Inter-Relation between Fii, Inflation and Exchange Rate
10 Pages Posted: 14 Nov 2005
Date Written: August 31, 2005
The Financial Sector of an economy plays a significant role in attracting the Foreign Institutional Investment inflows. The present study tries to examine the effect of significant macroeconomic variables; inflation and exchange rate on the inflows of Foreign Institutional Investment in India. The author has tried to develop a theoretical framework to analyze the inter-relation between Foreign Institutional Investment, Inflation and Exchange Rate. Given the huge volume of these flows and their significant impact on domestic financial markets; understanding the determinants of these flows becomes imperative as the economy moves towards full capital account convertibility.
Keywords: FII, Inflation, Exchange Rate, Uncovered Interest Parity, Purchasing Power Parity Theory
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