Question Set 1: Navigating the twists and turns of the global economic landscape, the Indian economy finds itself at a crossroads, grappling with the challenges posed by the recent depreciation of the rupee. It’s not merely the decline in currency value that raises eyebrows, but the speed at which it’s happening and the intricate web of factors fueling this change. The Russia-Ukraine conflict has sent shockwaves through supply chains, propelling commodity prices upward and triggering a worldwide surge in inflation.
In response, major central banks, including India’s, have raised interest rates, prompting a flight of investors to the safety of the US dollar. For India, this has translated into a surge in the import bill, particularly for crude oil, and a substantial outflow of portfolio investments. The Reserve Bank of India (RBI) faces the delicate task of striking a balance—allowing controlled depreciation while preventing a drastic erosion of foreign exchange reserves.
Too much depreciation could fan the flames of domestic inflation, impacting production costs, and potentially necessitating a rise in interest rates. As the RBI charts its course, the challenge is formidable: managing inflation, fostering growth, and safeguarding the rupee without depleting the nation’s foreign exchange reserves excessively. It’s a tightrope walk that requires astute decisions in an environment fraught with unpredictable global economic shocks.
Previous Year Question Set 1
Question: What viewpoint would the author most likely embrace?
(A) When a country’s currency is losing its value, it’s definitely a red flag and something we should be worried about.
(B) Currency depreciation alone might not be a big deal, but if the overall economic conditions aren’t great, then there’s a reason to be concerned.
(C) It’s pretty alarming that the Indian rupee is losing value against major currencies.
(D) It’s important for a central bank to take decisive action to prevent even a slight drop in the value of a country’s currency.
Question: How can we help the rupee maintain its value? What factors, according to the author, might prevent or slow down the decline in the rupee’s value?
(A) Bringing in a new leader for the RBI who really understands how to keep prices stable, making sure things don’t get too expensive for us.
(B) Prices of everyday things are going up a lot, and it’s getting harder to find the stuff we need because the way things are shipped and made is all messed up.
(C) Things are getting a bit better globally – prices aren’t going up as much everywhere, and in some richer countries, they’re even making it cheaper to borrow money.
(D) The RBI is trying to get as many dollars as it can from the market – probably to help manage our money and make sure everything stays okay.
Question: Which statement, if proven correct, would have the greatest impact in undermining the author’s arguments?
(A) The Indian economy is feeling the pinch of rising global prices and the uptick in interest rates in advanced countries.
(B) With interest rates on the rise in developed nations, investors worldwide are shifting their money away from other economies and directing it towards these developed markets.
(C) If there’s a surge in demand for US dollars, it’s probable that the cost of one dollar in rupees would shoot up significantly.
(D) Contrary to being shielded, the Indian economy and its currency are not immune to the impact of global inflation and the increased interest rates in developed countries.
Question: What information, if confirmed, would best support the author’s claims about why Indian exports might struggle to benefit from a depreciating rupee?
(A) Right now, many countries are facing an economic slowdown. This means that in these places, people aren’t buying as many imported goods.
(B) On the flip side, some countries are experiencing economic growth, and they’re really interested in buying more stuff from India.
(C) Even if we sell less stuff abroad, the amount of money Indian exporters make in dollars might go up enough to make up for it.
(D) Despite the tensions between Russia and Ukraine causing issues, many countries have figured out ways to protect themselves from the problems. These nations are now looking to buy a bunch of things from India to keep their new and improved economies going strong.
Question: What can we say for sure based on what the author is saying?
(A) The current decline in the value of the Indian rupee, combined with global inflation, could lead to significant political instability in India and, consequently, affect the entire South Asian region.
(B) Without intervention, the increasing interest rates in developed countries, along with a global rise in inflation, may cause the rupee to lose value against the dollar.
(C) If global inflation persists and interest rates in developed countries continue to climb, investors may choose to boost their portfolios in India, potentially contributing positively to India’s foreign exchange reserves.
(D) If no action is taken, the surge in interest rates in developed countries and the escalating global inflation could result in an increase in the value of the rupee against the dollar.
Question: What viewpoint is the author likely to align with the most?
(A) The RBI should not only concentrate on preventing the rupee from losing value because doing so could have adverse effects on other aspects of our economy.
(B) It’s crucial for the RBI to prioritize preventing the rupee from depreciating at all costs since it serves as a vital indicator of the overall health of the Indian economy.
(C) It’s normal for economies to experience periodic inflation, and the RBI shouldn’t be overly concerned about inflationary effects in India resulting from the rupee’s depreciation.
(D) The RBI doesn’t necessarily have to take immediate action to curb the rate of rupee depreciation, as the decline of a country’s currency isn’t inherently alarming.