Why the Rupee Falls Anyway

India isn't in trouble, but the rupee is falling, and that mismatch is exactly what's

causing confusion. Because we've been taught that a falling currency automatically means a weak economy.

But currencies don't necessarily fall because of weaker economy, they fall because

capital flows change. Right now, the 10-year US Treasury yield sits around 4.2% relative to

India's 6.7%. India's yields are higher than the US, but that's not a

free lunch. That extra yield exists because investors demand compensation for the currency

risk. Even though India's yields are higher than the US, investors ask just

one question: Will the INR depreciate more than the extra yield I'll earn? And if the answer