Devaluation and causes for Foreign Exchange rates variation

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 Indian Rupee and Devaluation 

 Indian Rupee was settled at Rs.13/- per pound and dollar @ Re.1/-  in 1947 after partition. It continued up to 1966 when first devaluation took place. This was carried out since Govt, was consistently facing balance of payment deficit since 1950 and failure of Govt. efforts to revive and have positive trade balance
Moreover, war with Pak in 1965 and cutting off of foreign aid by USA and other countries fueled the crisis.Rise in fuel prices all around did put pressure on inflation as well. 
In 1991, second devaluation took place due to downward pressure on Indian Rupee from international markets. It was a part of Economic reforms.The restrictions were relaxed on imported capital goods. Import Export policy replaced import quotas with tariffs causing major overhaul of trade policy
Devaluation is undertaken as a means of correcting deficit in balance of payments.
      
Foreign Exchange variations and causes
Foreign Exchange is one of the most important factor by which country's economic health is determined. Exchange rates provides a window to its stability and that is why it is constantly watched and analysed. Rates may fluctuate daily with the changing market forces of supply and demand of currencies from one country to another.

Main factors effecting Exchange rates are:-
1) Inflation: Countries with high inflation rates see depreciation in its currency and is combined with
    high interest rates. Increase in interest rates attracts more foreign capital causes rise in exchange
    rates. Countries with low inflation rates look for appreciation in its value of currency.
2) Govt. Debts: Countries with Govt. debts is less likely to get foreign capital leading to inflation.
    Foreign investors sell their bonds if market predicts Govt. debts, resulting in decrease in value of
    exchange rates.
3) Balance of payments: It involves around imports, exports and debt. etc. Deficit in spending more
    of its currency on imports than its exports causes Depreciation and fluctuations in exchange
    rates of domestic currency.
4) Political stability and recession: also plays a significant role in determining the exchange rate
    fluctuations.
The steps to curb above reasons shall bring down vast exchange rates variations to a great extent (by making a proper policy and its implementation properly).

                      

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