As requested by John, we are explaining the impact of Capital inflows on Exchange Rate, Inflation and Stock Market Index.
When more capital flows into the country, the currency appreciates in value and the inflation increases.
This is because as the the supply of more dollars in the economy increases, it is bound to decrease its price. So if one dollar used to cost 40 rupees, then if the supply of dollars will increase, the price of dollar will go down to say 39 rupees.
Also with more dollar flowing into the market, there will be too much money chasing too few goods and services, i.e. excess demand of goods and services, which will increase inflation.
Also, when more money flows into the country in the form if FII, that increases the investment into the securities of companies listed on the stock exchanges. This leads to appreciation of the value of the securities as a result of increase in their demand. And as the value of individual or important securities increase, the stock market index as a whole will also rise accordingly.
October 19, 2008 at 3:53 am
hello sir,
Continuing in the same vein, I would like to understand how the Indian Rupee was devalued from around 10 to 40 per dollar from 1990 to 2000.
What is the ideal range for the rupee w.r.t dollar?
March 16, 2008 at 3:20 pm
Hi JOHN. sorry for the late reply. Ousourcing has a simple funda. e.g.- I am an amercian running a company, lets say an accounting firm. now since U.S. is a developing country, the salaries of my employees would be relativly much higher than the same workers in a country like India. Now if the quality of the workers in India is the same as that of the U.S. the most logical thing for me would be to shift my work to India(through internet or other means) which would reduce my costing substantially and therefore increase my costing.
Thus the bottomline of outsourcing would be two things:
1) Price/Cost
2) Quality
If an american finds a benefit in terms of both of the above, he will outsource the work readily to India.
For the company in India, to whom the work is outsourced, there will be a natural benifits as the revenue earned by him will be much larger than the cost of salaries incurred.
February 20, 2008 at 4:08 pm
I have some simple questions for you…What is outsourcing and what encourage firms to focus on outsourcing?..could you also please elaborate-1.outsourcing jobs in india.
2.benefits of outsourcing.
3.Outsourcing American Jobs To Foreign Country.
4.Offshore Outsourcing.
5.Job Outsourcing.
Please elaborate with analogies….I think i am bothering you with more questions..Thanks sir!!
February 20, 2008 at 2:48 pm
My question is a simplistic one….What is the defination of OUTSOURCING?…could you please elaborate-1.Outsourcing jobs in India.
2.Job ousourcing.
3.Benifits & disadvantage of outsourcing.
4.Offshore Outsourcing.
5.Outsourcing American Jobs To Foreign Country.
Please discuss in layman terms…Thanks sir!!
February 20, 2008 at 2:33 pm
Thanks a lot for that gratifying and explicit answer to my question.It removed all my cnfusion and doubts about inflation etc…I find this site very useful and helpful to me as i have graduated in physics..I am having a difficulty in understanding the defination of outsourcing from magazines as they use tough business terms..asking you a question in my next response….keep up the good work!!