Question

how does inflow of foreign investment influence the exchange rate inr/usd ​

Answer 1

Answer:

An inflow in Foreign Investment will increase the demand for the currency of the receiving country (India ) and raise its exchange rate. In addition there is an increase in a country's currency will lead to an improvement in its terms of trade which are the ratio of export to import prices.

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.