Question

Q. Which of the following measures leads to an increase in the forex reserve of India?

Select the correct code from the options given below:

• A. 1 only
• B. 2, 3 only
• C. 1, 2, 3 only
• D. None of the above

Answer 1

The correct option is A 1 only

Explanation:

• Forex reserves increase when foreign currencies, especially dollars, are earned. An increase in imports and a decrease in exports lead to outflow/reduction of dollars. Hence this will lead to a reduction in forex reserves. Hence statements 2 and 3 are incorrect.
• Current account surplus means a net gain of foreign currencies, as exports increase imports. Hence, this will increase forex reserves. Hence, statement 1 is correct.