Rupee closes below 73

The rupee on Wednesday reverted to its old ways of sagging against dollar as rising crude prices pushed the currency below 73 mark for the first time.

The pressure on currency cannot be solely attributed to oil-the US Federal Reserve has raised its rates that has led to a dollar rally and outflows from emerging markets including India.

Foreign portfolio investors have already pulled out ,$9 billion from the equity and bond markets. Experts have forecast the country's CAD- difference between foreign exchange earned and spent - which hit 2.4 percent of GDP during the first quarter of this year is set to rise further because of crude.

Spot market and Forward market

Spot Market: Foreign exchange rates are a means of expressing the value and worth of an economy by its currency vis-`a-vis that of another. Normal market usage is to quote the exchange rate for spot value, i.e. for delivery two business days from the trade date (except Canadian transactions against the dollar, when the spot date is only one day). The two business days are normally required in order to enable the trade information between the counter-parties involved to be agreed and to process the funds through the local clearing systems. The two payments are made on the same date, regardless of the time zone difference

Forward Market: Forwards work much like spot, market but the value date is different from the spot date and usually extends further into the future, for example, six months from the commencement date. However, one of the factors influencing a currency’s forward exchange rate is the level of interest rates for that currency relative to interest rates in the other currency. There are many theories on how a forward exchange rate can be calculated, but market participants adopt the interest rate differential between two currencies and the current market spot rate as the basis of their calculations. The forward price is often referred to as forward points,forward pips or swap points (pips).