Q. Which one of the following factors is most likely to cause the Indian Rupee to appreciate against the US Dollar?

[A] A decrease in the Reserve Bank of India (RBI) benchmark interest rate.

[B] An increase in foreign portfolio investment (FPI) inflows into Indian equity markets.

[C] A significant increase in India crude oil imports.

[D] A rise in US Federal Reserve interest rates.

Answer: B
Notes:

Explanation – Foreign portfolio investments increase the demand for the Indian Rupee as foreign investors need to convert their USD into INR to invest in Indian markets. This increased demand for INR leads to its appreciation. Conversely, factors like lower interest rates, higher crude oil imports, and rising US interest rates could lead to a depreciation of the Rupee.

Source: AIR

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