Economic Awareness - Sectors of Indian Economy
In the context of the foreign exchange market, what does 'sterilized intervention' by the Reserve Bank of India mean?
In the context of the foreign exchange market, what does 'sterilized intervention' by the Reserve Bank of India mean?
hard Q10 of 15
Step-by-Step Solution
Step 1: Define sterilized intervention
Sterilized intervention involves RBI buying or selling foreign currency while offsetting the impact on domestic money supply through open market operations.Step 2: Analyze options
Permanent fixing, free float without intervention, and restricting transactions do not describe sterilized intervention.Step 3: Explain why others are wrong
Fixing exchange rate is not sterilization; free float means no intervention; restricting transactions is capital control, unrelated to sterilization.Final Answer:
RBI buys or sells foreign currency without affecting the domestic money supply → Option CQuick Check:
Sterilized intervention = forex trade without money supply change ✅
Quick Trick: Sterilized = neutralizing money supply effect.
Common Mistakes:
MISTAKES- Confusing sterilized intervention with fixed rates or capital controls.
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