How can rbi help in bringing down the foreign exchange rate which is very high?
Answers
Answered by
6
Answer:
RBI can sell the foreign currency it holds in the market. It can also alter interest rate.
Explanation:
RBI holds its own reserve of foreign exchange. When the foreign exchange rate becomes very high, the RBI can sell currency from its reserve in the market. This will lead to an increase in the supply of foreign currency in the market. The exchange, as a result, will decline.
RBI can also affect the interest rate. When the exchange rate is high, RBI can increase the interest rate. This will increase the flow of capital from abroad. The supply of foreign currency will increase, the exchange rate will decline.
Similar questions