Which of the following statements is/are <strong>correct</strong>?<br>1. Most of India's reserves is held in the form of foreign currency.<br>2. There is no cost of holding foreign currency as reserves by a nation.<br>Select the correct answer using the code given below.
- A. 1 only ✓
- B. 2 only
- C. Both 1 and 2
- D. Neither 1 nor 2
Correct Answer: A. 1 only
Explanation
India's foreign exchange reserves mainly consist of Foreign Currency Assets (FCA). Statement 2 is incorrect because holding reserves incurs an opportunity cost (the difference between the return on reserve assets and the cost of domestic borrowing).
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