摘要：Foreign investments have made noticeable effect in the Indian Economy. This paper aims to study the identify the effect of foreign capital flow on exchange rate in India for the period 2006 to 2013 using monthly data. The data includes the Inflow of FDI into India, Net FII, Exchange rate between Indian Rupee to US Dollar and Indian Rupee to Pound Sterling. Foreign investors are attracted to success stories; they are drawn to countries already growing, politically stable, and with a sizable purchasing power. It is attracting towards high interest rate and large market size as well as certain level of scope for new business and innovative ideas. Foreign investment inflows to India continued to increase over the last two decade as a result of investment favorable policies adopted by the Indian government. There is sufficient evidence to show that there are significant effects of foreign capital flow on foreign exchange rate. It is evident in the results that the regression analyses do not provide much support for the view of a robust link between exchange rate and capital flow in India.
