Q9.
If another global financial crisis happens in the near future, which of the following action/policies are most likely to give some immunity to India? 1. Not depending on short- term foreign borrowings 2. Opening up to more foreign banks 3. Maintaining full capital account convertibility Select the correct answer using the code given below:
Answer
A
Explanation
If a global financial crisis happens in the future, lesser exposure to the foreign financial markets is likely to give some immunity to India. Option 1 is correct: Short-term borrowings would lead to the burden of paying back the debt, and could result in stressful conditions for the borrowing economy/ India. Option 2 is not correct: Opening up to more foreign banks would lead to an enhanced exposure to the global economy, and hence an increased risk. Option 3 is not correct: Currency convertibility refers to a situation in which a currency can be converted into a foreign currency, and vice-versa at the prevailing exchange rate without any government intervention. In India, we cannot completely convert rupees to dollars- There are restrictions to the same. Now, capital account convertibility is the freedom to convert domestic currency into a foreign currency, and vice-versa