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Q31 (IAS/2001) Economy › External Sector & Trade › External Sector & Trade

Assertion (A) : Ceiling on foreign exchange for a host of current account transaction heads was lowered in the year 2000. Reason (R) : There was a fall in foreign currency assets also.

Result
Your answer: —  Â·  Correct: A

Explanation

In the year 2000, India experienced pressure on its balance of payments due to rising international crude oil prices, which caused a fall in foreign currency assets. In response, the Reserve Bank of India (RBI) introduced measures in August 2000 to stabilize the rupee and conserve foreign exchange.

  • Assertion (A) is True: The RBI temporarily lowered ceilings and entitlements for a variety of current account transactions (notably halving the EEFC account entitlement from 50% to 25%) to curb demand for foreign currency.
  • Reason (R) is True: These measures were a direct consequence of the decline in foreign currency assets observed during the first half of the 2000-01 fiscal year.

Since the fall in assets was the reason for tightening the exchange ceilings, R is the correct explanation of A.

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