2012 · Q88
It is said that, in order to control inflation, foreign inflow needs to be sterilized. Sterilization here refers to :
Indian EconomyMonetary policy
- AEnsuring that counterfeit currency does not enter circulation.
- BEnsuring that black money is accounted for.
- CWithdrawing equivalent local currency to maintain a desirable rate of exchange.
- DCompliance with import-export regulations.
Explanation
When foreign capital inflows force the RBI to buy dollars, rupee liquidity expands; sterilization means withdrawing that equivalent local currency — via the Market Stabilisation Scheme or open market operations — to hold the exchange rate and contain inflation. It has nothing to do with counterfeit currency, black money or trade compliance. Hence option C.