Multiple Choice Questions on With reference to Dollar Swap Window consider following statements Under this RBI buys dol........... for UPSC Civil Services Examination (General Studies) Preparation

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Multiple Choice Questions

With reference to Dollar Swap Window consider following statements Under this RBI buys dol...........

Economic Affairs Money Supply and Monetary Policy
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    With reference to Dollar Swap Window, consider following statements

    1. Under this RBI buys dollars from banks instead of bonds but wants to return these dollars at the end of the time period decided for a ‘forward’ premium.
    2. It will have negative impact on Foreign Reserve.
    3. Increases the supply of rupees in the market.

    Select the correct statement.

     

    1&2 only

    Incorrect Answer

    2&3 only

    Incorrect Answer

    1&3 only

    Correct Answer

    All of the above

    Incorrect Answer
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    Explanation:
    • RBI buys dollars from banks instead of bonds but wants to return these dollars at the end of the time period decided for a ‘forward’ premium. This premium is determined through an auction.
    • RBI is doing two things: buying dollars from banks and selling ‘forward dollars’ for a price or premium.
    • The swaps will be conducted through the auction route in multiple tranches.
    • It will not have any negative effect on the Forex reserves of the country since the level of forex reserves remains at $487.24 billion as of March 6, 2020. Such a large reserve amount makes a comfortable room to meet any exigency.

    By: Shubham Tiwari
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