From Foreign Vacations To Investments, Understand How Falling Rupee Affects Your Financial Decisions?

From hovering around the 75 per dollar mark at the beginning of the year to crossing the 83 per dollar mark yesterday for the first time ever, the rupee¡¯s downfall has been a cause of worry. Amidst the continuous slide, India¡¯s central bank, RBI is having to keep intervening and selling forex reserves to handle the situation and recover the rupee¡¯s value, which has hit new all-time lows multiple times in the past 6-7 months.

The reason? While it's difficult to pinpoint at one reason for the downfall, geopolitical tensions, high inflation, foreign institutional investors (FIIs) selling in the Indian equity market, rising crude oil prices, strengthening of the US currency are some of the key factors that have affected Rupee.

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But how does a falling rupee affect a common man¡¯s finances? Those who are currently studying or plan to study abroad, those who are planning a vacation abroad, or those who have foreign investments How would this weakening of the rupee against the US dollar affect their decision-making? Let's find out.

Also Read: RBI Allows International Trade Settlements In Rupee

Education Abroad

For aspiring students who have been planning to go abroad for study, their overall budget, including flight tickets, course fees, cost of living, etc, will cost more. Due to the weakening rupee, you will have to sell out more from your pocket in terms of rupees for every US dollar.

So, those planning for foreign education in the near future would have to rework their budget according to the depreciating rupee, else they may end up falling short of money in terms of rupees someday or the other while staying in a country with the US dollar as its currency.

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Foreign travel for vacation

Traveling abroad in the present scenario of a falling rupee can burn a hole in your pocket

by costing you a lot more than the previous expected costs. If you are a budget-conscious traveler, you may prefer to plan to have a shorter holiday or, if possible, postpone the plan. However, if you have made your bookings well in advance, you may not feel the pinch that much, except for the day-to-day expenses like traveling, food, etc.

Foreign Investments

When foreign investors pull their money from Indian markets (as has been the case many times this year), the supply of the Indian rupee increases, while the demand for foreign currencies increases. Thus, capital outflows can lead to the rupee¡¯s depreciation. The rupee¡¯s depreciation shrinks the expected returns of foreign investors, which often leads to further foreign capital outflows.

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As an Indian investor, with a depreciating rupee, foreign investments in dollar-denominated bonds, ETFs, etc can be an option. This is because, when the rupee slides against the currency of an international market where you have invested, you can get more rupees per unit of the currency invested.

As far as NRIs are concerned, a falling rupee brings good news if they wish to invest in their home country, India, as a stronger dollar would give them more value for their money against a weak rupee. So this could be an opportunity for NRIs to capitalise on.

Also Read: 5 Years On Since Demonetization, Here's What Happened To The Old 500 & 1000 Rupee Notes

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