In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis? 1. The foreign currency earnings of India’s IT sector 2. Increasing the government expenditure 3. Remittances from Indians abroad Select the correct answer using the code given below.

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YESPYQ · Accepted Answer

Correct answer: 1 and 3 only. A currency crisis occurs when a country’s currency faces a sudden and sharp depreciation, often due to specu- lative attacks or a loss of confidence in the economy. Several factors can contribute to reducing the risk of such a crisis: Statement 1 is correct : India’s Information Technology (IT) sector is a major exporter of services, earning substantial foreign exchange. These earnings increase the supply of foreign currency in the country, strengthening the Indian rupee and mit- igating the risk of a currency crisis. Statement 2 is incorrect : While government spending is crucial for economic growth, excessive expenditure can lead to higher fiscal deficits. This may result in increased borrowing, poten- tial inflationary pressures, and could negatively affect in- vestor confidence, thereby increasing the risk of a currency crisis. Statement 3 is correct : Remittances are funds sent by Indians working overseas back to India. These inflows add to the coun- try’s foreign exchange reserves, providing a buffer against currency volatility and reducing the ris

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