Question

Which one of the following methods is being adopted by the Reserve Bank of India to neutralise the impact of increasing foreign exchange reserves on inflation in India?

• A. Contracting the supply of money through sale of securities
• B. Purchasing foreign exchange from the authorised dealers and sterilising the impact of increase in $M_3$ through the sale of securities
• C. Importing larger quantities of goods and services
• D. Depositing foreign exchange with the IMF

Answer 1

Answer: (B)

Purchasing foreign exchange from the authorised dealers and sterilising the impact of increase in $M_3$ through the sale of securities

the methods which are being adopted by RBI to neutralise the impact of increasing foreign exchange reserve on inflation is purchasing foreign exchange from the authorised dealers and sterilising the impact of increase in $M_3$ through the sales of securities.