PYQ Question

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

August 6, 2026 en

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.

A. 1 only
B. 1 and 3 only
C. 2 only
D. 1, 2 and 3

Answer: B

Explanation

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. The foreign current earnings of India’s IT sector and remittances from abroad would lead more inflow of foreign currencies in the economy and boost the foreign exchange reserves. Hence, Statements 1 and 3 are correct. Statement 2 is not correct as increasing the government expenditure is not related to change in foreign exchange reserves or any currency fluctuations.