Question

How does inflow of foreign investment influence the exchange rate of INR / USD​

Answer 1

Explanation:

Economics is popularly known as the “Queen of Social Sciences”. It

studies economic activities of a man living in a society. Economic activities are those

activities, which are concerned with the efficient use of scarce means that can satisfy the

wants of man. After the basic needs viz., food, shelter and clothing have been satisfied,

the priorities shift towards other wants. Human wants are unlimited, in the sense, that as

soon as one want is satisfied another crops up. Most of the means of satisfying these

wants are limited, because their supply is less than demand. These means have alternative

uses; there emerge a problem of choice. Resources being scarce in nature ought to be

utilized productively within the available means to derive maximum satisfaction. The

knowledge of economics guides us in making effective decisions. The subject matter of

economics is concerned with wants, efforts and satisfaction. In other words, it deals with

decisions regarding the commodities and services to be produced in the economy, how to

produce them most economically and how to provide for the growth of the economy.

Subject matter of economics

Economics has subject mater of its own . Economics tells how a man utilises his

limited resources for the satisfaction of unlimited wants. Man has limited amount of time

and money. He should spend time and money in such away that he derives maximum

satisfaction. A man wants food, clothing and shelter. To get these things he must have

money. For getting money he must make an effort. Effort leads to satisfaction. Thus,

wants- efforts- satisfaction sums up the subject mater of economics initially in a primitive

Answer 2

Foreign Direct Investment is an international movement of capital where a business or individual from one nation makes an investment in another nation.

• The exchange rate-based FDI analyses the direct link between the investment flows and the economic changes in an exchange rate.  
• FDI inflows can affect the appreciation or depreciation of the local exchange rate through an increased currency demand. A increasing FDI would escalate demand for the currency of the receiving nation and increase its exchange rate.
• In addition, an marked increase in the official currency of a nation would lead to an improvement in its trading conditions, which represent the ratio of import prices to exports.
• The inflation and interest rates, balance of payments of a country, the debt terms and also the political environment of a country affect the exchange rate.