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
Correct Answer
C
2 only
D
1, 2 and 3
Explanation
Statements 1 and 3 are correct because IT exports and remittances provide a steady inflow of foreign exchange, which strengthens the Balance of Payments and builds the reserves necessary to stabilize the Rupee. Statement 2 is incorrect because increasing government expenditure typically widens the fiscal deficit and can lead to inflation, which often weakens the currency and increases the risk of a crisis. The core concept tested is the impact of foreign exchange inflows and fiscal discipline on currency stability.
External SectorBalance of Payments, Currency StabilityCurrency crisisforeign currency earningsIT sectorgovernment expenditureRemittancesIndians abroad