In the context of India, which of the following factor/factors is/are contributor/contributors to reducing the

Question

In the context of India, which of the following factor/factors is/are contributor/contributors to reducing the risk of a currency crisis?
1. The foreign currency earnings of India’s IT sector.
2. Increasing government expenditure.
3. Remittances from Indians abroad.
Select the correct answer using the code given below:

Accepted Answer

A currency crisis is often triggered by a severe shortage of foreign exchange. Earnings from exports, such as the IT sector, directly bring in foreign currency, strengthening reserves. Similarly, remittances from abroad, often sent in foreign currency and converted to local currency, also boost foreign exchange inflows. Increased government expenditure, however, can potentially lead to higher imports or fiscal deficits, which might put downward pressure on the currency if not managed effectively, thus not necessarily reducing crisis risk.