Exchange Rate Regimes — Prelims Strategy

Prelims Strategy

For Prelims, a strong conceptual foundation is paramount. Begin by clearly understanding the definitions and characteristics of each exchange rate regime: fixed (including currency board, dollarization), floating, and managed float.

Focus on their key features, advantages, and disadvantages. Master the 'Impossible Trinity' concept and its implications for policy choices. Pay close attention to India's specific journey: the shift from a fixed regime to a managed float post-1991, the role of LERMS and FEMA, and the RBI's intervention strategies (e.

g., selling/buying dollars, sterilization). Factual details like the year of India's shift or the primary objective of RBI's intervention are often tested. Practice MCQs that compare regimes, test the impact of RBI actions on the rupee and money supply, and link to recent economic events.

Create concise notes on key terms like REER, NEER, capital account convertibility, and forex reserves. Regularly review current affairs related to rupee volatility, global currency movements, and major central bank policies, as these often form the basis of application-based questions.

Understanding the 'why' behind India's policy choices will help in eliminating incorrect options.