UPSC Prelims 2011— Question 50

Concept and answer: Option A is correct. Currency devaluation can improve the current account by supporting exports and discouraging imports; FDI/FII are capital-account flows. The question should be approached by identifying the exact proposition being tested and then checking each alternative against that proposition. A familiar word or related fact is not enough; the option must be completely consistent with the underlying concept. Statement 1 is correct under the verified interpretation. Statement 2 is correct under the verified interpretation. Statement 3 is incorrect under the verified interpretation. Option A: Correct. It selects exactly the valid statement combination and therefore matches the factual and logical requirements of the question. Option B: Incorrect. It omits true statement(s) 1; includes false statement(s) 3. Option C: Incorrect. It omits true statement(s) 1, 2; includes false statement(s) 3. Option D: Incorrect. It omits true statement(s) 2; includes false statement(s) 3. Exam takeaway: the decisive distinction is the one stated in the core explanation. Option A is the only choice that remains fully consistent with that distinction. This approach is useful for Prelims because many distractors contain a partially true statement but add an incorrect qualifier, reverse a relationship, confuse two institutions, or use an absolute term. Always test the entire option rather than recognizing only one familiar phrase.