Q. With reference to exchange rate indices and IMF support mechanisms, consider the following statements:
1.NEER represents the weighted average exchange rate of the rupee against the currencies of India’s major trading partners.
2.REER adjusts NEER for inflation differentials, reflecting the real purchasing power of the rupee.
3.Under the Extended Fund Facility (EFF), IMF provides financial assistance without imposing any conditions on the borrowing country.
Which of the statements given above is/are correct?
Quarterly-SFG-Jan-to-March
Red Book

[A] 1 and 2 only

[B] 2 and 3 only

[C] 1 and 3 only

[D] 1, 2 and 3

Answer: A
Notes:

Explanation:

  • NEER (Nominal Effective Exchange Rate) is the weighted average of exchange rates between the rupee and the currencies of India’s major trading partners.
  • REER (Real Effective Exchange Rate) is NEER adjusted for inflation differentials, showing the real external value of the rupee.
  • EFF involves conditional support from the IMF, requiring structural reforms in the borrowing country’s economy.

Source- TMH Indian Economy by Ramesh Singh

Discover more from Free UPSC IAS Preparation Syllabus and Materials For Aspirants

Subscribe to get the latest posts sent to your email.

Blog
Academy
Community