Rupee appreciation/depreciation

The Indian economy is among the fastest growing economies in the World. The appreciation of the Rupee against the Dollar would be a giant sign of India's economic prosperity.
So what is this appreciation/depreciation of Rupee against the dollar? I explain below with 2 examples:

Appreciation of Rupee and depreciation of Dollar:
::IMPORT::
Say a barrel of crude oil costs $100
Initially, 1 US$ = Rs.48/- (Import of 1 barrel of crude oil costs Rs.4800/-)
Now, 1 US$ = Rs.40/- (Import of 1 barrel of crude oil costs Rs.4000/-)

Possible gains because of Rupee appreciation against the Dollar is that, we get oil at a reduced rate (Rs.800/- saved).... we need to pay less for Petrol now :).

::EXPORT::
Say, a BPO company charges $100 for a service

• Initially, 1 US$ = Rs.48/- (Profit earned by company for export of that service earns it Rs.4800/-)
• Now, 1 US$ = Rs.40/- (Profit earned by same company for export of same service earns it Rs.4000/-)

There would be an obvious loss, Rs.800 in our example.

Things to consider:
WRT the 2nd example, considering the increasing competition nowadays, the concerned companies cannot raise their price of service, Because, by doing so, they would risk losing the customer to a lower-priced company. For eg: Consider a Garments export company which is suffering losses as explained in the 2nd example. Now, garments company survive on large & dedicated orders. If they try and cover their "losses" by charging their customers more, it will probably result in cancellation of orders.

Other companies which might suffer problems if the Rupee appreciates are:

• IT companies who export software solutions
• Outsourced companies
• Automative companies etc

In layman terms, if Rupee appreciates, IMPORTS would be cheaper (more savings) and EXPORTS would be costlier (or less profits).

Foreign Exchange Reserve

Foreign Exchange Reserve, denotes the deposits of a foreign exchange currency held by a Central bank; this practice became popular after the decline of the Gold standard (imposed by the British rule).

Components like foreign investment flows, external commercial borrowings, NRI deposits and change in valuation have been the major contributors to Foreign Exchange reserves in India

• The Peoples Republic of China is #1 in terms of FER at 2,648 Billion USD
• It is followed by Japan ($1041 B), Eurozone ($753B), Russia ($482B), Republic of China i.e Taiwan ($383B), Saudi Arabia ($410B)
• India has a FER of $299B

Main purpose of having a Foreign Exchange Reserve:

• International settlement of debts
• Payments between debts

Possible disadvantages:

• Nations holding large amounts of foreign currency incur losses in purchasing power if the exchange value of that currency decreases
• Resultantly, holding depreciating currency in the Reserve will do no good as income through the interest is very meagre

How to increase Reserves? Through increased "export" of food grains, industrial goods, etc..

Implications of increasing Reserves:

• Exports are higher than imports, so the country need not get more money (taxes) from people for import of goods
• Subsequently, taxes will become less (people will of course be happy, an indirect advantage)
• This will also attract more foreign companies and investors, leading to job growth