We always know the USD dollar is fluctuating against the Indian rupee.So the dollar price is always high compared to the Rupee.Many factors are involved in determining the exchange rates not to be precise.
Many markt factors including best brokers like FinancialCenter and others determine the exchange rate, not even the RBI or any institutions and organizations.
Fixed exchange rate
The value of currency is just like other commodities like its supply and demand in the market.
Earlier RBI maintained the US dollars to ensure the exchange rate,that when the demand for dollars was high the value appreciated respect to the rupee.so by reserving the dollars and at the time of demand it released the dollar in market to appreciate the value of rupee.same way the rupee is released in the market to maintain the fixed exchange rate and bring down the dollar value.
Factors determining the exchange rates
The high price happens if goods or services are in demand in the market and supply is low in the market.This is called inflation.Indian market experiences this state now and then so the value of currency fluctuation also happens often.
Purchasing power becomes weak when inflation happens and thus its value is related to it.
Indian interest rates are RBI regulated.Higher interest rate means many investors will be in rush to buy government bonds and the returns will be of higher.so the value of Rupee will increase.
But in contrast the banks will give us loans with higher interest rate than the RBI interest rate to banks oit lend money.So people will be reluctant in starting any business,buying home,car.This makes the capital flow low so the economic activity gets slowed down.
Current account deficit
Current account is current foreign transactions .This implies that when a country imports goods and services from other countries rather than exporting goods and gaining profits result in account deficit.
Paying in foreign currencies makes the currency demand in the market makes the rupee value decrease in the market.But if you export many goods and services the value of the rupee appreciates equal to other currencies.
Not to talk about the gold craze in the Indian market!!
So the import of gold is high which directly impacts the rupee value.our country is the hoarder of gold which becomes the largest country to have gold in their account.
So when the price of gold increases the value of money goes down as we import gold from the global market.
So from the points discussed above we can see India follows the floating exchange rates because of the market factors.No fixed exchange rate is followed in India.
Foreign investors are interested in investing their money only in a market which is stable and consistent in returns rather than floating exchange rates. Here USD holds strong in their market with fixed exchange rates.