Question

What will be the impact of foreign investments in india on exchange rate?

Answer 1

Foreign Direct Investment (FDI) is an international flow of capital where a company or individual of one country makes an investment in another country. The main objective of such investment is to establish business operations which will generate a lasting interest in the investee economy (Goldberg, n.d.). India is one of the most promising economies in the world and in 2015 India received the highest amount of foreign investment leaving behind China and United States (Unctad, 2016). There are various factors which affect the inflow of foreign investment. Some of the factors has been explained in our previous articles. In the current article relationship between exchange rate and foreign direct investment will be discussed in Indian context.

Exchange rate is defined as a price of one currency in terms of another currency, by taking into consideration their levels and their volatility (Goldberg, n.d.). According to the Asset Market Approach, exchange rates vary according to the variation in supply and demand of financial assets of different nations. There are many other reasons also which responsible for exchange rate fluctuations, such as;

interest rateinflation ratemoney supplyeconomic growthforeign debt