According to the passage, the financial markets in emerging market economies, including India, had an adverse impact in recent years due to: Weak global economic prospects. 1. Uncertainties in the international financial markets. 2. Sovereign risk concerns in the Euro area. 3. Bad monsoons and the resultant crop loss. Select the correct answer using the code given below:

Passage

Financial markets in India have acquired greater depth and liquidity over the years. Steady reforms since 1991 have led to growing linkages and integration of the Indian economy and its financial systems with the global economy. Weak global economic prospects and continuing uncertainties in the international financial markets have had an impact on the emerging market economies. Sovereign risk concerns, particularly in the Euro area, affected financial markets for the greater part of the year, with the contagion of Greece’s sovereign debt problem spreading to India and other economies by way of higher-than-normal levels of volatility.

The funding constraints in international financial markets could impact both the availability and cost of foreign funding for banks and corporates. Since the Indian financial system is bank-dominated, banks’ ability to withstand stress is critical to overall financial stability. Indian banks, however, remain robust, notwithstanding a decline in capital to risk-weighted assets ratio and a rise in non-performing asset levels in the recent past. Capital adequacy levels remain above the regulatory requirements. The financial market infrastructure continues to function without any major disruption. With further globalization, consolidation, deregulation, and diversification of the financial system, the banking business may become more complex and riskier. Issues like risk and liquidity management and enhancing skills, therefore, assume greater significance.

QUESTION

CSAT

Easy

Comprehension

Prelims 2013

According to the passage, the financial markets in emerging market economies, including India, had an adverse impact in recent years due to: Weak global economic prospects.

Uncertainties in the international financial markets.
Sovereign risk concerns in the Euro area.
Bad monsoons and the resultant crop loss.

Select the correct answer using the code given below:

Select an option to attempt

Explanation

Statement 1 is correct. According to the passage, weak global economic prospects have had an impact on emerging market economies, including India. This is clearly mentioned as one of the reasons for the adverse impact on the financial markets in these economies.

Statement 2 is correct. The passage highlights that uncertainties in the international financial markets have played a role in the adverse impact on emerging market economies. These uncertainties have led to increased volatility and have affected the financial markets.

Statement 3 is correct. Sovereign risk concerns, particularly related to the Euro area (e.g., Greece’s sovereign debt crisis), are explicitly mentioned as a factor that affected the financial markets globally, including those of emerging economies like India.

Statement 4 is incorrect. This factor is not mentioned in the passage. The passage does not refer to bad monsoons or crop loss as an issue affecting the financial markets in emerging economies.