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    Question

    What effect does an increase in foreign investment in

    India have on the exchange rate of the rupee?
    A It leads to depreciation of the rupee. Correct Answer Incorrect Answer
    B It has no effect on the rupee's value. Correct Answer Incorrect Answer
    C It leads to appreciation of the rupee. Correct Answer Incorrect Answer
    D It causes the rupee to fluctuate wildly. Correct Answer Incorrect Answer
    E It increases the fixed exchange rate value of the rupee. Correct Answer Incorrect Answer

    Solution

       Increased foreign investment in India increases the demand for the rupee as investors convert their dollars to rupees to invest, leading to an appreciation of the rupee. This increase in supply of foreign currency (dollars) and demand for the rupee strengthens its value.

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