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HCS : More than 2000 people disqualified because of E option 72 BPSC CANDIDATES: KEEP A NOTE

• Indian Rupee Trend: – Depreciated ~12% vs USD in 2025–26 – Normal annual depreciation trend: ~3–4% • Exchange Rate Concept: Determined by relative demand & supply of currencies (trade + capital flows). •Current Account Deficit (CAD): Occurs when imports > exports (goods + services). • Capital Account Surplus/Deficit: – Surplus: FDI/FPI inflows > outflows – Deficit: capital outflows exceed inflows •Twin Deficit Situation: Simultaneous Current Account Deficit + Capital Account Deficit —> strong pressure on currency. •Key Mechanism of Rupee Fall: 1. High import bill (esp. oil) —> CAD 2. Foreign investors pulling out —> capital account deficit – Combined effect = rupee depreciation •BoP (Balance of Payments): – Sum of Current + Capital accounts – Persistent deficit leads to forex reserve depletion • Capital account can turn deficit even with FDI present – because portfolio outflows (FPI) are volatile and larger in short term. #prelims