Reference no: EM133132320

Per The uncomfortable rise of the rupee "

The second paragraph provides two measures of the rupee's degree of strengthening against the U.S. dollar (15% and 10%). Why is it important to consider an inflation-adjusted measure for the exchange rate?

The first line of the third paragraph attributes the rise in the rupee's value to a "strong inflow of foreign capital, some of it enticed by India's promise, the rest disillusioned by the rich world's financial troubles." Why would a strong inward capital flow be associated with a rise in the rupee's value?

The last sentence of the fifth paragraph states, "Printing rupees to buy the incoming dollars keeps the currency cheap but also adds to the money supply, stoking inflation." Why would "printing rupees to buy the incoming dollars" keep the rupee "cheap"?

Why would expanding the money supply "stoke inflation"?

The first line of the sixth paragraph states that the Indian central bank has tried to counter the inflationary pressures from expanding the money supply by "raising the reserves [that banks] must lock up in its vaults." Identify and briefly explain the economic mechanism through which an increase in reserve requirements would depress money supply growth.

The last sentence of the eleventh paragraph states that, despite the government's implementing a novel form of capital control in the 1990s, "Chile's real exchange rate continued to appreciate." What does a "real exchange rate" measure:

Why would capital controls counteract appreciation of a country's real exchange rate?

The twelfth paragraph states that the Chilean government's "fiscal restraint" in the face of strong capital inflows during the 1990s left the government with "enough money...to cushion the economic downturn when foreign capital eventually turned tail in 1998."