[Show all top banners]

parakhidotcom
Replies to this thread:

More by parakhidotcom
What people are reading
Subscribers
:: Subscribe
Back to: Kurakani General Refresh page to view new replies
 Understanding depreciation of Nepalese Rupee Part 1
[VIEWED 4301 TIMES]
SAVE! for ease of future access.
Posted on 12-29-11 1:24 AM     Reply [Subscribe]
Login in to Rate this Post:     1       ?     Liked by
 

 
http://www.parakhi.com/blogs/2011/12/28/part-1-understanding-depreciation-of-nepalese-rupee-npr
 

Part 1: Understanding Depreciation of Nepalese Rupee (NPR)

December 28, 2011 By: nyangmi



Most of us in the Diaspora have similar questions regarding the rapid devaluation of the Nepalese Rupee (NPR). With this in mind, the analyst side of me has sought to shed some light into this matter and answer the below questions:

Why is the NPR depreciating in the manner it currently is? Who is to blame? When can we expect to see it recover? How can I as an investor seek to protect my savings or perhaps earn a higher rate of return on my savings?


Around the beginning of September 2011, USD/NPR = 71.10. Fast forward 3 months to today, it is at it's lowest historical level: USD/NPR = 86.00+; (i.e: close to a 21% depreciation in the past 3 months!!). Most of us are well aware that a savings account in Nepal yields about 12% per annum. Sadly, for those in the Diaspora who sent their hard earned US dollars back to Nepal (in September and earlier) to take advantage of the 12+% interest provided by banks there, it is indeed a tragic fate where in essence, the 21% depreciation in USD/NPR has made the earnings on those dollars close to -9% instead. A negative 9%!

A sad state of affairs where it would've been wiser to continue holding your savings here in the US banks for a meager 1% or less that the banks here ostentatiously display on their windows as though they're providing a well-intended public service for us consumers! Actually, let me take the stashing your funds in US banks back. In reality, it would be wiser to hold your money inside a mattress at home or spend it all ala a high-roller in a Vegas roulette table since the real US interest rate is around -2% (assuming the average 3% norm in annual inflation for the past few years). Essentially you're in a weird way paying the bank to hold your money so they can make money for themselves by loaning out your savings! A bummer ain't it.

Now, to understand why the NPR is depreciating so rapidly requires a brief historical and some economics logic based on the NPR being pegged to the INR (Indian Rupee). This requires a lot more financial background on which I will delve in another post someday but here are the basics: The NPR is falling like a rock due to its unholy peg with the INR: 1 INR = 1.60 NPR. Nothing more, nothing less! India has been a huge fundamental bearish play for hedge funds, traders and investment managers who see its woes expanding.

Prime Minister Manmohan Singh's decision to backtrack on multinationals expanding in India has undermined its efforts to revive growth, curb inflation and brought about a yearlong paralysis in government. Fiscal deficits estimated by the Indian government are at 4.6% of GDP but economists predict otherwise: They say it could be above 5.6% (an astounding 23% difference!). Also, it's little surprising that we're seeing investors around the world selling off Emerging Market assets on concerns of a global recession due to the European debt crisis. And with the Eurozone crisis in mind, word is out that the EUR/USD has become the most overcrowded financial trade in history with some high profile traders on the street calling for parity in a year's time. For those who say "No damn way", look at history when in May 2002, EUR/USD = 0.88 and by May 2003, it was around 1.30 levels (65+%). That EUR/USD play was due to the US declaring war upon Iraq. Today, the situation is equally as bad: A meltdown in the entire Eurozone where Germany would perhaps be the only nation holding onto the single currency if things get any more worse. And, all this can only mean one thing: Risk Off = USD positive!

End of Part 1. More questions to be tackled in my next post. Stay tuned.

A Wall Streeter since 2002 and a doctoral candidate (currently an ABD), Nyangmi often lets the analyst side of him seek deeper meaning into the mundane nature of everyday life and it's socio-economic philosophies: Especially the topics on finance where he hopes to make it an easy subject for the Main Streeters to understand as well.



http://www.parakhi.com/blogs/2011/12/28/part-1-understanding-depreciation-of-nepalese-rupee-npr


 
Posted on 12-29-11 6:39 AM     [Snapshot: 79]     Reply [Subscribe]
Login in to Rate this Post:     0       ?    
 

Thanks for writing about this subject. I was curious to know more. Glad you are explainining.

 


Please Log in! to be able to reply! If you don't have a login, please register here.

YOU CAN ALSO



IN ORDER TO POST!




Within last 30 days
Recommended Popular Threads Controvertial Threads
What are your first memories of when Nepal Television Began?
मन भित्र को पत्रै पत्र!
काेराेना सङ्क्रमणबाट बच्न Immunity बढाउन के के खाने ?How to increase immunity against COVID - 19?
TPS Work Permit/How long your took?
चितवनको होस्टलमा १३ वर्षीया शालिन पोखरेल झुण्डिएको अवस्था - बलात्कार पछि हत्याको शंका - होस्टेलहरु असुरक्षित
Nepali doctors future black or white usa ?
Another Song Playing In My Mind
nrn citizenship
TPS Renewal Reregistration
हेर अमेरिकामा नेपालीहरुको बेज्जत
WHAT DO YOU GUYS THINK ABOUT THIS?
Send Parcels from USA to Nepal & Worldwide.
Why is every youths leaving Nepal? Why are not youths entering politics and serving the country, starting business etc?
Is money sent to support family tax deductible?
Nearly one-third of Americans support autocracy, poll finds
Alert: Turbo Cancers: A Rising Global Threat
महँगो अण्डाको पिकल्प : कुखुरा र खोर भाडामा लिने
Informatica consultancy share
Travelling on TPS advance travel document to different country...
Are you ready to know the truth?
NOTE: The opinions here represent the opinions of the individual posters, and not of Sajha.com. It is not possible for sajha.com to monitor all the postings, since sajha.com merely seeks to provide a cyber location for discussing ideas and concerns related to Nepal and the Nepalis. Please send an email to admin@sajha.com using a valid email address if you want any posting to be considered for deletion. Your request will be handled on a one to one basis. Sajha.com is a service please don't abuse it. - Thanks.

Sajha.com Privacy Policy

Like us in Facebook!

↑ Back to Top
free counters