External Sector & Balance Of Payments

With reference to the Indian economy, consider the following statements : 1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee. 2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness. 3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER. Which of the above statements are correct ?

1. (a)1 and 2 only
2. (b)2 and 3 only
3. (c)1 and 3 only
4. (d)1, 2 and 3

With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct ? 1. They can sell their own goods in addition to offering their platforms as market-places. 2. The degree to which they can own big sellers on their platforms is limited. Select the correct answer using the code given below :

1. (a)1 only
2. (b)2 only
3. (c)Both 1 and 2
4. (d)Neither 1 nor 2

Consider the following statements : 1. Tight monetary policy of US Federal Reserve could lead to capital flight. 2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs). 3. Devaluation of domestic currency decreases the currency risk associated with ECBs. Which of the statements given above are correct ?

1. (a)1 and 2 only
2. (b)2 and 3 only
3. (c)1 and 3 only
4. (d)1, 2 and 3

No answer is recorded for this question: cancelled by UPSC — marks awarded to all candidates

Consider the following : 1. Foreign currency convertible bonds 2. Foreign institutional investment with certain conditions 3. Global depository receipts 4. Non-resident external deposits Which of the above can be included in Foreign Direct Investments?

1. (a)1, 2 and 3
2. (b)3 only
3. (c)2 and 4
4. (d)1 and 4

Consider the following statements : The effect of devaluation of a currency is that it necessarily 1. improves the competitiveness of the domestic exports in the foreign markets 2. increases the foreign value of domestic currency 3. improves the trade balance Which of the above statements is/are correct?

1. (a)1 only
2. (b)1 and 2
3. (c)3 only
4. (d)2 and 3

If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India ? 1. Not depending on short-term foreign borrowings 2. Opening up to more foreign banks 3. Maintaining full capital account convertibility Select the correct answer using the code given below :

1. (a)1 only
2. (b)1 and 2 only
3. (c)3 only
4. (d)1, 2 and 3

With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ?

1. (a)It is the investment through capital instruments essentially in a listed company.
2. (b)It is a largely non-debt creating capital flow.
3. (c)It is the investment which involves debt-servicing.
4. (d)It is the investment made by foreign institutional investors in the Government securities.

With reference to the international trade of India at present, which of the following statements is/are correct ? 1. India’s merchandise exports are less than its merchandise imports. 2. India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years. 3. India’s exports of services are more than its imports of services. 4. India suffers from an overall trade/current account deficit. Select the correct answer using the code given below :

1. (a)1 and 2 only
2. (b)2 and 4 only
3. (c)3 only
4. (d)1, 3 and 4 only

No answer is recorded for this question: cancelled by UPSC — marks awarded to all candidates

Consider the following statements : 1. Most of India’s external debt is owed by governmental entities. 2. All of India’s external debt is denominated in US dollars. Which of the statements given above is/are correct?

1. (a)1 only
2. (b)2 only
3. (c)Both 1 and 2
4. (d)Neither 1 nor 2

In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis? 1. The foreign currency earnings of India’s IT sector 2. Increasing the government expenditure 3. Remittances from Indians abroad Select the correct answer using the code given below.

1. (a)1 only
2. (b)1 and 3 only
3. (c)2 only
4. (d)1, 2 and 3

Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?

1. (a)Curbing imports of non-essential goods and promoting exports
2. (b)Encouraging Indian borrowers to issue rupee denominated Masala Bonds
3. (c)Easing conditions relating to external commercial borrowing
4. (d)Following an expansionary monetary policy

Which of the following best describes the term 'import cover', sometimes seen in the news?

1. (a)It is the ratio of value of imports to the Gross Domestic Product of a country
2. (b)It is the total value of imports of a country in a year
3. (c)It is the ratio between the value of exports and that of imports between two countries
4. (d)It is the number of months of imports that could be paid for by a country's international reserves

Convertibility of rupee implies

1. (a)being able to convert rupee notes into gold
2. (b)allowing the value of rupee to be fixed by market forces
3. (c)freely permitting the conversion of rupee to other currencies and vice versa
4. (d)developing an international market for currencies in India

The problem of international liquidity is related to the non-availability of

1. (a)goods and services
2. (b)gold and silver
3. (c)dollars and other hard currencies
4. (d)exportable surplus

With reference to Balance of Payments, which of the following constitutes/constitute the Current Account? 1. Balance of trade 2. Foreign assets 3. Balance of invisibles 4. Special Drawing Rights Select the correct answer using the code given below.

1. (a)1 only
2. (b)2 and 3
3. (c)1 and 3
4. (d)1, 2 and 4

The balance of payments of a country is a systematic record of

1. (a)all import and export transactions of a country during a given period of time, normally a year
2. (b)goods exported from a country during a year
3. (c)economic transaction between the government of one country to another
4. (d)capital movements from one country to another

Which of the following constitute Capital Account? 1. Foreign Loans 2. Foreign Direct Investment 3. Private Remittances 4. Portfolio Investment Select the correct answer using the codes given below.

1. (a)1, 2 and 3
2. (b)1, 2 and 4
3. (c)2, 3 and 4
4. (d)1, 3 and 4

Which one of the following groups of items is included in India’s foreign-exchange reserves?

1. (a)Foreign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countries
2. (b)Foreign-currency assets, gold holdings of the RBI and SDRs
3. (c)Foreign-currency assets, loans from the World Bank and SDRs
4. (d)Foreign-currency assets, gold holdings of the RBI and loans from the World Bank

Which of the following would include Foreign Direct Investment in India? 1. Subsidiaries of foreign companies in India 2. Majority foreign equity holding in Indian companies 3. Companies exclusively financed by foreign companies 4. Portfolio investment Select the correct answer using the codes given below :

1. (a)1, 2, 3 and 4
2. (b)2 and 4 only
3. (c)1 and 3 only
4. (d)1, 2 and 3 only

Consider the following statements : The price of any currency in international market is decided by the 1. World Bank 2. demand for goods/services provided by the country concerned 3. stability of the government of the concerned country 4. economic potential of the country in question Which of the statements given above are correct?

1. (a)1, 2, 3 and 4
2. (b)2 and 3 only
3. (c)3 and 4 only
4. (d)1 and 4 only

In terms of economy, the visit by foreign nationals to witness the XIX Commonwealth Games in India amounted to

1. (a)Export
2. (b)Import
3. (c)Production
4. (d)Consumption

Consider the following actions which the Government can take: 1. Devaluing the domestic currency. 2. Reduction in the export subsidy. 3. Adopting suitable policies which attract greater FDI and more funds from FIIs. Which of the above actions can help in reducing the current account deficit?

1. (a)1 and 2
2. (b)2 and 3
3. (c)3 only
4. (d)1 and 3

Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two?

1. (a)FII helps bring better management skills and technology, while FDI only brings in capital
2. (b)FII helps in increasing capital availability in general, while FDI only targets specific sectors
3. (c)FDI flows only into the secondary market, while FII targets primary market
4. (d)FII is considered to be more stable than FDI

A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies like UK and France. Why?

1. (a)India has preference for certain countries as regards receiving FDI
2. (b)India has double taxation avoidance agreement with Mauritius
3. (c)Most citizens of Mauritius have ethnic identity with India and so they feel secure to invest in India
4. (d)Impending dangers of global climatic change prompt Mauritius to make huge investments in India

Tarapur Committee was associated with which one of the following?

1. (a)Special Economic Zones
2. (b)Fuller capital account convertibility
3. (c)Foreign exchange reserves
4. (d)Effect of oil prices on the Indian economy