Why must an Indian buyer convert rupees to dollars when purchasing from the U.S.?
Rupees are not accepted in U.S. markets
Every country's currency is legal tender only within its own territory. In the United States, sellers are paid in U.S. dollars, and the Indian rupee is not legal tender there.
So an Indian importer must buy dollars in the foreign exchange market (exchanging rupees for dollars) before paying the American seller. This is why imports create a demand for foreign exchange.
Shipping cost calculation and international taxes are not the reason for currency conversion; the underlying reason is that rupees are not accepted in U.S. markets, and buying foreign exchange for the import payment is a consequence of that fact.
Hence, an Indian buyer must convert rupees to dollars because rupees are not accepted in U.S. markets.
Similar Questions
Read the following statements carefully and choose the correct option regarding Assertion (A) and Reason (R).
Assertion (A): Devaluation of the rupee in 1991 improved export competitiveness.
Reason (R): A weaker rupee made Indian goods cheaper in global markets.
Trade policy prior to 1991 was characterized by
Important Questions from External Sector
Which of the following best describes the term 'import cover', sometimes seen in the news?
With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?
(1) Balance of trade
(2) Foreign assets
(3) Balance of Invisibles
(4) Special Drawing Rights
Select the correct answer using the code given below.
Consider the following actions which the Government can take:
1) Devaluing the domestic currency.
2) Reduction in the export subsidy.
3) Adopting suitable policies which attract greater FDI and more funds from FIIs.
Which of the above action/actions can help in reducing the current account deficit?
Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two?
Which one of the following groups of items is included in India’s foreign-exchange reserves?
