Read the following passage and answer the items that follow. Your answers to these items should be based on the passage only.
Financial markets in India have acquired greater depth and liquidity over the years. Steady reforms since 1991 have led to growing linkages and its financial system with the global economy. Weak global economic prospects and continuing uncertainties in the international financial markets therefore, have had their impact on the emerging market economies. Sovereign risk concerns particularly in the Euro area, affected financial markets for the greater part of the year with contagion of Greece’s sovereign debt problem spreading to India and other economies by way of higher-than-normal levels of volatility.
The funding constraints in international financial markets could impact both the availability and cost of foreign funding for banks and corporates. Since the Indian financial system is bank dominated, banks ability to withstand stress is critical to overall financial stability. Indian banks, however remains robust, not with standing a decline in capital to risk weighed assets ratio and a raise in nonperforming asset levels in the recent past. Capital adequacy levels remain above the regularity requirements. The financial market infrastructure continues to function without any major disruption. With further globalization, consolidation, deregulation and diversification of these financial systems, the banking business may become more complex and riskier. Issues like risk and liquidity management and enhancing skill therefore assume greater significance.
Risk and liquidity management assumes more importance in the Indian banking system in future due to:
Select the correct answer using the code given below:
The passage explicitly states that "With further globalization, consolidation, deregulation and diversification of these financial systems, the banking business may become more complex and riskier. Issues like risk and liquidity management and enhancing skill therefore assume greater significance." This directly indicates that further globalization (Statement 1), more consolidation and deregulation of the financial system (Statement 2), and further diversification of the financial system (Statement 3) are the reasons for the increased importance of risk and liquidity management in the Indian banking system.
Statement 4, which refers to "more financial inclusion in the economy," is not mentioned in the provided passage as a factor contributing to the increased importance of risk and liquidity management. The analysis must be based solely on the information presented in the passage.