A
An agreement where the central bank buys or sells foreign currency against local currency with a promise to reverse the transaction at a future date
B
A mandatory transfer of foreign exchange reserves from commercial banks to the central bank during a currency crisis
C
A bilateral trade agreement between two nations bypassing the US Dollar for settlement
D
A punitive tax imposed by the central bank on excessive foreign institutional capital outflows
Correct answer: (a) An agreement where the central bank buys or sells foreign currency against local currency with a promise to reverse the transaction at a future date
Explanation
Option A accurately defines a Forex Swap as an agreement where the central bank buys or sells foreign currency against local currency with a commitment to reverse the transaction at a future date. The other options misstate the mechanism.
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.
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