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Monetary Policy Quiz: RBI, LAF, and Money Market

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Monetary Policy Quiz: RBI, LAF, and Money Market

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Questions and Answers

What enabled the Government of India to prepay foreign currency loans?

Lower foreign exchange reserves and low domestic interest rates

High foreign exchange reserves and low domestic interest rates (correct)

Lower foreign exchange reserves and high domestic interest rates

High foreign exchange reserves and high domestic interest rates

How did the Government of India substitute the foreign debts with domestic debt?

By issuing government securities on a private placement basis to the RBI (correct)

By purchasing more foreign currency from RBI

By seeking financial aid from international organizations

By issuing government securities to international investors

What is the fiscal/monetary implication of the transactions mentioned in the text?

The transactions will lead to an increase in fiscal deficit and inflation

The transactions will lead to a decrease in fiscal deficit but an increase in inflation

There are no fiscal/monetary implications as it is a substitution of external sovereign debt with domestic sovereign debt placed with RBI (correct)

There are no fiscal/monetary implications as it is a direct repayment of foreign currency loans

What type of debt was used to substitute the foreign debts?

Domestic sovereign debt Signup and view all the answers

What action did the Government of India take to prepay US $ 5.2 billion of foreign currency loans?

Outright purchase of foreign exchange from RBI Signup and view all the answers

What role did the RBI play in the process of substituting foreign debts with domestic debt?

Receiving government securities through private placement Signup and view all the answers

How do the low interest rates in domestic markets contribute to the prepayment of foreign currency loans?

They reduce the cost of borrowing for prepayment Signup and view all the answers

What distinguishes the mentioned transactions from traditional fiscal/monetary implications?

They involve substitution of external sovereign debt with domestic sovereign debt placed with RBI Signup and view all the answers

What was the purpose of issuing government securities on a private placement basis to the RBI?

To substitute foreign debts with domestic debt Signup and view all the answers

How did India manage to prepay certain foreign currency loans?

By outright purchase of foreign exchange from RBI Signup and view all the answers