Match List-I with List-II:
| List-I | List-II | ||
|---|---|---|---|
| (A) | A US firm buys software services from an Indian firm | (I) | Supply of foreign exchange as foreigners buy assets of the home country |
| (B) | A US charity sends a grant to a school in India | (II) | India’s exports, and so the supply of foreign exchange, may increase |
| (C) | A Japanese investor buys Indian government bonds | (III) | Supply of foreign exchange as foreigners buy the home country’s goods and services |
| (D) | The price of foreign exchange rises | (IV) | Supply of foreign exchange as foreigners make transfers |
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A) - (III), (B) - (IV), (C) - (I), (D) - (II)
Foreign currency flows into India in three ways: exports, transfers from abroad and sale of Indian assets to foreigners.
| List-I | List-II | Reason |
|---|---|---|
| (A) A US firm buys software services from an Indian firm | (III) Supply of foreign exchange as foreigners buy the home country’s goods and services | This is an export of services. |
| (B) A US charity sends a grant to a school in India | (IV) Supply of foreign exchange as foreigners make transfers | A grant is a transfer. |
| (C) A Japanese investor buys Indian government bonds | (I) Supply of foreign exchange as foreigners buy assets of the home country | Bonds are assets of India. |
| (D) The price of foreign exchange rises | (II) India’s exports, and so the supply of foreign exchange, may increase | Our goods become cheaper for foreigners. |
NCERT (2026-27): “Supply of Foreign Exchange Foreign currency flows into the home country due to the following reasons: exports by a country lead to the purchase of its domestic goods and services by the foreigners; foreigners send gifts or make transfers; and, the assets of a home country are bought by the foreigners. A rise in price of foreign exchange will reduce the foreigner’s cost (in terms of USD) while purchasing products from India, other things remaining constant. This increases India’s exports and hence supply for foreign exchange may increase (whether it actually increases depends on a number of factors, particularly elasticity of demand for exports and imports.” |