Currency Exchange Rate Fluctuations and Forex Risk: Impact on Businesses and Investors
Currency is one of the invisible and huge forces that move constantly on a regular basis. With the huge scale of shifting, it impacts everything from changing global trade costs to business expenses and investor choices.
The huge impact can be understood with the statistics that say people are trading a stunning US $9.6 trillion every day right now.
With ventures buying and selling globally, even a minor change in currency value can lead to a rise or fall in inflation. That’s why it is important to keep a keen eye on the currency value and updates to stay informed.
Why Exchange Rate Movements Matter for Trade
The movement in currency leads to a change in the cost of actual goods or products. Like, in the case of a weaker currency, the import charges see a rise. On the contrary, with currency becoming stronger, the purchase from overseas gets cheaper.
For instance, every one rupee fall in the currency market added up to almost ₹10,000 crore to India’s annual import costs.
Impact of Currency on Imports & Exports (with exchange rates)
| Scenario | Exchange Rate | Impact on Imports | Impact on Exports |
| Rupee weakens | USD/INR = ₹83.50-₹84.20 | Imports get costlier (oil, metals, electronics) | Indian exports become more competitive |
| Rupee stable | USD/INR = ₹82.50-₹83.00 | Import prices steady | Neutral impact on exports |
| Rupee strengthens | USD/INR = ₹81.00-₹81.80 | Imports become cheaper | Export margins may reduce |
How Forex Risk Affects Multinational Earnings
| Revenue Earned | Abroad Currency Move | Final Result After Conversion |
| $10 million | Dollar strengthens | Higher domestic profit |
| $10 million | Dollar weakens | Lower domestic profit |
Rupee-Dollar Movements and Their Economic Ripple Effects
With the majority of global trade happening in dollars, the pairing of INR-USD matters a lot for India. With the rupee getting weaker, the oil and machinery imports become costlier. Further, the trade deficit increases, and foreign loans become more expensive.
USD-INR Movement and Its Effects (with exchange rates)
| USD-INR Level | Currency Condition | Impact |
| ₹84.00+ per USD | Rupee significantly weak | Higher fuel costs, costly external borrowing, inflation pressure |
| ₹83.00-₹83.70 per USD | Rupee under mild pressure | Higher import bill but manageable; affects oil, aviation, metals |
| ₹82.00-₹82.80 per USD | Rupee stable/moderately strong | Lower import costs; better inflation management |
| ₹80.00-₹81.50 per USD | Rupee strong | Imports become cheaper; export earnings may decline |
Sector Exposure to Currency Volatility
| Sector | How Currency Moves Affect It |
| IT Services | Strong dollar = higher rupee earnings |
| Airlines | Weak rupee = expensive jet fuel imports |
| Oil & Gas | Dollar strength increases crude import cost |
| Pharmaceuticals | Mixed impact, as firms import raw material but earn in USD |
Impact on Company Balance Sheets and Reporting
The impact of currency changes shows up directly in a company’s financial reports. Companies must report aspects like gains, losses, foreign loans changes, and market adjustments.
As per a few reports, the majority of Indian companies witnessed a sharp increase in currency losses last year due to currency swings.
Currency Fluctuations and Input Cost Pressures
With a nation becoming an importer of fuel, metals, chemicals, and other products, costs are likely to go up because of currency depreciation.
For example, India imports about 85% of crude oil, resulting in higher fuel and transport prices.
How Global Events Trigger Sudden Forex Movements
The movement of currency is dependent on various global events such as oil price jumps, economic policy changes, geopolitical wars, global inflation, huge foreign fund flows, and more.
The 2024 Israel-Gaza conflict scenario increased oil prices and impacted the Rupee market value.
Why Investors Track Central Bank Currency Actions
Central banks play a crucial role in stabilizing the currency. Investors consider keeping a keen eye on interest rate changes, foreign markets, dollar reserve usage, and policy statements.
According to Bloomberg, the Reserve Bank of India utilized the forex reserves several times to control rupee volatility.
Long-Term Patterns in INR Volatility
The Indian Rupee (INR) often faces a slow drop in value, with a significant fall sometimes. Over the last ten years, the Rupee’s value dropped from 62 rupees to 83 rupees per dollar.
Conclusion
Currency moves directly affect what countries buy, how much businesses earn, and important investment numbers. Since currency variation moves trade and corporate profits, it is essential to stay updated on huge economic shifts.
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This analysis is for informational purposes only. Please consult a SEBI-registered financial advisor before investing.
– Chandan Pathak
Equity Research Analyst, StockYaari