# Interrelationship between inflation and foreign capital flow

For the below let's assume domestic currency is ₹ and foreign capital is in \$Foreign Capital Inflow => ₹ Appreciates (Because of more \$)

But consider this,

Foreign Capital Inflow => More ₹ in circulation (Since \\$ have to be exchanged into ₹ before actually using in India) => More Inflation => ₹  Depreciation

What is wrong in this second reasoning?

• This is one of the economic myth circulate around the world by various media and public perception. Currency inflation is always tied with supply and demand of the local note, not the foreign factor. – mootmoot Apr 23 '18 at 12:49