Official Answer Key & Detailed Solution
Ready to check the official UPSC Answer Key?
Click any option above to test yourself under exam conditions, or reveal the explanation directly.
Correct Answer: Option (B) — 2 and 3 only
Concept & Option Breakdown
Standard Reference VerifiedStatement 1 is incorrect: The World Bank does not determine currency prices or exchange rates; exchange rates are driven by foreign exchange market dynamics. Statement 2 is correct: Demand for a country's exports creates direct demand for its currency, determining its exchange rate. Statement 3 is correct: Political and government stability heavily affects capital flows and market confidence, directly impacting currency value. Statement 4 is incorrect: General long-term economic potential does not set daily or prevailing exchange rates in foreign exchange markets.
The World Bank is a development funding agency and has no mandate to set currency prices. Eliminating statement 1 eliminates options (a) and (d).
Practice Full-Length & Sectional Prelims Mocks on this Interface
50 simulated tests in the APT Prelims Test Series (₹1,493) or 1-on-1 Mentorship with Avinash Sir.