Suppose that, using a system of multiple exchange rates, India wishes to discourage investors from sending their funds abroad relative to employing the funds in production for export. If the exchange rate for exports were set at 33⅓ Indian rupees = $1.00, then which one of the following exchange rates for capital transactions would potentially be appropriate for implementing the strategy?

Question

Quizplus · Accepted Answer

In order to discourage investors from sending funds abroad, the Indian government would want to give them a lower rate of return on their investment. By setting the exchange rate for capital transactions at 1 Indian rupee = $0.02, investors would receive less dollars for their rupees than they would if the rate were higher, making investment in India less attractive relative to investing abroad. Option C is the only choice that meets this criteria.

Suppose That, Using a System of Multiple Exchange Rates, India