InvestorQ : How do importers and exporters impact the value of the rupee?
prachi Patwardhan made post

How do importers and exporters impact the value of the rupee?

4 years ago

Normally, importers and foreign currency borrowers have seasonal dollar requirements for payouts to foreign parties. For borrowers, there is the interest component on the bonds and the redemption of these bonds when they become due. In case of importers, there are regular remittances that have to be made against goods imported. Normally, when demand for dollars tends to get bunched together, we see pressure on the INR and a weakening of the rupee. Normally, the demand for dollars also tends to shoot up when the currency markets become very volatile. At that time, importers and banks tend to rush to hedge their positions and this demand tends to push up the forward premiums and leads to a depreciation of the INR.

Exporters also play an important role here. Normally, exporters earn in dollars and when they see the rupee depreciating they delay their decision to bring in their dollars so that they can get more rupees per dollar. This also adds to the pressure on the rupee as dollar supply gets constrained in the markets. That is why the RBI puts limits on how much currency exports can hold abroad and how much needs to be repatriated back to India.