Question

    Central banks hold Foreign Exchange Reserves in foreign

    currencies which are vital for a country’s international trade and commerce. Recently, Indian foreign exchange reserves hit a lifetime high of $612 billion. It is believed that an even larger reserve will help in increasing investor confidence in the Indian economy.Which of the following, if true, would weaken the argument made in the given paragraph?1. Mostly dominated by foreign currency assets, foreign exchange reserves can also include other instruments like bonds, treasury bills, gold reserves etc.2. Saudi Arabia holds considerable foreign exchange reserves, as the country relies on large amounts of imports. The foreign funds in reserves act as a cushion against volatility in the international market.3. India has large infrastructure financing needs to meet development aspirations and a higher foreign exchange reserve ties up the much-needed capital. In the question given below, a passage/statement is given followed by three statements which may or may not strengthen/weaken the assertion made in the passage. Answer the questions as per the individual direction given.
    A Only 3 Correct Answer Incorrect Answer
    B Only 1 and 2 Correct Answer Incorrect Answer
    C Only 1 and 3 Correct Answer Incorrect Answer
    D Only 2 and 3 Correct Answer Incorrect Answer
    E All 1, 2 and 3 Correct Answer Incorrect Answer

    Solution

    The para tells us how India’s foreign exchange reserves hit a lifetime high. It argues in favour of a larger reserve to increase confidence in the Indian economy. 3 tells us how a higher reserve would make less capital available for India’s infrastructure financing needs. It weakens the argument given in the para. Thus, (a) is the right answer.
    1 merely tells us about different components of foreign exchange reserves. 2 tells us how high foreign exchange reserves help Saudi Arabia avoid volatility in the international market.

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