Read the following case study paragraph carefully and answer the questions based on the same.

The central bank of India (Reserve Bank of India) is the apex institution that controls the entire financial market. It's one of the major function is to maintain the reserve of foreign exchange. Also, it intervenes in the foreign exchange market to stabilise the excessive fluctuations in the foreign exchange rate. In other words, it is the central bank's job to control a country economy through monetary policy.

If the economy is moving slowly or going backward, there are steps that central bank can take to boost the economy. These steps, whether they are asset purchases or printing more money, all involve injecting more cash into the economy. The simple supply and demand economic projection occur and currency will devalue. When the opposite occurs, and the economy is growing, the central bank will use various methods to keep that growth steady and in-line with other economic factors such as wages and prices. Whatever the central bank does or in fact don't do, will affect the currency of that country. Sometimes, it is within the central bank's interest to purposefully affect the value of a currency. For example, if the economy is heavily reliant on exports and their currency value becomes too high, importers of that country's commodities will seek cheaper supply; hence directly affecting the economy.

Central Bank will choose which step, if there is excessive rise in the foreign exchange rate?

Supply foreign exchange from its stock

The central bank will Supply foreign exchange from its stock if there is an excessive rise in the foreign exchange rate.

When there is an excessive rise in the foreign exchange rate, it means that the domestic currency has depreciated significantly in comparison to other currencies. It also means that the demand of foreign currency is more than the supply resulting in an increase in the foreign exchange rate. In such a scenario, increasing supply of foreign exchange will help in filling demand and supply gap thereby helping the domestic currency to stabilise.