**Core Concept**
Sexual differentiation of the fetus is a complex process involving the interaction of genetic, hormonal, and environmental factors. In humans, the sex of the fetus is determined by the presence of the Y chromosome, which contains the SRY gene responsible for initiating testicular development. The development of the reproductive system is influenced by the production of sex hormones, specifically testosterone and anti-Müllerian hormone (AMH).

**Why the Correct Answer is Right**
The correct answer is related to the role of the SRY gene in initiating testicular development. The SRY gene encodes a transcription factor that triggers the development of the testis from the indifferent gonad. The testis then begins to produce testosterone and AMH, which induce the development of male external genitalia and inhibit the development of female internal reproductive structures. The SRY gene is essential for the initiation of male sexual differentiation, and mutations in this gene can lead to sex reversal or other developmental abnormalities.

**Why Each Wrong Option is Incorrect**
**Option A:** This option is incorrect because the presence of the X chromosome does not determine the sex of the fetus. While the X chromosome carries genes that influence sex determination, it is the presence of the Y chromosome that triggers testicular development and male sexual differentiation.
**Option B:** This option is incorrect because the development of the female reproductive system is not solely determined by the absence of the SRY gene. The absence of the SRY gene allows the indifferent gonad to develop into an ovary, but other genetic and hormonal factors also play a role in female sexual differentiation.
**Option C:** This option is incorrect because the development of the testis is not solely dependent on the presence of the SRY gene. While the SRY gene is essential for initiating testicular development, other genetic and hormonal factors also influence the development of the testis and male sexual differentiation.
**Option D:** This option is incorrect because the production of AMH is not the primary factor in initiating testicular development. While AMH plays a role in inhibiting the development of female internal reproductive structures, it is the SRY gene that triggers the development of the testis.

**Clinical Pearl / High-Yield Fact**
The SRY gene is a crucial factor in initiating testicular development and male sexual differentiation. Mutations in this gene can lead to sex reversal or other developmental abnormalities, highlighting the importance of precise genetic regulation in human development.

**Correct Answer: C. The presence of the SRY gene on the Y chromosome is necessary for initiating testicular development and male sexual differentiation.**