UPSC Prelims 2019 · Question 15 of 99
UPSC Prelims 2019 question on Currency Crisis Risk Factors
- ExamUPSC CSE
- Year2019
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicExternal Sector of India
- DifficultyMedium
- TypeStatement
In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
1. The foreign currency earnings of India's IT sector
2. Increasing the government expenditure
3. Remittances from Indians abroad
Select the correct answer using the code given below.
Show answer
Answer: B. 1 and 3 only
Verdict
Correct statements: 1 and 3 → Option (b).
Analysis
Currency crisis is brought on by a decline in the value of a country's currency. This decline in value negatively affects an economy by creating instabilities in exchange rates, meaning that one unit of a certain currency no longer buys as much as it used to in another currency.
A substantial amount of foreign exchange reserves can help to cushion against any risks of currency crisis.
Statement by statement
Statement 1 – CORRECT: The foreign current earnings of India's IT sector would lead more inflow of foreign currencies in the economy and boost the foreign exchange reserves.
Statement 2 – INCORRECT: Increasing the government expenditure is not related to change in foreign exchange reserves or any currency fluctuations.
Statement 3 – CORRECT: Remittances from abroad would lead more inflow of foreign currencies in the economy and boost the foreign exchange reserves.