Here is Question No. 86 a part of our series on UPSC Prelims 2019
Q86. Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of the Indian rupee?
(a) Curbing imports of non-essential goods and promoting exports.
(b) Encouraging Indian borrowers to issue rupee-denominated Masala Bonds.
(c) Easing conditions relating to external commercial borrowing.
(d) Following an expansionary monetary policy.
Answer: D
- Option A is not correct: Curbing imports of non-essential goods will lessen the demand for dollars and promoting exports will help increase the flow of dollars into the country – helping control rupee depreciation.
- Option B is not correct: The Masala bond is directly pegged to the Indian Currency. If Indian borrowers issues more rupee-denominated Masala bonds, this would increase liquidity in the market or increase in the rupee stock against a few currencies in the market and this would help in supporting the rupee.
- Option C is not correct: ECB is a type of loan in foreign currencies made by non-resident lenders. Thus, easing conditions of the ECB helps in receiving more loans in foreign currencies that would increase of forex inflow leading to rupee appreciation.
- Option D is correct: Expansionary Monetary Policy is a set of policy measures such as an increase in money supply by the RBI to stimulate the economy. It cannot influence the variations of rupee value
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