UPSC Prelims 2020 – Question 49

Here is Question No. 49 a part of our series on UPSC Prelims 2020.

Q49. If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India?

1. Not depending on the short-term foreign borrowings
2. Opening up to more foreign banks
3. Maintaining full capital account convertibility

Select the correct answer using the code given below:
(a) 1 only
(b) 1 and 2 only
(c) 3 only
(d) 1, 2 and 3

Answer: A

• Global financial crisis refers to extreme stress in global financial markets and banking systems. A fast-changing global environment demands organizations to have both financial stability and liquidity.
• Statement 1 is correct: Foreign debt is money borrowed by a government, corporation or private household from another country’s government or private lenders. Total foreign debt can be a combination of short-term and long-term liabilities. In comparison to long-term foreign debts, short-term foreign debts are more volatile and can cause liquidity crunch in times of global crisis. Therefore, not depending on short-term foreign borrowings can certainly give some immunity to India in times of global crisis

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