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Question

The advantages offered by Currency swap agreement is/are

  1. promotion of bilateral and block based trade
  2. improves liquidity of the domestic currency
  3. shields currency from global financial turmoils.

Code:


  1. 1 only

  2. 3 only

  3. 2 and 3 only

  4. All of these


Solution

The correct option is D

All of these


The Reserve Bank of India (RBI) has extended currency swap arrangement to South Asian Association for Regional Cooperation (SAARC) nations till mid-November 2017. All 7 SAARC member countries including Bangladesh, Afghanistan, Maldives, Bhutan, Nepal, Pakistan and Sri Lanka can avail the facility. This move of RBI aims at enhancing economic cooperation and strengthening financial stability among the SAARC countries.

A currency swap (or a cross currency swap) is a foreign exchange derivative between two institutions to exchange the principal and/or interest payments of a loan in one currency for equivalent amounts, in net present value terms, in another currency.

One distinct advantage of the swap is greater recognition of currencies involved in such transactions. Therefore, currency swap in the rupee with our counterparts will help in internationalisation of the rupee

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