Why Rupee Falls Against Dollar Because Of Crude Oil?

Why Rupee Falls Against Dollar Because Of Crude Oil?

Rupee Is Always Fluctuating Against Dollar. There Could Be Many Reasons For It. But Today We'll Know How Crude Oil Imports Affect Rupee? India Is Very Heavily Dependent On Crude Oil. We Import Around 80-82% Crude Oil. Only 20% Crude Oil We Produce In India. I Have Explained In Detail In This Article About Crude Oil Make Sure You read It. Crude Oil Is The Most Traded Thing In The World. If We Are So Much Dependent On Crude Oil Imports Then Fluctuation In Crude Oil Prices Can Affect Rupee. 

For This We Need To Understand Trade Deficit. If A Country Is Importing $150 Worth Of Goods And Only Exporting $100 Worth Of Goods Then We Are In $50 Trade Deficit. If A Country Is Importing $100 Worth Of Goods And Exporting $100 Worth Of Goods Then Its Trade Balance. If A Country Is Exporting $100 Worth Of Goods And Only Importing $70 Worth Of Goods Then We Are In Trade Surplus. So, Let's Assume Today's Crude Oil Price In the Market Is $50 / Barrel. And India Imports 100 Bbl/day. So Our Total Oil Import Bill Will Be $5000.

 If The Same Value Rises To $100/bbl In the Next Month Then We'll Have To Pay $10000. So Here We Paid More Amount For Same Quantity Of Goods. Oil Is Always Paid In Dollars. Either We'll Pay This Oil Bill From Our Forex Reserves Or We'll Pay After Exchanging Rupee For Dollar In Forex Market. Now This Can Cause Rise/fall In Rupee. This Is All Dependent Upon Supply And Demand. For This, We'll See A Short Example. Friends, You Might Have Seen Many Times Whenever There Is A Shortage Of Onions, Its Price Rises. Which Means There Is Less Supply Than Demand So Price Is More.

Why Indian Rupees Falling against US Dollar| Dollar Rates India

 Let's Say Today Onion Is 100 Rs/kg. Demand Is More Than Supply. But When The Supply Of Onion Increases Then Its Price Goes Down. When Supply Is More Than Demand. Then Eventually Onion Price Will Drop To 25 Rs/kg. Now Replace Onion With Rupee. Let's Say Today 70rs = $1. And There Is More Demand For Rupee Than Supply. Then the Value Of the Rupee Will Increase It May Become 65 Rs= $ 1. This Means Rupee Became Strong Against Dollar. But If the Supply Of the Rupee Is More Than Demand Then Rupee Might Fall To 75 Rs = $1. This Means Rupee Is Becoming Weaker Against Dollar. In 2018 India's Oil Import Bill Was $85 Billion. Around 6 Lac Crore. 

Here The Price of Oil Oil Was $70/bbl Now Let's Assume The Price Is Doubled To $140 /bbl. This Will Result In Increase In Oil Import Bill To $170 Billion. Either We'll Pay It Through Forex Reserves Or By Exchanging Rupee In Dollar. $170 Billion Is Almost Equal To 12 Lac Crore. If 12 Lac Crore Is There For Selling In Forex Market Which Is Quite More Than Market Demand So Here Supply Of Rupee Is More Than Its Demand So Naturally Rupee Price Will Fall If Before We Were Buying $1 In 70 Rs. Then Now We'll Buy $1 In 72 Rs. But India Is Not Going To Pay All $170 Billion By Exchanging Here Come Your Trade Deficit. 

Why Is Rupee Falling Against Us Dollar? What Are The Main Reasons?

Let's Say India's Export Is $150 Billion So Our Trade Deficit Wrt To Oil Bill Is $20 Billion. If We Pay These 20 Billion Through Forex Then It Can Show Effect On Rupee Value. There Are Many Ways To Prevent Trade Deficit. Like Reduce Imports And Increase Exports. When Recently Rupee Value Fell Down It Had One Of The Reason As Current Account Deficit (Cad) Trade Deficit Is The Major Part Of Cad. So We Can Say Trade Deficit Was The Reason For The Fall Of the Rupee.

 If a Country's Exports Are More Than Imports Then Definitely Demand For The Good From That Country Is More Which Means There Is A Demand For Thir Currency As Well. If Imports Of A Country Are More Then Demand For That Country's Currency Is Relatively Less. This Doesn't Mean Trade Deficit Is Completely Bad. This Is a quite Debatable Topic Whether Td Is Good Or Bad. It Mostly Depends Upon The Circumstances Of A Country. I Hope You Understood How Crude Oil Price Can Affect The Rupee Value.