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How forex rates are set in india on daily basis?

Forex rates, also known as foreign exchange rates, refer to the value of one currency in relation to another currency. These rates are constantly fluctuating and are set based on various economic and political factors. In India, forex rates are set on a daily basis and are determined by a combination of factors such as demand and supply, interest rates, inflation, and geopolitical events.

The Reserve Bank of India (RBI) is responsible for regulating the foreign exchange market in India. It determines the exchange rate regime for the country, which is currently a managed float system. This means that the value of the Indian rupee against other currencies is allowed to fluctuate within a certain range, but the central bank intervenes in the market to control excessive volatility.

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One of the main factors that influence forex rates in India is demand and supply. The demand for a currency is influenced by a variety of factors such as trade, investment, and tourism. For instance, if there is a high demand for Indian goods and services in another country, the demand for the Indian currency will increase, leading to an appreciation of the rupee. Conversely, if there is a high demand for foreign goods and services in India, the demand for foreign currency will increase, leading to a depreciation of the rupee.

Another factor that influences forex rates in India is interest rates. Interest rates play a crucial role in determining the flow of capital between countries. If the interest rates in India are higher than those in other countries, foreign investors will be attracted to invest in India, leading to an increase in demand for the Indian currency and an appreciation of the rupee. Conversely, if the interest rates in other countries are higher than those in India, Indian investors will be attracted to invest in those countries, leading to a decrease in demand for the Indian currency and a depreciation of the rupee.

Inflation is another important factor that affects forex rates in India. Inflation refers to the increase in prices of goods and services over time. If the inflation rate in India is higher than that in other countries, the value of the Indian currency will decrease, and the exchange rate will depreciate. This is because higher inflation erodes the purchasing power of a currency, making it less attractive to foreign investors.

Geopolitical events also play a significant role in determining forex rates in India. Political instability, wars, and natural disasters can cause sudden changes in demand and supply of currencies, leading to fluctuations in exchange rates. For instance, if there is a political crisis in a country that exports a significant amount of goods to India, it can lead to a decrease in demand for the Indian currency and a depreciation of the rupee.

In conclusion, forex rates in India are determined by a complex set of factors that include demand and supply, interest rates, inflation, and geopolitical events. The RBI plays a crucial role in regulating the foreign exchange market and ensuring that the exchange rates remain stable. As an investor or a trader, it is essential to keep track of these factors and their impact on forex rates to make informed decisions.

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