{"id":1720,"date":"2024-03-29T13:47:51","date_gmt":"2024-03-29T08:17:51","guid":{"rendered":"https:\/\/lotusarise.com\/qna\/?p=1720"},"modified":"2024-04-03T07:14:47","modified_gmt":"2024-04-03T01:44:47","slug":"q-which-one-of-the-following-is-not-the-most-likely-measure-the-government-rbi-takes-to-stop-the-slide-of-indian-rupee","status":"publish","type":"post","link":"https:\/\/lotusarise.com\/qna\/upsc\/q-which-one-of-the-following-is-not-the-most-likely-measure-the-government-rbi-takes-to-stop-the-slide-of-indian-rupee","title":{"rendered":"Q. Which one of the following is not the most likely measure the Government\/RBI takes to stop the slide of Indian rupee?"},"content":{"rendered":"\n<ul class=\"mcq wp-block-list\">\n<li>Curbing imports of non-essential goods and promoting exports<\/li>\n\n\n\n<li>Encouraging Indian borrowers to issue rupee-denominated Masala Bonds<\/li>\n\n\n\n<li>Easing conditions relating to external commercial borrowing<\/li>\n\n\n\n<li>Following an expansionary monetary policy<\/li>\n<\/ul>\n\n\n\n<blockquote class=\"wp-block-quote is-layout-flow wp-block-quote-is-layout-flow\">\n<p class=\"wp-block-paragraph\"><strong>Answer: (d) Following an expansionary monetary policy<\/strong><\/p>\n<\/blockquote>\n\n\n\n<h5 class=\"wp-block-heading\" id=\"appreciation--depreciation-of-currency\">Appreciation &amp; Depreciation of Currency<\/h5>\n\n\n\n<ul class=\"wp-block-list\">\n<li>In a floating exchange rate system,&nbsp;<strong>market forces (based on demand and supply of a currency) determine the value of a currency.<\/strong><\/li>\n\n\n\n<li><strong>Currency Appreciation:<\/strong>\u00a0It is an<strong>&nbsp;increase in the value of one currency<\/strong>\u00a0in relation to another currency.\n<ul class=\"wp-block-list\">\n<li>Currencies appreciate against each other for a variety of reasons, including government&nbsp;<strong>policy, interest rates, trade balances and business cycles.<\/strong><\/li>\n\n\n\n<li>Currency appreciation&nbsp;<strong>discourages a country\u2019s export activity<\/strong>&nbsp;as its products and services become&nbsp;<strong>costlier to buy<\/strong>.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Currency Depreciation<\/strong>: It is a fall in the value of a currency in a floating exchange rate system.\n<ul class=\"wp-block-list\">\n<li>Economic fundamentals,&nbsp;<strong>political instability, or risk aversion can cause currency depreciation.<\/strong><\/li>\n\n\n\n<li>Currency depreciation encourages a country\u2019s export activity as<strong>&nbsp;its products and services become cheaper to buy.<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Cause of Currency Depreciation<\/strong>:\n<ul class=\"wp-block-list\">\n<li><strong>Trade Imbalance<\/strong>: A country experiencing a trade deficit, where<strong>&nbsp;imports exceed exports<\/strong>, may see its currency depreciate as demand for foreign currencies increases to pay for the excess imports.<\/li>\n\n\n\n<li><strong>Inflation<\/strong>:&nbsp;<strong>Higher inflation rates<\/strong>&nbsp;compared to other countries can lead to currency depreciation. Inflation erodes the purchasing power of a currency, reducing its value relative to other currencies.<\/li>\n\n\n\n<li><strong>Interest Rates<\/strong>:&nbsp;<strong>Lower interest rates<\/strong>&nbsp;in a country can make its currency less attractive to foreign investors, leading to a decrease in demand and depreciation.<\/li>\n\n\n\n<li><strong>Political and Economic Stability<\/strong>: Political instability, economic uncertainty, or unfavourable government policies can&nbsp;<strong>undermine investor confidence&nbsp;<\/strong>and cause currency depreciation.<\/li>\n\n\n\n<li><strong>Speculation<\/strong>: Speculators anticipating currency depreciation&nbsp;<strong>may sell off the currency<\/strong>, leading to its devaluation in the foreign exchange market.<\/li>\n\n\n\n<li><strong>Capital Outflows<\/strong>: When<strong>&nbsp;investors move their capital out of a country due to perceived risks or better investment opportunities<\/strong>&nbsp;elsewhere, it can result in a depreciation of the country\u2019s currency.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Impacts of Depreciation of Currency:&nbsp;<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Export Competitiveness:<\/strong>&nbsp;A depreciated currency can&nbsp;<strong>make a country\u2019s exports more affordable and competitive in international markets<\/strong>, potentially boosting export volumes and improving the trade balance.<\/li>\n\n\n\n<li><strong>Import Cost Increase:<\/strong>&nbsp;Depreciation leads to&nbsp;<strong>increased costs for imported goods<\/strong>, as the country\u2019s currency now has less purchasing power. This can contribute to higher inflation and impact the affordability of imported products.<\/li>\n\n\n\n<li><strong>Current Account Balance<\/strong>: A currency depreciation can help<strong>&nbsp;improve a country\u2019s current account balance by reducing imports and increasing export<\/strong>s, potentially leading to a positive impact on the overall balance of payments.<\/li>\n\n\n\n<li><strong>Foreign Debt Burden<\/strong>: If a country has significant foreign debt denominated in foreign currencies, currency depreciation can&nbsp;<strong>increase the burden of servicing that debt<\/strong>, as it now requires more domestic currency to make the same payments.<\/li>\n\n\n\n<li><strong>Inflationary Pressure:<\/strong>&nbsp;Currency depreciation can&nbsp;<strong>contribute to inflationary pressures by increasing the cost of imported goods and raw materials<\/strong>. This, in turn, can impact consumer purchasing power and overall price levels within the economy.<\/li>\n\n\n\n<li><strong>Tourism and Foreign Investment:<\/strong>&nbsp;Currency depreciation can make a country a&nbsp;<strong>more attractive destination for tourists and foreign investors<\/strong>, as their spending power increases in relation to the depreciated currency.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>Answer: (d) Following an expansionary monetary policy Appreciation &amp; Depreciation of Currency<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_kad_blocks_custom_css":"","_kad_blocks_head_custom_js":"","_kad_blocks_body_custom_js":"","_kad_blocks_footer_custom_js":"","_kad_post_transparent":"","_kad_post_title":"","_kad_post_layout":"","_kad_post_sidebar_id":"","_kad_post_content_style":"","_kad_post_vertical_padding":"","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[1,3],"tags":[38],"years":[54],"class_list":["post-1720","post","type-post","status-publish","format-standard","hentry","category-upsc","category-prelims","tag-indian-economy","years-54"],"acf":[],"taxonomy_info":{"category":[{"value":1,"label":"UPSC"},{"value":3,"label":"Prelims"}],"post_tag":[{"value":38,"label":"Indian Economy"}],"years":[{"value":54,"label":"2019"}]},"featured_image_src_large":false,"author_info":{"display_name":"LotusArise","author_link":"https:\/\/lotusarise.com\/qna\/author\/team-lotusarise"},"comment_info":0,"category_info":[{"term_id":1,"name":"UPSC","slug":"upsc","term_group":0,"term_taxonomy_id":1,"taxonomy":"category","description":"","parent":0,"count":1269,"filter":"raw","cat_ID":1,"category_count":1269,"category_description":"","cat_name":"UPSC","category_nicename":"upsc","category_parent":0},{"term_id":3,"name":"Prelims","slug":"prelims","term_group":0,"term_taxonomy_id":3,"taxonomy":"category","description":"","parent":1,"count":1251,"filter":"raw","cat_ID":3,"category_count":1251,"category_description":"","cat_name":"Prelims","category_nicename":"prelims","category_parent":1}],"tag_info":[{"term_id":38,"name":"Indian Economy","slug":"indian-economy","term_group":0,"term_taxonomy_id":38,"taxonomy":"post_tag","description":"","parent":0,"count":225,"filter":"raw"}],"_links":{"self":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1720","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/comments?post=1720"}],"version-history":[{"count":0,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/posts\/1720\/revisions"}],"wp:attachment":[{"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/media?parent=1720"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/categories?post=1720"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/tags?post=1720"},{"taxonomy":"years","embeddable":true,"href":"https:\/\/lotusarise.com\/qna\/wp-json\/wp\/v2\/years?post=1720"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}