Arrange the following statements related to foreign exchange market (fixed exchange rate) in correct sequence.

(A) RBI intervenes to purchase the dollars for rupees in the foreign exchange market in order to absorb this excess supply.

(B) The government will fix a higher exchange rate by making the rupee cheaper for foreigners.

(C) Supply of dollars exceeds the demand for dollars.

(D) The Indian government wants to encourage exports.

Choose the correct answer from the options given below:

Option 1: (D), (B), (C), (A) -> This follows the correct logical sequence: Government objective → Policy action → Market outcome → RBI intervention to maintain fixed exchange rate. correct

Hence, Option 1: (D), (B), (C), (A) -> The correct sequence represents a complete policy chain in fixed exchange rate system: First, (D) the government wants to encourage exports as the policy objective. To achieve this, (B) the government fixes a higher exchange rate making rupee cheaper (depreciation), which makes Indian goods cheaper for foreigners. This leads to (C) supply of dollars exceeding demand as more foreigners buy Indian exports and pay in dollars. Finally, (A) RBI intervenes to purchase excess dollars to prevent rupee from appreciating and maintain the fixed exchange rate. This intervention is crucial because excess dollar supply would naturally strengthen the rupee, defeating the export promotion objective. -> correct