A person, for example, has 1,000 dollars in his account abroad, and if the exchange rate was Rs 65 per Dollar, then when he/she transfers it to India, it would translate to Rs. 65,000. Now, that the Rupee value has fallen to around Rs 71.87 per Dollar, the same 1,000 Dollars would fetch Rs. 71,870.
The Rupee has fallen by about 10 per cent this year alone, a significant drop compared to recent years, according to experts.
Those abroad maybe happy that they are getting more Rupees, but if it continues for long then the purchasing power of the Rupee will come down. That means one has to shell out more Rupees to buy commodities from the market.
For example, if this trend continues, then what a person used to for Rs 100, would cost more. What one used to get for 'X' amount, now with the reduced purchasing power, a person will have to shell more than 'X' to get the same.
Falling Rupee value also has a direct impact of fuel prices. If fuel prices go up then the price of nearly all commodities would go up as the transportation overheads would rise. This will increase the inflation, so there is nothing to rejoice about falling value of Rupee.
What is purchasing power?
Purchasing power is the number and quality or value of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it is probable that it would have been possible to buy a greater number of items than would be the case today, indicating that one would have had a greater purchasing power in the 1950s. Currency can be either a commodity money, like gold or silver, or fiat money emitted by government sanctioned agencies.
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Traditionally, the purchasing power of money depended heavily upon the local value of gold and silver, but was also made subject to the availability and demand of certain goods on the market. Most modern fiat currencies like US dollars are traded against each other and commodity money in the secondary market for the purpose of international transfer of payment for goods and services.