Given below are some of the situations Which of the following given below may lead to an increa...........

Economic Affairs Balance of Payments

Given below are some of the situations. Which of the following given below may lead to an increase in the inflow of foreign exchange in India?

1. Devaluation of rupee

2. Stable inflation in India

Select the correct option using the code given below.

1 only

2 only

Both 1 and 2

Neither 1 nor 2

छोटे Courses बड़े Results

Master Balance of Payments

Prepare through Micro-courses

Try Now

Explanation:

Statement 1 is correct as Devaluation attracts foreign investors as now they get more Indian assets by investing less in dollar or other foreign currency terms. For e.g. in 1991, as an immediate measure to resolve the balance of payments crisis, the rupee was devalued against foreign currencies. This led to an increase in the inflow of foreign exchange.

Inflation shows that demand of goods is higher than supply, i.e. if companies invest (FDI) their goods will be picked up by the consumers. Very high inflation discourages investment due to its uncertain nature and high drag on wage costs of firms. Stable Inflation makes investment profitability predictable and thus encourages FDI leading to increase in foreign exchange