UPSC removed this question.
Correct answer: (a) 1 and 2 only
Explanation
- A
1 and 2 only
1 and 2 only. Fed tightening can pull capital out; ECB interest costs can rise. Devaluation raises, not lowers, foreign-currency ECB risk.
- B
2 and 3 only
2 and 3 only. Statement 3 reverses currency risk.
- C
1 and 3 only
1 and 3 only. Statement 3 is the false limb.
- D
1, 2 and 3
All three. Devaluation increases the rupee burden of dollar ECBs.
Summary. The Commission later dropped this item, so there is no official key to mark. Still walk the options. A US Fed tightening can trigger capital flight from emerging markets. That reprices ECBs and can lift interest costs on floating or refinanced lines. A weaker rupee increases, not decreases, the currency risk on foreign-currency ECBs. WRAP does not stamp Official key on a withdrawn row.
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