Question : As a result of a higher rate of inflation in India, the US dollar will:
Option 1: depreciate
Option 2: constant
Option 3: negligible
Option 4: appreciate
Correct Answer: appreciate
Solution : The correct option is appreciated.
The US dollar will strengthen and the Indian rupee will weaken as a result of India's high rate of inflation. As a result, American goods will be imported into India at a higher rate and Indian goods will be exported to the United States at a lower rate, which will affect both the price of the Indian rupee in terms of dollars and the dollar exchange rate.
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