Which of the following statements is/are correct? 1. Most of India's reserves is held in the form of foreign currency. 2. There is no cost of holding foreign currency as reserves by a nation. Select the correct answer using the code given below.

CDS 2024 PYQ with Answer — Which of the following statements is/are correct? 1. Most of India's…

2024 · Q31

Which of the following statements is/are correct?

1Most of India's reserves is held in the form of foreign currency.
2There is no cost of holding foreign currency as reserves by a nation.

Select the correct answer using the code given below.

General KnowledgeIndian Economy

A1 only
B2 only
CBoth 1 and 2
DNeither 1 nor 2

Explanation

Statement 1 is correct: the bulk of India's foreign exchange reserves is held in the form of foreign currency assets (mainly securities and deposits in major currencies), with gold forming a smaller share. Statement 2 is incorrect: holding reserves carries an opportunity cost — the funds could otherwise earn higher returns or be used for domestic investment — so there is a real cost of holding foreign currency reserves. Only statement 1 is correct, so the answer is (A).