1. Not depending on short-term foreign borrowings 

2. Opening up to more foreign banks 

3. Maintaining full capital account convertibility 

Select the correct answer using the code given below: 

(a) 1 only 

(b) 1 and 2 only 

(c) 3 only 

(d) 1, 2 and 3 

Answer: a

Explanation:

In the era of globalisation countries are inter-related financially, the deeper the financial relations, the more is advantage, since it permits the free movement of capital. However, if any crisis arises the deeper the financial relations, the harder is the impact of the crisis.

In case of setting up of more foreign banks, more is the chance of getting impacted by the global crisis. 

The Tarapore Committee (2006), defined capital account convertibility as the “freedom to convert local financial assets into foreign financial assets and vice versa.”  Full capital account convertibility facilitates easy flight of capital, as experienced during East-Asian crisis. 

Depending on short-term foreign borrowings leads to uncertainties during the financial crisis.

Hence, statement 1 is correct and 2 and 3 are incorrect.

Read: Solved Economy PYQs With Explanation 2020 UPSC Prelims