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  • Category: Miscellaneous

    Is Country GDP directly proportional to value of currency in global market?

    As I am not a good economist or I haven't taken any doctrate in Economic studies but I want to pose this question to Indian Study channel folks that Indian Currency value day by day decreasing in International market but how can it's Gross Domestic Product rate increases. Do you think there is no relation between increasing GDP and decreasing currency value of a country. Is GDP not directly proportional to the currency value of a country? Knowledgeable members please respond to this question
  • #577688
    I also have only a vague idea about the subject matter. However, I am sharing herewith, whatever, I understand -
    1. When a country has more debts and more deficit, then its currency weakens.
    2. When inflation increases, then the currency weakens.
    3. When GDP grows, then the currency strengthens. GDP is the market value of all goods and services produced in the country. Crudely put, it indicates productivity. An increase in productivity results in inflation falling down.
    4. Political instability results in weakening of currency.
    5. If exports are less and imports are more, then currency weakens.
    6. In case the capital outflow is more i.e. investment is more in the foreign countries, then the currency weakens.
    7. When the country attracts more investments from the foreign countries due to a conducive environment, then the currency strengthens.

    Let us encourage each other in sharing knowledge.

  • #577694
    What I feel that a country prosperity and wealth is always judged by the gold reserve it has and that will determine the currency standing in the market. Moreover those countries which makes huge exports and earn lots of foreign currencies would have their currency in the high esteem. And all this must also ensure that the buying power of the people must decide the growth rate. If people have money and they wont spend on purchases of products, the economy would remain stand still. So there is a cycle between what we earn and what we spend and that determines the total growth of a country.
    K Mohan
    I consider myself as the learner everyday

  • #577695
    Yes GDP is one of the factor for currency fluctuations. Because from GDP data we analyses the expectation of import and export in future, but there are many other factor for up and down in currency.
    It is not always happen that higher debt means we will have weaker currency, like USA is world/s highest debtor country but still its currency is at good level. Lot of things like political decisions, the earning source of country, whether through export or through tourism the foreign money should come to the country, then it will automatically grow up.

  • #577700
    There are many factors that influence the currency value of any country. Any country's currency appreciates when there is demand for that currency. For example, if many tourists visit our country, they will buy rupees in order to spend them in our country while on the visit. If the inflow of tourists is more, obviously the demand for our rupee also increases and hence our currency appreciates. Similarly, if our GDP growth rate is higher, foreign investors will try to invest in our stock markets. If the GDP growth is high, obviously companies earnings will also be high. If the companies earnings are more, the return on investment will also be more. If the return on investment is more, the demand for our stocks will also be more. So, foreign investors will try to buy our stocks. For buying stocks, they need rupees. Then, obviously demand for our rupee will also increase.
    Since, demand for rupee depends on many factors, sometimes even if the GDP growth rate is more, the rupee may depreciate because of some other factors.


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