RBI uses Open Market Operations (buying/selling government securities) to manage domestic liquidity and influence interest rates. RBI intervenes in the foreign exchange market (buying/selling foreign currency) to manage the value of the rupee and control volatility.
With reference to the Indian economy, consider the following statements: If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars. Which of the statements given above are correct ?
Asked in UPSC IAS 2022 · 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: B. 2 and 3 only
Read the notes: Foreign Exchange Market and Exchange Rate Determination →
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