Economics · Macroeconomics
For a net crude oil-importing country like India, a significant spike in global oil prices impacts the domestic economy. Based on macroeconomic market dynamics, what is the most likely sequence of events following a sustained 20 percent increase in global crude oil prices in 2025?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1The government responds by completely banning the use of the forex market for oil imports, requiring all international transactions to be settled in physical gold coins.
- 2Higher oil prices cause the domestic equity market to immediately triple in value as investors project higher transportation costs to elevate corporate revenues.
- 3The rise in oil prices leads to a mandatory reduction in the repo rate by 200 basis points to encourage fuel consumption and support manufacturing.
- 4Increased demand for dollars by oil importers leads to Rupee depreciation, prompting the RBI to sell dollars, which reduces domestic Rupee liquidity and pushes up call money rates.✓
Correct answer
Increased demand for dollars by oil importers leads to Rupee depreciation, prompting the RBI to sell dollars, which reduces domestic Rupee liquidity and pushes up call money rates.
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