Question
If the US Central Bank raises their interest rate then it may lead to which of the following in the Indian economy:
Answer: Option C
Answer: (c)When the US Federal Bank increases the interest rate, then the foreign investors sell their investments in India (mostly debt instruments) and move to US. In the process they convert the Rupee into dollars in the forex market and the demand for dollar increases and rupee depreciates. Money supply in the Indian economy will decrease in this case because foreign investors are selling their investments and taking money out of India.
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Answer: (c)When the US Federal Bank increases the interest rate, then the foreign investors sell their investments in India (mostly debt instruments) and move to US. In the process they convert the Rupee into dollars in the forex market and the demand for dollar increases and rupee depreciates. Money supply in the Indian economy will decrease in this case because foreign investors are selling their investments and taking money out of India.
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