[Explained] How does a falling rupee impacts finances in terms of household expenses and foreign stock investments

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When the rupee weakens against the US dollar you have to shell out more rupees to buy dollar-linked goods and services

When the rupee weakens against the US dollar, you have to shell out more rupees to buy dollar-linked goods and services.

The Indian rupee is trending weak against the US dollar. It hit a new all-time low of 77.50 against the dollar on Monday. Experts believe the rupee may breach 78 by May-end given the ongoing macroeconomic situation. The factors contributing to the rupee’s fall include continuous sell-off in Indian stocks by foreign investors, higher crude prices, and rising domestic inflation. With the beginning of the interest rate tightening cycle, inflation will only rise further, which may depreciate the value of the Indian currency further.

When the rupee weakens against the US dollar, you have to shell out more rupees to buy dollar-linked goods and services. In other words, the dollar becomes expensive for Indians. This would translate into more rupee spending to buy imported goods and services.

What Does It Mean For A Common Man?

The Indian rupee falling against the US dollar may appear only to be a macroeconomic issue. Digging a bit deeper, you would realise that it affects every Indian in several ways. Let’s understand the likely consequences of a weak rupee on your wallet.

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Higher Household Expenses

Prices of fuel – diesel, petrol, and cooking gas – which are already high, will inch up further as India heavily depends on crude oil imports. With rising transport costs, there will be an indirect impact on the daily household items you consume. Their costs will go up because production and transportation costs linked to oil will increase. Electronics are also set to be expensive. Devices like mobile phones, laptops, TV and solar plates, among other household electrical goods, will cost you more since several components of such devices are imported.

Education Abroad

With the depleting value of the rupee, education in foreign countries will turn dearer. Students studying outside or planning to go out for higher education would have to pay in dollars. With a higher exchange rate, they would have to shell out more rupees to buy the same dollars. This may call for a re-look at their budgets. If you opt for an education loan, your loan will increase in rupee terms and so will be your equated monthly instalments (EMIs).

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Foreign Travel

If you have plans to travel abroad this summer, it would be a costlier affair this time around and may exceed your planned budget. For instance, if you had the plan to spend $10,000 when the Indian rupee was at 75 against the US dollar, you had to pay Rs 7.5 lakh. But now, with the rupee losing its value to 78, you will have to spend Rs 30,000 more to have the same amount of dollars in your pocket.

Remittances

The value of the remittances which Indians get from abroad will rise. This means families whose relatives send money from abroad will get more money in hand in rupee terms.

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Foreign Stock Investments

If you have your existing investments in US stocks, you will benefit from the fall in the Indian rupee’s value. For instance, if you have 100 shares of company ‘A’ bought at $10 when the rupee-dollar exchange rate was 70. This means you invested Rs 700 in each share, and your total investment cost in the Indian rupee term is Rs 70,000 ($1000). Let’s assume the stock price is now $15. Your total value in the US dollar term is $1500. In the rupee term, assuming that the exchange rate is still at 70, your total value of the investment would be Rs 1,05,000. However, since the exchange rate currently is at 77, you will get Rs 1,15,500 – an extra Rs 10,500. However, if you are planning fresh investments in US stocks at the current juncture, your value cost will be higher in rupee terms.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.timesnownews.com.)



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