Passage

The Global Financial Stability Report finds that the share of portfolio investments from advanced economies in the total debt and equity investments in emerging economies has doubled in the past decade to 12 percent. The phenomenon has implications for Indian policymakers as foreign portfolio investments in the debt and equity markets have been on the rise. The phenomenon is also flagged as a threat that could compromise global financial stability in a chain reaction, in the event of the United States Federal Reserve’s imminent reversal of its “Quantitative Easing” policy.

QUESTION

CSAT

Easy

Comprehension

Prelims 2015

Which among the following is the most rational and critical inference that can be made from the above passage?

Select an option to attempt

Explanation

Statement A is incorrect. The passage does not explicitly say that foreign portfolio investments are inherently bad for emerging economies. It only mentions that foreign portfolio investments have been on the rise and could pose a threat to global financial stability, which suggests potential risks but does not categorically deem them harmful.

Statement B is incorrect. The passage mentions that the rise in foreign portfolio investments from advanced economies could threaten global financial stability, but it does not assert that advanced economies themselves are undermining global financial stability. It highlights a potential consequence of their policies, not an inherent flaw of the economies.

Statement C is incorrect. The passage does not recommend that India stop accepting foreign portfolio investments. It only explains the potential risks associated with them, which does not necessarily lead to the conclusion that India should reject them outright.

Statement D is correct. This statement aligns with the passage's inference, which suggests that the rise in foreign portfolio investments from advanced economies could expose emerging economies, like India, to risks, particularly if there is a reversal of the U.S. Federal Reserve's monetary policy, leading to a potential shock.

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