Which among the following can be substantially affected by the foreign capital inflows in a developing country such as India?
1. Exchange Rates
2. Domestic monetary conditions
3. Domestic Savings and Investments
Choose the correct option from the codes given below:

Answer: [D] 1, 2 & 3

  • Capital inflows allow the recipient country to invest and consume more.
  • Capital inflows facilitate the attainment of the millennium development goals (MDGs) and the objective of national economic, empowerment and development strategy (NEEDs).
  • As the economy becomes more open and integrated with the rest of the world, capital flows will contribute significantly to the transformation of the developing economy.
  • Capital inflows are also necessary for macroeconomic stability as capital inflows affect a wide range of macroeconomic variables such as exchange rates, interest rates, foreign exchange reserves, domestic monetary conditions as well as saving and investments.
  • Some commonly observed effects of the capital inflows that have been documented include real exchange rate appreciation, stock market and real estate boom, reserve accumulation, monetary expansion as well as effect on production and consumption

This question is a part of GKToday's Integrated IAS General Studies Module