UPSC Prelims 2022— Question 3

This question belongs to Economy and tests RBI Foreign Exchange Operations. The economic principle must be read in the institutional and policy context used in the question. UPSC often tests whether an apparently familiar term is being applied to the correct mechanism, authority or balance-sheet category. Option B is the keyed answer because 2 and 3 only is the combination or identification that satisfies the conditions in the question. A useful way to solve the question is to separate the individual propositions from the answer-code combinations. A statement can look broadly reasonable while still being incorrect because it uses an absolute term, assigns a function to the wrong institution, confuses two related concepts, or places a feature in the wrong region or period. The keyed response should therefore be treated as the outcome of checking each proposition rather than as a memory-only exercise. Option A: 1 and 2 only — this is not the correct choice. It fails the question's test because it does not represent the required combination, institution, location, mechanism or historical association. The distractor is plausible only if a related concept is confused with the one actually asked. Option B: 2 and 3 only — this is the correct choice under the final key. It matches the relevant RBI Foreign Exchange Operations principle and satisfies the question's wording. Option C: 1 and 3 only — this is not the correct choice. It fails the question's test because it does not represent the required combination, institution, location, mechanism or historical association. The distractor is plausible only if a related concept is confused with the one actually asked. Option D: 1, 2 and 3 — this is not the correct choice. It fails the question's test because it does not represent the required combination, institution, location, mechanism or historical association. The distractor is plausible only if a related concept is confused with the one actually asked. The exam-oriented takeaway is to identify the governing fact first and only then map it to the answer code. This reduces errors caused by choosing an option because one individual statement appears familiar. For database use, the classification and explanation should be read together: the subject gives the broad domain, the topic identifies the recurring UPSC theme, and the subtopic records the precise knowledge point tested. This also makes the question useful for later topic-wise search and revision.