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प्रश्न
How do capital movements affect the exchange rates?
लघु उत्तरीय
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उत्तर
Capital movements affect exchange rates by changing the demand and supply of foreign currency.
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Capital inflows (money coming into the country) increase the supply of foreign currency, causing the domestic currency to appreciate.
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Capital outflows (money leaving the country) increase demand for foreign currency, causing the domestic currency to depreciate.
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