UPSC Previous Year Question | Prelims GS | 2019

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.

  1. 1 only
  2. 1 and 3 only
  3. 2 only
  4. 1, 2 and 3

Answer

Correct Answer

1 and 3 only

Explanation

IT export earnings and remittances add to foreign exchange inflows and reserves, reducing currency-crisis risk. Rising government expenditure (which can widen deficits and inflation) does not help.

Topics: external sector, factors reducing currency crisis risk, forex and exchange rate, indian economy