Forex stands for foreign exchange. This is called foreign exchange in Tamil. To put it simply, Forex is the money held by other countries in one country. Forex is foreign currency like dollar held by India for example. Forex reserves act as a safety net for India in case of economic slowdown.
Forex balance can be calculated by 3 different components. The first is Foreign Currency Assets FCA. Foreign currency assets are investments in the securities of a foreign country. India holds two-thirds of its foreign currency assets in US bonds. 2nd Gold. The third is the Special Drawing Rights received from the International Monetary Fund (IMF).
64 percent of the world’s banks’ forex is dollar-denominated. The Euro is next at 19.9 percent globally. As 85 percent of global trade takes place in dollars, the dollar is vital in international trade.
How did the dollar become such a powerful currency in the world?
During World War II, the United States played a major role in supplying weapons to the Allies. As various countries had their own currencies, they offered gold to the US in exchange for arms. Thus at the end of World War II, the majority of the world’s gold came into the possession of the United States. It also became impossible for the nations of the world to regain their gold reserves. To find a solution to this problem without affecting any country, in 1944, 44 countries met in the New Hampshire area of the United States to discuss. This conference was called Bretton woods conference. It was at the end of this conference that the World Bank and the International Monetary Fund were formed
Read more | A record fall in the value of the Indian Rupee against the US Dollar
At this conference, it was decided that trade would no longer be dependent on gold, but on the United States. So it was decided to trade in dollars and the rate of conversion of each country’s currency to dollars was also decided. Similarly, at $35 per ounce, gold was converted into dollars. Thus the US was responsible for keeping the dollar price stable against gold. After this, instead of gold reserves, other countries accumulated US dollars in their reserves. Thus the US dollar was officially crowned as the international currency. Japan and the European countries worked hard to rebuild their economies after World War II. This resulted in higher demand for US goods and the dollar. In the 1960s, exports from European countries and Japan began to compete with US exports. As the U.S. share of world output fell, so did demand for the dollar. Following this, instead of converting gold into dollars, the countries of the world started converting dollars into gold. Eventually, the US held more dollars than gold. Following this, in 1971, the then US President Richard Nixon banned foreign countries from converting their dollars into gold. This embargo ended the Bretton Woods Conference Resolutions. After this, the US dollar has been the international currency even when there have been economic recessions such as inflation and unemployment in various periods.
Why is the Indian rupee depreciating now?
There are various reasons for this decline. The US Federal Reserve has recently raised interest rates to control inflation in the United States, which has risen to a level that has not been seen in many years. As a result, foreign investments in India are leaving.
Similarly our Reserve Bank also increased the repo interest rate which is the reason for the decline of the Indian rupee. Months of war between Ukraine and Russia have sent crude oil prices to record highs. Due to the fluctuations in oil prices in the international market, the value of the Indian rupee has fallen. Because India imports 80 percent of its oil needs. As a result, the Indian rupee depreciates due to this shortage in the context of decreasing exports and increasing imports.
Various reasons can be given like this.
What will happen to us if the value of the Indian rupee falls?
Currently, the Indian rupee is worth 82 rupees to one US dollar. Thus, we have to pay a higher price to buy a product from abroad. Similarly, when we export to countries including America, we do not get enough price. Depreciation of Indian Rupee will make our goods cheaper.
Read more | Indian rupee at record low: What does finance ministry say?
Unbiased, uncompromising news in the palms of your hands!
Follow us on social media to stay up to date with news and share your views.
@ZEETamilNews on Facebook, Twitter @ZeeTamilNews And like the page https://t.me/ZeeTamilNews on Telegram.
Download Zee Tamil News app now to get all kinds of news in Tamil like Education, Entertainment, Politics, Sports, Health, Lifestyle, Social, Employment!!
Android Link: https://bit.ly/3AIMb22
Apple Link: https://apple.co/3yEataJ