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UPSC 2022: Consider the following statements: 1. Tight monetary policy of US Federal Reserve could lead to capital flight. 2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs). 3. Devaluation of domestic currency decreases the currency risk associated with ECBs. Which of the statements given above is/are correct?
(a)1 and 2 only
(b)2 and 3 only
(c)1 and 3 only
(d)1, 2 and 3
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Not attemptedCorrect Answer: (x)
A tighter US-Fed policy raises US yields and can trigger capital flight from emerging markets like India, so statement 1 is correct. Capital flight raises borrowing costs for firms with outstanding ECBs, so statement 2 is also correct. However, depreciation of the domestic currency INCREASES (not decreases) the rupee cost of servicing foreign-currency ECBs, so statement 3 is wrong. Therefore, only statements 1 and 2 are correct → option (a). ([licchavilyceum.com](https://licchavilyceum.com/upsc-prelims-2022-solved-question-paper-1-gs/))
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Frequently Asked Questions
What is the correct answer to this UPSC 2022 Indian Economy question?▼
The correct answer is option (x): undefined. Watch the detailed video explanation in our Sherlocking Prelims course on UnlockIAS.
Which year was this External Sector & Balance Of Payments question asked in UPSC Prelims?▼
This question was asked in UPSC CSE Prelims 2022, GS Paper 1, as Question 61. It falls under Indian Economy > External Sector & Balance Of Payments.
What is the difficulty level of this UPSC question?▼
This question is rated "moderate". It requires sound conceptual understanding of the topic.
How many UPSC Prelims questions have been asked from External Sector & Balance Of Payments?▼
UPSC has asked 49 questions from External Sector & Balance Of Payments (under Indian Economy) across multiple years. Visit the topic page to see the full list and year-wise trends.