|Last year, there were indications of tapering of quantitative easing by the US Federal Reserve. The surge in capital outflows resulted in sharp depreciation of rupee. What were the steps taken by RBI to restore the stability in foreign exchange market?|
|1. Hike in Marginal Standing Facility (MSF) rate.|
|2. Cap on daily Liquidity Adjustment Fund (LAP) borrowing to Net Demand and Time Liabilities (NDTL) of respective banks.|
|3. A hike in the minimum daily cash reserve ratio (CRR) requirement.|
|4. Weekly auctions of cash management bills.|
|Select the correct answer using the codes given below:|
A) 1, 2 and 3 only
B) 2, 3 and 4 only
C) 2 and 3 only
D) 1, 2, 3 and 4
Correct Answer: D
Solution :[d] To stem the sharp and substantial depreciation of the Rupee, policy makers resorted to a mix of policy measures including forex market intervention, monetary tightening through reduction in banks' access to overnight LAF, increase in MSF rate and increase in daily minimum CRR maintenance requirements and administrative measures, such as, import compression of non-essential items like gold, opening of special dollar swap window for the PSU oil companies, special concessional swap window for attracting FCNR [b] deposits, increase in overseas borrowing limit of banks, bringing of outward FDI flows to the approval route, reduction in Liberalised Remittance Scheme (LRS) entitlement, disallowing banks from carrying proprietary trading in exchange traded derivatives, etc.
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