Option 1 -> Indian investors investing abroad requires conversion of INR to foreign currency, creating demand for foreign exchange.
Option 2 -> Foreign direct investment from abroad brings foreign currency INTO India, creating supply of foreign exchange, not demand.
Option 3 -> Import of machines requires payment in foreign currency, creating demand for foreign exchange.
Option 4 -> Repayment of foreign loans requires foreign currency, creating demand for foreign exchange.
Hence, Option 2: Foreign direct investment from abroad -> When foreign investors invest in India, they bring foreign currency into the country and convert it to INR. This creates a supply of foreign exchange in the Indian market, not a demand. Demand for foreign exchange arises only when Indians need to pay abroad (investments abroad, imports, loan repayments, etc.). FDI inflow is a source of foreign exchange earnings for India. -> correct