Currency Crisis Risk Reduction
Question
In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
Select the correct answer using the code given below.
- 1.
The foreign currency earnings of India's IT sector
- 2.
Increasing the government expenditure
- 3.
Remittances from Indians abroad
Options
1 only
1 and 3 only
2 only
1, 2 and 3
Explanation
Statement 1 is correct: IT sector earnings generate significant foreign exchange inflows, strengthening India's forex reserves and reducing currency crisis risk. Statement 3 is correct: Remittances from overseas Indians are a major source of foreign currency, providing stable external resources. Statement 2 is incorrect: Increasing government expenditure does not reduce currency crisis risk; in fact, excessive expenditure can worsen fiscal deficits and weaken the currency. Currency stability depends on external inflows and controlled domestic spending, not increased expenditure. > Currency crisis prevention: Foreign exchange inflows (IT, remittances) > increased expenditure.
Question details
Year
2019
Paper
GS Paper 1
Question
Q65
Subject
Economy
Sub-topic
Foreign exchange reserves and external stability
Type
Statement-based
Difficulty
Medium
Nature
Static
Source hint
External sector economics and RBI policy
See all questions on Foreign exchange reserves and external stability
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