Rupee denominated debt refers to that part of India’s total external debt that is denominated in the Rupee.
In contrast to foreign currency denominated external debt, in case of rupee denominated debt the currency risk (the risk arising from appreciation or depreciation of the nominal exchange rate) is borne by the creditor and not by the borrower. The contractual liability is settled in foreign currency. Accordingly, the borrower always pays back the foreign currency equivalent of the rupee denomination valued at the spot exchange rate prevailing at that point in time. Thus, if the domestic currency appreciates vis-à-vis the foreign currency, the creditor stands to gain vis-à-vis the borrower since he receives more dollars per unit of Rupee.
In contrast to foreign currency denominated external debt, in case of rupee denominated debt the currency risk (the risk arising from appreciation or depreciation of the nominal exchange rate) is borne by the creditor and not by the borrower. The contractual liability is settled in foreign currency. Accordingly, the borrower always pays back the foreign currency equivalent of the rupee denomination valued at the spot exchange rate prevailing at that point in time. Thus, if the domestic currency appreciates vis-à-vis the foreign currency, the creditor stands to gain vis-à-vis the borrower since he receives more dollars per unit of Rupee.
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