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    Question

    Which of the following may result in deficit in Current

    Account?
    A Excessive import of electronics items Correct Answer Incorrect Answer
    B Excessive export of agriculture products Correct Answer Incorrect Answer
    C Huge outflow of Foreign Institutional Investment (FII) Correct Answer Incorrect Answer
    D Receiving huge remittance from abroad Correct Answer Incorrect Answer
    E Both a and c Correct Answer Incorrect Answer

    Solution

    Excessive import of any commodity will cause huge outflow of foreign currency from India, thus causing a Current Account Deficit. Same is true for outflow of FII. FII are short term foreign investment in India’s debt or equity market. These are very volatile and temporary in nature.  They may withdraw their investment overnight and invest in some other market for better return. That’s why this is also called ‘Hot Money’

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