Q. If the US Federal Reserve decides to raise interest rates, which one of the following would be the most likely consequence for India?

[A] Increased borrowing costs for Indian businesses and consumers

[B] A stronger Indian Rupee compared to the US Dollar

[C] A surge in foreign direct investment in Indian companies

[D] A decrease in inflation rates in India

Answer: A
Notes:

Explanation – When the US Federal Reserve raises interest rates, it typically makes borrowing more expensive for US businesses and consumers. This, in turn, can attract foreign capital seeking higher returns, leading to an appreciation of the US Dollar relative to other currencies, including the Indian Rupee. As a result, Indian businesses and consumers may find it more expensive to borrow funds from international markets and repay US Dollar-denominated debts, causing an increase in borrowing costs.

Source: The Times of India

Blog
Academy
Community