Question

Which of the following is the author most likely to agree with?

• A. It is a major cause for concern if an economy’s currency is depreciating.
• B. Currency depreciation is not a reason for worry in itself, but if macroeconomic factors are not good, there may be a cause for concern.
• C. The fact that the Indian rupee is witnessing a decline in value against major currencies is very worrisome.
• D. A central bank must always do everything in its power to stem the slight depreciation of an economy’s currency.
• A. Appointing a new Governor for the RBI who has a better sense of how to control inflationary trends.
• B. A steep increase in commodity prices and the continued disruption of supply chains.
• C. A reduction in worldwide inflationary trends and the lowering of interest rates in developed country markets.
• D. Increasing interest rates in developed country markets.
• A. The Indian economy has been affected by global inflationary trends and the increase of interest rates in developed country markets.
• B. Since developed country markets have increased their interest rates, global investors have pulled their investments out of other economies, and routed them to such developed country markets.
• C. As the demand for US dollars increases, it is likely the rupee-price of a dollar would increase substantially.
• D. The Indian economy and currency are highly protected and have been insulated from the effects of global inflationary trends and the increase of interest rates in developed country markets.
• A. Economies across the world are witnessing a slowdown, and in such economies, demand for imports decreases substantially.
• B. Economies across the world are booming, and there is an increasing demand for Indian exports.
• C. A reduction in the volume of exports would be more than offset by the increased value of dollars that Indian exporters would earn.
• D. Countries across the world have managed to find ways to insulate themselves from the effects of the Russia-Ukraine war and will need a lot of Indian imports to sustain their new growth models.
• A. The continuing depreciation of the Indian rupee at its current rate, coupled with worldwide inflationary trends, would result in immense political instability in India, and consequently, in all of South Asia.
• B. If nothing else is done, the rise of interest rates in developed country markets, coupled with hardening of inflationary trends across the world, will result in a fall in the value of the rupee against the dollar.
• C. If inflationary trends continue to harden across the world, and if interest rates in developed country markets continue to rise, portfolio investors will increase their investments in India, and this will have a positive impact on India’s foreign exchange reserves.
• D. If nothing else is done, the rise of interest rates in developed country markets, coupled with hardening of inflationary trends across the world, will result in a rise in the value of the rupee against the dollar.
• A. The RBI must not focus solely on preventing the depreciation of the rupee, as that may result in negative impacts on other aspects of the economy.
• B. The RBI must focus solely on preventing the depreciation of the rupee at all costs, since it is by far the most important indicator of the health of the Indian economy.
• C. Periodic inflationary trends are normal in any economy, and the RBI need not worry about the inflationary effects in the Indian economy caused by the depreciation of the rupee.
• D. The RBI need not do anything to reduce the rate of depreciation of the rupee, because the depreciation of an economy’s currency is not a major cause of concern in itself.

Answer 1

The Correct Option is B

Step 1: Identify the author's central argument
The passage makes it clear that depreciation of currency is not automatically a cause for concern.
It needs to be assessed alongside macroeconomic conditions.
Step 2: Linking to the options
Option (B) matches this view — depreciation is not bad in itself but can become worrying if economic fundamentals are weak.
Option (A) overstates the problem; the author explicitly avoids such a generalisation.
Option (C) is too alarmist compared to the author’s nuanced stance.
Option (D) assumes constant intervention, which the author does not advocate.
\[ \boxed{\text{Depreciation is not automatically bad; context matters.}} \]

Answer 2

Step 1: Factors causing rupee depreciation in the passage
Rising global inflation and higher interest rates abroad attract investment away from India, increasing demand for the US dollar and weakening the rupee.
Disruptions in global supply chains also play a role.
Step 2: Applying to the options
Option (C) directly addresses the external pressures by reducing global inflation and lowering interest rates in developed markets, which would ease dollar demand and support the rupee.
Option (A) is unrelated to the global causes outlined in the passage.
Option (B) would worsen the situation by increasing inflationary pressures.
Option (D) would also worsen the situation by attracting more capital to developed markets and away from India.
\[ \boxed{\text{Global inflation fall + lower developed market interest rates = Rupee support.}} \]

Answer 3

Step 1: Understanding the author's claim
The passage clearly links the depreciation of the rupee to external factors, especially:
Global inflationary trends.
Higher interest rates in developed country markets.
The logic is: higher foreign interest rates attract capital away from India → greater demand for US dollars → rupee weakens.
Step 2: How to weaken this logic
If India’s economy and currency were completely insulated from these global factors, the chain of reasoning falls apart.
The depreciation of the rupee could no longer be explained by the causes the author is emphasising.
Step 3: Checking options
(A), (B), and (C) actually support the author's causal chain — they confirm the link between global factors and rupee depreciation.
(D) directly removes the cause-effect link, hence strongly weakens the argument.
\[ \boxed{\text{If global factors have no effect on India, the author's core reasoning collapses.}} \]

Answer 4

Step 1: Author’s point on export limitations
The passage explains that although a falling rupee should make Indian goods cheaper abroad, global demand stagnation means exports may not increase.
This is because international demand is influenced more by global economic health than by currency exchange rates alone.
Step 2: Strengthening the argument
If the world economy is slowing, countries will import less — even from cheaper suppliers like India.
This fits perfectly with the author’s warning that the rupee’s depreciation won’t automatically boost exports.
Step 3: Option analysis
(A) matches the logic and adds evidence of a global slowdown.
(B) contradicts it (booming economies would import more).
(C) undermines the claim by suggesting exporters benefit despite volume drops.
(D) implies sustained or increased demand, contradicting the author's concern.
\[ \boxed{\text{Global slowdown directly supports the author's claim on weak export gains.}} \]

Answer 5

Step 1: Understanding the “must be true” requirement
A correct answer must follow directly from the facts in the passage — no extra assumptions.
Step 2: Link to the passage
The author repeatedly states: global inflation + higher foreign interest rates → capital outflows from India → greater demand for US dollars → rupee depreciation.
Step 3: Eliminating wrong options
(A) adds political instability — not mentioned.
(C) contradicts the passage’s direction of effect (rates up = outflows, not inflows).
(D) says rupee would rise, opposite to the author’s claim.
\[ \boxed{\text{Global rate hikes + inflationary trends necessarily cause rupee to weaken.}} \]

Answer 6

Step 1: Author’s view on RBI’s role
The author notes RBI faces a trade-off between controlling inflation and stabilising the rupee.
Over-focusing on one may harm the other.
Step 2: Why (A) is correct
(A) captures the balanced policy approach the author advocates — manage both currency stability and inflation, not just one objective.
Step 3: Why others are wrong
(B) is too extreme — ignores inflation control.
(C) dismisses inflation concerns, contrary to the passage.
(D) misinterprets the author’s view — while depreciation alone isn’t alarming, it can be problematic in the wrong macroeconomic context.
\[ \boxed{\text{Balanced RBI approach: avoid extreme focus on rupee alone.}} \]