A
2 only
B
Both 1 and 2
C
1 only
D
Neither 1 nor 2
Correct answer: (b) Both 1 and 2
Explanation
Both statements accurately describe the mechanism. Forex swaps inject rupee liquidity into domestic banks while absorbing foreign currency, and they involve exchanging currencies with a commitment to reverse the transaction at a future date.
Same topic · past papers
UPSC has asked this before
These previous-year questions sit on the same topic. Open one to practise the earlier ask.