<p>Bro, more inflation is a domestic phenomenon,when u said more inflation means indian currency has relatively declined in its value in domestic market,lesser no. Of domestic goods can be purchased domestically but if exchange rate is not changing this inflation has no affect internationally Depreciation is a international phenomenon,comparing two currencies.</p>

CC BY-SA 4.0
2019-07-23T19:33:38.967Z
(-1) for assuming OP is a "bro".
Giskard
CC BY-SA 4.0
2019-07-23T18:23:10.690Z
2019-07-23T18:23:10.690Z
PARTH RAINA
<p>I think the flaw in your reasoning is expecting that foreign capital inflow would lead to more ₹ in circulation.  When investors bring in capital, they are buying ₹ that were previously in circulation.  This additional demand without additional supply is exactly what drives the price of the ₹ up.  There is no increase in the quantity of ₹ circulating unless the government/central bank responds in some way.</p>

CC BY-SA 3.0
2018-04-23T11:46:14.740Z
2018-04-23T11:46:14.740Z
Dan
<p>For the below let's assume domestic currency is ₹ and foreign capital is in \$</p>

<p>Foreign Capital Inflow => ₹ Appreciates (Because of more \$)</p>

<p>But consider this,</p>

<p>Foreign Capital Inflow => More ₹ in circulation (Since \$ have to be exchanged into ₹ before actually using in India) => More Inflation => ₹  Depreciation</p>

<p>What is wrong in this second reasoning?</p>

CC BY-SA 3.0
2018-04-23T12:49:08.280Z
This is one of the economic myth circulate around the world by various media and public perception. Currency inflation is always tied with supply and demand of the local note, not the foreign factor.
mootmoot
<inflation>
Interrelationship between inflation and foreign capital flow
yathish
# Interrelationship between inflation and foreign capital flow

(Asked by: username_0 on 2018-04-22)

For the below let's assume domestic currency is ₹ and foreign capital is in \$

Foreign Capital Inflow => ₹ Appreciates (Because of more \$)

But consider this,

Foreign Capital Inflow => More ₹ in circulation (Since \$ have to be exchanged into ₹ before actually using in India) => More Inflation => ₹  Depreciation

What is wrong in this second reasoning?

**Tags:** inflation

> **Comments:**
> **username_1**: This is one of the economic myth circulate around the world by various media and public perception. Currency inflation is always tied with supply and demand of the local note, not the foreign factor.  

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## 2 answers

### Answer by username_4 on 2018-04-23. Score: 3 | Accepted answer

I think the flaw in your reasoning is expecting that foreign capital inflow would lead to more ₹ in circulation. When investors bring in capital, they are buying ₹ that were previously in circulation. This additional demand without additional supply is exactly what drives the price of the ₹ up. There is no increase in the quantity of ₹ circulating unless the government/central bank responds in some way.


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### Answer by username_2 on 2019-07-23. Score: -2

Bro, more inflation is a domestic phenomenon,when u said more inflation means indian currency has relatively declined in its value in domestic market,lesser no. Of domestic goods can be purchased domestically but if exchange rate is not changing this inflation has no affect internationally Depreciation is a international phenomenon,comparing two currencies.

> **Comments:**
> **username_3**: (-1) for assuming OP is a "bro".  

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