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

[A] Rising inflation in India

[B] Increase in foreign direct investment (FDI) inflows into India

[C] India having a large trade deficit with the US

[D] High interest rates in the US compared to India

Answer: B
Notes:

Explanation – Foreign Direct Investment (FDI) inflows increase the demand for the Indian rupee because foreign investors need to exchange their foreign currency (like the US dollar) for rupees to invest in Indian assets or businesses. This increased demand for the rupee strengthens its value, leading to appreciation.

Source: AIR

Blog
Academy
Community