Economics · Economy

What role does Foreign Exchange Reserves play in India’s economic stability?

Verified Solution4 OptionsUpdated: October 2026👁️1 View

1The size of Foreign Exchange Reserves directly influences a nation’s military spending.
2Increasing Foreign Exchange Reserves always results in inflation.
3They ensure the country is able to pay for imports and service foreign debt, thus maintaining balance of payment stability.✓
4It has no impact on economic activities or currency valuation.

Correct answer

They ensure the country is able to pay for imports and service foreign debt, thus maintaining balance of payment stability.

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