|Image Courtesy: Investopedia|
Most currencies, like the rupee and the dollar have floating exchange rate that change based on supply and demands. If India buys goods from US , it exchanges rupees for dollars. This creates a demand for the dollar and the dollar appreciates. At the same time, rupee depreciates. There are a few countries that peg their currency to another currency. This is when the central bank wants to keep its currency value in a certain range. It buys or sells currencies to achieve that. The Chinese government was well known for buying US dollars to keep the Chinese currency depreciated. When US would buy goods from China, Yuan would appreciate, then the Chinese government would buy dollars which kept the exchange rate about the same. This kept the Chinese import cheap for the Americans.
Now a little information on who stands on top when it comes to exporting and importing. China is the largest exporter overall and US is the largest importer based on the World Trade Organisation. India is positioned at 20th when it comes to exporting but is positioned at 8th when it comes to importing.
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