If interest rates in India are higher than in U.S. then _______________.

Indian rupee shows weakness as compared to US $

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Indian rupee strengthened as compared to US $

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No effect on interest rate of ex-change rates

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None of the above

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Solution

The correct option is B Indian rupee strengthened as compared to US $
As per interest rate parity theorem if interest rate is higher in India, then investor will prefer to switch funds from US to India and dollar will be used to buy rupees and having pressure should strengthen the rupee against the US $.

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