UPSC Critical Reading

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 per cent. The phenomenon has implication for Indian policy makers 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 United States Federal Reserve's imminent reversal of its 'Quantitative Easing' policy.

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

  1. Emerging economies are at a risk of shock from advanced economies
  2. India should desist from accepting foreign portfolio investments in the future
  3. Advanced economies undermine the global financial stability
  4. Foreign portfolio investments are not good for emerging economies

Answer

Given in the last part of the passage "The phenomenon is also flagged as a threat that could compromise global financial stability in a chain reaction."

The correct option is A.