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UPSC PYQPrelims 2022

Civil Services Examination · प्रश्न 61

Consider the following statements: 1. Tight monetary policy of US Federal Reserve could lead to capital flight. 2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs). 3. Devaluation of domestic currency decreases the currency risk associated with ECBs. Which of the statements given above are correct?

  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2 and 3
उत्तर देखें और व्याख्या

उत्तर: (A) 1 and 2 only

व्याख्या

Fed tightening pulls capital out of emerging markets, weakening their currencies and raising the cost of servicing foreign-currency ECBs. Devaluation increases, not decreases, ECB currency risk.