Dollar-Rupee relation amidst current financial crisis

A really nice and informative post that I found here. Must read for anyone who is worried about the current global situation.

 

About ‘Exchange Rate’ of a currency:

The exchange rate of the currency of a country in relation to the currency of another country depends on the comparative trade advantages and economic strengths of the countries. If one US dollar is equal to 45 rupees, it simply means that in the US, if a dollar fetches 45 oranges while in India, a rupee would fetch only one orange of equivalent size and quality.

Just like any other commodity, the currency of any economy is based on dynamics of supply and demand, and its value depends on trading in currency exchanges all over the world. Higher the demand for a currency on an exchange, the stronger it becomes and vice versa. However, for currencies like INR which are not traded on exchanges, the value depends on capital inflows in the country.

Appreciation & Depreciation of currency:

A currency appreciates means its value has increased in relation to another currency. A currency depreciates means its value has decreased in relation to another currency. Eg. If 1 $ costs Rs 45 and if it now costs Rs 44, this means rupee has appreciated in its value (i.e. instead of Rs 45 you will get 1 $ in Rs 44, this also means the dollar has weakened). Similarly, if 1 $ costs Rs 45 and if it now costs Rs 46, this means rupee has depreciated in its value (i.e. instead of Rs 45 you will get 1 $ in Rs 46, this also means the dollar has strengthened).

Why do currency values fluctuate?

There are many participants in any foreign exchange market. These entities — like banks, corporations, brokers, even individuals — buy and sell currencies everyday. Here too the universal economic law of demand and supply is applicable: when there are more buyers for a currency than sellers, its exchange rate rises. Similarly, when there are more sellers of a particular currency than buyers, its exchange rate will fall. This does not mean people no longer want money; it only means that people prefer to keep their wealth in some other form or another currency.

Lehman Brothers files for bankruptcy

The business world seems to be getting really scary!!

Lehman Brothers Holdings Inc; $639 billion

The Lehman Brothers bankruptcy, is without a doubt, the largest bankruptcy ever: the size is estimated between $613 billion and $639 billion!

What began life as a general store set up by three German immigrant brothers to the United States, over the years turned into one of US’s largest investment banks.

The amazing story of Lehman Brothers’ story started in 1844, when 23-year-old Henry Lehman, son of a cattle merchant, emigrated to the United States from Rimpar, Bavaria. He settled down in Montgomery, Alabama, and opened a dry-goods store — H Lehman.

Later, when his brothers, Emanuel and Mayer, joined him the company changed its name to Lehman Brothers.

The global financial-services firm, which did business in investment banking, equity and fixed-income sales, research and trading, investment management, private equity, and private banking declared itself bankrupt on September 15, 2008.

Why it collapsed?

The fourth-largest investment bank in the United States, and one of Wall Street’s biggest dealers in fixed-interest trading, was heavily invested in securities linked to the US sub-prime mortgage market.

As the crisis in financial markets gathered momentum, it saw its share price collapse from $82 to less than $4.

It was the exaggerated but misplaced confidence of Wall Street’s longest serving chief executive officer, Richard Fuld of Lehman, that finally led to Lehman’s demise. Over 14 years, Richard Fuld, 62, turned a money-losing bond trading shop into a full-service investment bank. An international squash player, Fuld could not master the final stroke as he failed to keep the 158-year-old banking major alive.

Fuld never changed. He remained the obstinate Lehman loyalist whose pride stood in the way of the firm. If he had sold out earlier, Lehman could have survived. Fuld earned a BA from the University of Colorado and an MBA from New York University’s Stern School of Business. He started at Lehman in 1969.