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Home› UPSC CSE› Prelims GS Paper I› 2023 questions› Question 4

UPSC CSE Prelims

Subject: Economy Chapter: Monetary Policy

2023 PYQ

Question 4

Which one of the following activities of the Reserve Bank of India is considered to be part of 'sterilization'?

Choose one answer AConducting 'Open Market Operations' BOversight of settlement and payment systems CDebt and cash management for the Central and State Governments DRegulating the functions of Non-banking Financial Institutions

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Correct answer: A

Correct Option: A (Conducting 'Open Market Operations') Explanation: Sterilization offsets the domestic liquidity effects of RBI foreign-exchange intervention, typically through open market purchases or sales of government securities. Option-wise Analysis: A. Correct-open market operations absorb or inject rupee liquidity to sterilize forex intervention. B. Incorrect-Payment-system supervision regulates infrastructure but does not offset intervention-related liquidity. C. Incorrect-Government debt and cash management is an agency function, not monetary sterilization. D. Incorrect-Regulating NBFCs is financial supervision rather than sterilization.

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