Arrange the following steps to be occurred in a sequential order in order to increase the foreign exchange reserve of the economy :
A, Increase in purchasing power of non-residents
B. More inflow of foreign exchange in the domestic market.
C. Export promotion of domestic goods & services.
D. Devaluation of Indian Currency (₹) by RBI.
E. More inflow of FDI's and FII's in domestic market.
Choose the correct answer from the options given below :
Answer & explanation
Correct answer: option 3
The correct answer is option (3) : D, A, C, E, B
To increase the foreign exchange reserve of the economy, you would typically follow these steps in a sequence order :
Devaluation of Indian Currency (D) by RBI : Devaluation is the first step.
Increase in purchasing power of non-residents (A) : Devaluation will make the imports cheaper for foreign residents (non residents) as they get more rupees for one dollar after devaluation. This can encourage non-residents to spend more in the domestic economy, leading to an increase in foreign exchange reserves.
Export promotion of domestic goods & services (C) : As a result of demand from non residents of Indian products, the exports will increase.
More inflow of FDI's and FII's in the domestic market (E) : Attracting foreign direct investment (FDI) and foreign institutional investments (FII) can further increase foreign exchange reserves.
More inflow of foreign exchange in the domestic market (B) : This step completes the process, with increased foreign exchange reserves as a result of the preceding actions.