International trades usually happens in USD terms across the globe between countries. We always used to hear that when USD got strengthen against INR or INR got weaken against USD it benefits the exporters because their realization in INR values is more. Is it really benefits exporters in long term?
We will see a scenario now, we assume that an exporter from India export some merchandise to Singapore. On 1st January-20, 1 USD = 71.321 INR and 1 USD = 1.3453 SGD which reached to a level of 1 USD = 75.3677 INR and 1 USD = 1.4224 SGD on 31st March-20, it means USD got strengthen against both INR and SGD in that 3 months period, further if we calculate more precisely USD got strengthen 5.67% against INR and 5.73% against SGD.
We feel that the Indian exporter benefited 5.67% due to the currency fluctuation but his product became expensive by 5.73% in Singapore market. Does it really going to benefit the exporter? We can't say yes because though the exporter benefited in short term, his product became expensive due to which the exporter will lose future orders to a local supplier in local market or share of business will be taken away by local suppliers in Singapore market.
We should not have a feel that strengthening of USD will benefit the exporter, it will be true that if the Indian exporter is exporting to United States where his product's imported cost will remain same and also exporter realization value in terms of INR increases but if an exporter supplies to a country other than United States then appreciation / depreciation of USD against the other country currency (importing country) also needs to be considered to understand the actual benefit / loss.
Note : Above calculations are done considering only currency fluctuations, other factors affecting import cost like freight, duty, CHA charges, etc. not considered.
Originally posted by Logulaselvan M at https://www.linkedin.com/pulse/do-strengthening-usd-really-benefits-exporters-long-term-m/?trackingId=EDr8trelF84ftlvkmyErLg%3D%3D
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