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Rupee Dip Won't Spoil Holiday Plans

CASE FLYER, MANAGERIAL ECONOMICS
ET Cases, 5 pages

Case Preview

Rupee Dip Won't Spoil Holiday Plans

 

Expected Learning Outcomes

• Depreciation of a currency, exchange rate determination and the PPP theory in exchange rate determination
• Difference between depreciation and devaluation of a currency
• Depreciation of a currency affects an individual consumer, a company as well as a country

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I. Exchange Rates, PPP Theory, Depreciation and Devaluation of a Currency

1. What is exchange rate and how is it determined?
2. What are the different types of exchange rates that different countries adopt to manage their respective currency value in international markets?
3. What is the difference between nominal exchange rate and real exchange rate?
4. What is the difference between depreciation of currency and devaluation of currency? What is competitive devaluation of currency?
5. ..................

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Teaching Note Preview

Rupee Dip Won't Spoil Holiday Plans

 

Synopsis

On September 27th 2015, the Indian Rupee depreciated to 66.16 against a US Dollar. However, the base article1 says that the rupee’s slide has had no major impact on the traveller’s budgets, travel destinations (international or domestic), mode of travel, duration of holiday, accommodation, food, adventure or shopping. An analysis of the information presented in the base article would sensitize participants/students as to how depreciation of a currency affects an individual consumer. With relevant and related concepts – exchange rates, Purchasing Power Parity (PPP) and devaluation of a currency – this case flyer can be used to explain how macroeconomic variables affect a microeconomic unit i.e., individual consumer. Apart from the individual consumer, the case flyer also analyzes the effects of currency depreciation on exporters/importers, companies, government, etc. It also debates about the role of government in maintaining a stable exchange rate.

Prerequisite Conceptual Understanding/Before the Classroom Discussion

The students/participants should be asked to read the following chapter to help them connect the concepts discussed in the case flyer:

  • • Paul A. Samuelson, et al., “Exchange Rates and the International Financial System”, Economics, 19th Edition (Special Indian Edition), McGraw Hill Education (India) Private Limited, 2014 – To understand the concepts of foreign exchange, exchange rates, Purchasing Power Parity (PPP), appreciation and depreciation of currency and devaluation of currency

 

Case Positioning and Setting

The case flyer can be used in MBA, Executive MBA or Executive Development Programs, for the following module/topic:

  • • Foreign Exchange Rates – To understand the concepts of foreign exchange, exchange rates and Purchasing Power Parity, appreciation, depreciation or devaluation of a currency and their effect on the economy, business and an individual consumer

 

 Preamble to the Case Flyer Analysis and Suggested Orchestration

This case flyer gives an understanding about the exchange rates of the currency, its determination, various types of exchange rates and the importance of Purchasing Power Parity in exchange rate dynamics. It also introduces the students/participants to the concepts of appreciation of currency, depreciation of currency and the difference between depreciation and devaluation of currency. Further, it helps understand the effects of appreciation and depreciation of currency on individual consumers, companies, exports and imports and the country. The analysis of the facts presented in the base article helps to determine the effect of depreciating rupee, Ceteris Paribus, on the holiday plans (and other consumables) of individual consumers and the reasons behind their decisions. This case flyer analysis was carried out as presented in Exhibit (TN)-I....................

 



1 “Rupee Dip Won’t Spoil Holiday Plans”, The Economic Times Wealth, July 20th–26th 2015, page 16

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Product code: ME-4-0020, ME-4-0020A

Abstract


This case flyer, based on the article1 from The Economic Times, is meant to sensitize participants/students as to how either appreciation or depreciation of a currency affects an individual consumer. With relevant and related concepts - Exchange Rates, Exchange Rate determination, Purchasing Power Parity (PPP)/Law Of One Price (LOOP) and devaluation of a currency - this case flyer can be used to explain how macroeconomic variables affect a microeconomic unit i.e., individual consumer. While depreciation of a currency can benefit a few quarters of economy, especially the exporters, the individuals working abroad on short-term assignments, those who are making remittances, etc., quite a few others like importers, expats residing in India and sending remittances abroad, etc., would be at a disadvantage. How does an individual consumer get affected with currency depreciation? Why do currencies depreciate and how do they affect economies?



Pedagogical Objectives

  • To understand the concepts of depreciation of a currency, exchange rate determination and the PPP theory in exchange rate determination
  • To illustrate and examine how depreciation of a currency affects an individual consumer, a company as well as a country
  • To discuss and debate on the differences and ramifications of depreciation of a currency and devaluation of a currency

Case Positioning and Setting
The case flyer can be used in MBA, Executive MBA or Executive Development Programs, for the following module/topic:

  • Foreign Exchange Rates - To understand the concepts of foreign exchange, exchange rates and purchasing power parity, appreciation, depreciation or devaluation of a currency and their effect on the economy, business and an individual consumer


1 "Rupee Dip Won’t Spoil Holiday Plans", The Economic Times Wealth, July 20th-26th 2015, page 16


This Case Pack Includes:
- Abstract
- Case Flyer
- Teaching Plan (**ONLY for Academicians)
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