Q65. In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
- The foreign currency earnings of India’s IT sector.
- Increasing the government expenditure.
- Remittances from Indians abroad.
Select the correct answer using the code given below:
(a) 1 only
(b) 1 and 3 only
(c) 2 only
(d) 1, 2 and 3
Answer: B
- Statement 1 is correct: Foreign currency earnings of India’s IT sector will lead to an increase in the supply of foreign currencies, and this further increases the forex reserves. Therefore, more supply and less demand for foreign currency relative to the Indian rupee helps in reducing the risk of currency crisis.
- Statement 2 is not correct: Increasing Government expenditure will have no effect on the value of currency. Currency crisis can be reduced by manipulating the demand and supply of currency in the foreign exchange market.
- Statement 3 is correct: Remittance is the sum of money (in foreign currency), sent from abroad or overseas to the home country. Remittance is the major source of cash inflow into any country. With the inflow of foreign currency, forex reserves again increased which further reduced currency crisis. India is the largest remittance-receiving country in the world
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