India, Oct. 23 -- The Indian rupee's jump from nearly 97 per U.S. dollar to around 94.4 was an impressive recovery in under two weeks. The currency then dropped back to about 94.82 as oil prices climbed.

The episode is a reminder of how currencies are influenced by trade, flows of investment and moves by the Reserve Bank of India. The question is whether the RBI reduced demand for dollars, or just altered ways in which they become available in the market.

Why Does the Dollar Become More Expensive?

The Indian Rupee is said to 'weaken' against the dollar when demand for dollars is greater than what is supplied at the prevailing exchange rate. Indians buy dollars to make payments to foreign suppliers for goods and services. Foreign inves...