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Exchange Rate in India: Background

  Before 1948, Indian rupee was linked with British Pound Sterling.

  After coming up of IMF, India shifted to the fixed currency system.

  India wanted to keep rupee’s external value (i.e., exchange rate) in terms of gold or the US ($ Dollar).

  In 1975 – rupee was delinked from the British Pound and the RBI started determining rupee’s exchange rate with respect to the exchange rate movements of the basket of world currencies.

  In 1992-93 – India moved to floating currency regime. (with its own method of ‘dual exchange rate’)
 ‘Dual Exchange Rate’ – RBI may intervene in the forex market via the demand and supply of rupee or the foreign currencies.

Note: No country had followed an ideal free-floating exchange rate till date. They need some mechanism to intervene in the FOREX market because this is a highly speculative market. 

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