RBI conducts 'sell buy' swaps (selling USD spot and buying USD forward) to inject Rupee liquidity into the banking system. This action was particularly relevant during periods of market stress and capital outflows, such as those experienced globally due to the initial spread of COVID-19.
What are the recent trends in the global economy which has led to RBI 'sell buy' swap of USD/INR (a) Financial markets worldwide facing intense selling pressures due to the spread of Covid-19 infections. (b) Slump in International crude prices. (c) Emerging market currencies experiencing upward pressure.
Asked in TNPSC CS Prelims 2021 · Topic: Foreign Exchange Market and Exchange Rate Determination (Role of Reserve Bank of India (RBI) in Foreign Exchange Market Intervention)
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Answer: A. (a) only
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