively.

As a conclusion i will pointout that a falling currency rate can be a boon in disguise because it will help the cause of our struggling exporters by making Indian products cheaper in the world market and hence attractive. The undervalued currency strategy has been followed by economies like japan and China to boost their trade over the years. So we don't have to fret about this at least and believe that everything is for our economies benefit.

tc.