The appreciation of the rupee makes imports cheaper and exports more expensive. According to intelligence reports from the Associated Chambers of Commerce and Industry of India, sectors such as petroleum and petroleum products, drugs and pharmaceuticals and engineering items – which have import inputs up to 77%, 19% and 21% respectively – they will gain if the rupee appreciates. They would have to pay less for imported raw materials, which would increase their profit margins. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay. Likewise, a depreciating rupee makes exports cheaper and imports expensive. Hence, it is good news for sectors such as IT, textiles, hospitality and tourism which generate revenue mainly from the export of their products or services. Devaluation of the rupee makes Indian goods and services cheaper for foreign buyers, thus leading to increased demand and increased revenue generation. Foreign tourists would find it convenient to come to India, thus increasing the business of hotels, tours and travel companies. The Indian IT sector depends on foreign customers, particularly the United States, for more than 70% of its revenue. When an IT company receives a project from a client, it decides the length of the contract and the cost of the project in advance. Contracts with US customers are generally quoted in US dollars. Therefore, exchange rate fluctuation can make a noticeable difference in a company's performance. Some companies take a variety of measures such as hedging currency risks using forward contracts and futures. This helps mitigate some of the losses due to exchange rate fluctuations, but nevertheless the impact is substantial. The exchange rate is a significant tool that can be used to examine many key sectors; with fluctuations that could have a serious impact on the economy, industries, companies and foreign investors. Rupee appreciation is generally helpful for industries that rely heavily on imported inputs, while rupee depreciation is good news for industries that export most of their products. Determining the Exchange Rate and Its Fluctuations Like other prices, the exchange rate also changes with changes in the state of the market. Just as other prices depend on supply and demand, the exchange rate also depends on the configuration of supply and demand forces. However, two important aspects should be noted: (i) Unlike goods and services, foreign currency has no direct production costs. It just has an opportunity cost. Import invoices must be paid from export proceeds. Therefore, the production cost of exportable surpluses can be considered as the direct production cost of exports and the indirect cost of imports. The opportunity cost is represented by the withdrawal of the exportable surplus from internal consumption. Fluctuations are a natural feature of the exchange rate market, provided that the exchange rate is not an administered price. If the exchange rate is an administered price, it is determined administratively by the country's central bank. The administered exchange rate is generally provided with stability since both the demand and supply of foreign currency are under the control of the central bank. The exchange rate, on the whole, fluctuates like other prices, which generally vary with changes in supply and/or demand. Imports, foreign aid, investments.