1. One of the important goals of the economic liberalization policy is to achieve full convertibility of the Indian rupee. This is being advocated because :
(a) convertibility of the rupee will stabilize its exchange value against major currencies of the world.
(b) it will attract more foreign capital inflow to India.
(c) it will help to promote exports.
(d) it will help India secure loans from the world financial markets at attractive terms.
[I.A.S. (Pre) 1996]
Ans. (b) it will attract more foreign capital inflow to India.
- Convertibility of currency means that the currency of a country can be easily exchanged for foreign currency and exchanged back again at the current market rate of exchange.
- This rate is determined by the demand and supply of the currency.
- In 1991, India started a new economic reform policy that allowed the rupee to be partly convertible on the current account from March 1992.
- This policy was called the ‘Liberalized Exchange Rate Management Scheme’ (LERMS) and included two different exchange rates (60% determined by the market and 40% set by the Reserve Bank of India
- In March 1993, the rupee became convertible for buying and selling products.
- The following year, March 1994, Indian citizens were allowed to convert rupee to other currencies for payments and money transfers.
- In August 1994, India accepted the International Monetary Fund’s Article VIII, making the rupee officially convertible for payments.
- India has made significant progress in freeing up capital transactions over the last 30 years, but only has partial capital account convertibility.
- People are calling for full convertibility of the Indian rupee in both current and capital accounts, which means foreign investors would be able to move their money more easily and attract more foreign capital.
- It would also help domestic companies access more funding from other countries.
- In short, full convertibility of the rupee would help with economic growth and higher levels of foreign investment.
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2. Convertibility of rupee implies :
(a) being able to convert rupee notes into gold
(b) allowing the value of the rupee to be fixed by market forces
(c) freely permitting the conversion of the rupee to other currencies and vice-versa
(d) developing an international market for currencies in India
[I.A.S. (Pre) 1994, 2015, 56th to 59th B.P.S.C. (Pre) 2015]
Ans. (c) freely permitting the conversion of rupee to other currencies and vice-versa
- Convertibility of currency means that a country’s currency can be exchanged for other currencies and back again at the current rate.
- India’s economic reform policy in 1991 made the rupee partially convertible, meaning people can buy and sell products with it.
- In 1994, people were allowed to convert the rupee to other currencies and the rupee became officially convertible.
- Now, people want full convertibility of the rupee so foreign investors can move their money more easily and attract more foreign capital, and domestic companies can access more funding from other countries.
- This would lead to economic growth and higher levels of foreign investment.
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3. Convertibility of the Rupee as it exists at present means :
(a) Rupee is convertible into foreign currencies for all types of transactions
(b) Rupee is convertible into foreign currencies for trade transactions only
(c) The rupee is convertible into foreign currencies for all current transactions only
(d) Rupee is convertible into foreign currencies for capital transactions only
[U.P.P.C.S. (Mains) 2004]
Ans. (c) Rupee is convertible into foreign currencies for all current transactions only
- The convertibility of currency means that a country’s currency can be freely exchanged for international currencies, and vice versa, at an exchange rate determined by the market.
- As part of the economic reforms of 1991, India made the rupee partially convertible on the current account.
- This meant it could be used for all trade in merchandise, as well as for invisibles and remittances from abroad.
- India has come a long way since then and now has partial capital account convertibility.
- It is being suggested that full convertibility of the rupee (on both current and capital accounts) would attract more foreign investment and help growth.
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4. The Indian Rupee was made fully convertible on the current account in :
(a) 1994
(b) 1995
(c) 1996
(d) 1997
[U.P.R.O./A.R.O. (Mains) 2017]
Ans. (a) 1994
- In August 1994, the Indian rupee became able to be used for all types of transactions.
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5. Complete convertibility of the rupee in the current account was declared from the year :
(a) 1994
(b) 1996
(c) 1998
(d) 2001
[U.P. U.D.A./L.D.A. (Spl.) (Pre) 2010]
Ans. (a) 1994
- The Reserve Bank of India said that the Indian rupee could be used for current account transactions in 1993.
- In 1994, the Indian government made it official that the rupee was completely convertible for current account use.
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6. The Indian rupee has been made fully convertible on :
(a) Current account on March 1, 1993
(b) Current account in August, 1994
(c) Capital account in August, 1994
(d) Current account in April, 1995
[U.P.P.C.S. (Pre) 1995]
Ans. (b) Current account in August 1994
- Since 1994, the Indian rupee has been able to be exchanged freely for goods and services.
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7. The Indian rupee was made convertible into which of the following accounts since March 1994?
(a) Capital Account
(b) Current Account
(c) Both (a) and (b)
(d) Revenue Account
[Uttarakhand P.C.S. (Pre) 2012]
Ans. (b) Current Account
- Since 1994, the rupee can be exchanged easily into other currencies for things like buying and selling goods or services.
- Currently, India has a system in place that allows these transactions to happen.
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8. Consider the following statements: Full convertibility of the rupee may mean –
1. Its free float with other international currencies
2. Its direct exchange with any other international currency at any prescribed place inside and outside the country
3. It acts just like any other international currency
Which of these statements are correct?
(a) 1 and 2
(b) 1 and 3
(c) 2 and 3
(d) 1, 2 and 3
[I.A.S. (Pre) 2002]
Ans. (a) 1 and 2
- Full convertibility of the rupee means it can be freely exchanged with other international currencies, both within and outside of the country.
- Kennen (2009) defines an international currency as one that is used for buying goods, services, or financial assets between people from different countries, not just those from the currency’s country of origin.
- Therefore, the full convertibility of the rupee does not mean it will act like any other international currency.
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9. Consider the following statements: The Indian rupee is fully convertible –
1. With respect to the Current Account of Balance of Payments
2. With respect to the Capital Account of the Balance of Payments
3. into gold
Which of these statements is/are correct?
(a) 1 alone
(b) 3 alone
(c) 1 and 2
(d) 1, 2 and 3
[I.A.S. (Pre) 2000]
Ans. (a) 1 alone
- The balance of payments account is a list of all the transactions between a country and the rest of the world.
- It includes two accounts – the current account (mostly import and export of goods and services) and the capital account (movement of capital through investments and loans).
- Current account convertibility is the ability to exchange rupees for other currencies (and vice versa) without any limits.
- Capital account convertibility is the freedom to do investments without any restrictions, meaning no limit on how much rupees can be exchanged for foreign currency or the other way around.
- The Indian rupee has been fully convertible on the current account since 1994.
- India has made progress in allowing capital account transactions over the past three decades and now has partial capital account convertibility.
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10. The Capital Account Convertibility of the Indian Rupee implies :
(a) that the Indian Rupee can be exchanged by authorized dealers for travel
(b) that the Indian Rupee can be exchanged for any major currency for the purpose of trade in goods and services
(c) that the Indian Rupee can be exchanged for any major currency for the purpose of trading financial assets
(d) None of the above
[I.A.S. (Pre) 1998]
Ans. (c) that the Indian Rupee can be exchanged for any major currency for the purpose of trading financial assets
- The balance of payments is a record of all exchanges between a country and the rest of the world.
- The current account is mostly about buying and selling things, while the capital account is about investments and loans.
- Current account convertibility means you can turn rupees into other currencies or vice-versa without any limits.
- Capital account convertibility is when you can do investments without any rules.
- India allowed the rupee to be fully converted on the current account since 1994 and has been loosening the rules of capital account convertibility in the past few decades.
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11. Which of the following constitutes a Capital Account?
1. Foreign Loans
2. Foreign Direct Investment.
3. Private Remittances
4. Portfolio Investment
Select the correct answer using the codes given below :
(a) 1, 2 and 3
(b) 1, 2 and 4
(c) 2, 3 and 4
(d) 1, 3 and 4
[I.A.S. (Pre) 2013]
Ans. (b) 1, 2 and 4
- Capital account includes things like foreign loans, foreign direct investment, and portfolio investment.
- Private remittances are part of the current account.
- The current account shows a country’s total income over time, and the capital account shows the net change of assets and liabilities each year.
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12. Tarapore Committee was associated with which one of the following?
(a) Special Economic Zones
(b) Fuller capital account convertibility
(c) Foreign exchange reserves
(d) Effect of oil prices on the Indian economy
[I.A.S. (Pre) 2007]
Ans. (b) Fuller capital account convertibility
- The Reserve Bank of India (RBI) set up a committee chaired by S.S.
- Tarapore to suggest a plan for making the Indian Rupee fully convertible on the capital account.
- This committee submitted its report in May 1997. In 2006, another 6-member committee was set up by RBI, this time again chaired by S.S. Tarapore.
- This committee submitted its report in July and it was made public in September.
- This report suggested 3 phases for full convertibility and laid out 3 pre-conditions: 3% fiscal deficit, 3% current account deficit, and 1% NPA.
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13. The question of full capital account convertibility of India was examined by the Committee known as :
(a) Vaghul Committee
(b) Rangarajan Committee
(c) Tarapore Committee
(d) Hashim Committee
[U.P.P.C.S. (Pre) 2007]
Ans. (c) Tarapore Committee
- Tarapore to suggest a plan for making the Indian Rupee fully convertible on the capital account.
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14. Devaluation of a currency means :
(a) reduction in the value of a currency vis-a-vis major internationally traded currencies
(b) permitting the currency to seek its worth in the international market
(c) fixing the value of the currency in conjunction with the movement in the value of a basket of predetermined currencies
(d) fixing the value of a currency in multilateral consultation with the IMF, the World Bank, and major trading partners
[I.A.S. (Pre) 1994, U.P.P.C.S. (Pre) 1998, J.P.S.C. (Pre) 2006]
Ans. (a) reduction in the value of a currency vis-a-vis major internationally traded currencies
- Decreasing the value of a country’s currency compared to foreign currencies is called devaluation.
- This is done by the government and sets a lower exchange rate for the national currency.
- India’s rupee was devalued three times in 1949, 1966, and 1991, but technically four times because the 1991 devaluation was done in two steps.
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15. The Devaluation means :
(a) Decline in values
(b) Decline in the value of currency with respect to other international currencies
(c) Increase in inflation
(d) Downfall in National Character
[U.P.P.C.S. (Pre) 1991, 1994]
Ans. (b) Decline in the value of currency with respect to other international currencies
- A government can choose to lower the value of its currency.
- This is called devaluation.
- By doing this, a country’s exports become cheaper, which can help reduce the amount of money it owes to other countries.
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16. In which year the rupee was devalued for the first time in India?
(a) 1949
(b) 1966
(c) 1972
(d) 1990
[U.P.P.C.S. (Spl.) (Pre) 2008]
Ans. (a) 1949
- A government can choose to lower the value of its currency, which is known as devaluation.
- This will make the country’s exports cheaper and can help reduce the amount of money they owe in trade.
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17. The rupee was devalued by what percent in July 1991?
(a) 18
(b) 20
(c) 22
(d) 25
[M.P.P.C.S. (Pre) 1992]
Ans. (a) 18
- In 1991, the Indian rupee was devalued in two stages.
- On July 1, the Finance Minister tested the market before making a big change in the rupee’s value.
- When the market reacted positively, another devaluation happened on July 3.
- This two-step decrease in the rupee’s value was equivalent to 17.38 percent in terms of the British pound and 18.7 percent in US dollars.
- Therefore, option (a) is the right answer.
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18. In which of the following financial years the devaluation of the rupee in India took place twice?
(a) 1966-67
(b) 1991-92
(c) 1990-91
(d) 1989-90
[U.P.P.C.S. (Mains) 2012]
Ans. (b) 1991-92
- In 1991, the value of the rupee decreased in two stages.
- On July 1, the Finance Minister wanted to see what would happen before making any big changes to the rupee’s value.
- When the markets responded positively, a second decrease in value was allowed on July 3.
- This two-step adjustment in the value of the rupee added up to 17.38% compared to the pound sterling, and 18.7% compared to the US dollar.
- Option (a) is the right answer.
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19. 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?
(a) 1 only
(b) 1 and 2
(c) 3 only
(d) 2 and 3
[I.A.S. (Pre) 2021]
Ans. (a) 1 only
- Devaluation means that the value of a nation’s currency is reduced compared to other major currencies.
- This makes the country’s exports cheaper in other countries and makes imported products more expensive for its citizens.
- This may help the country’s trade balance, but it won’t necessarily help if they need to import essential things like oil, which can be expensive.
- Only statement 1 is correct.
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20. Consider the following statements and select the correct answer from the code given below: Assertion (A): Devaluation of a currency may promote export.
Reason (R): The price of the country’s products in the international market may fall due to devaluation.
(a) Both A and R are true and R is the correct explanation of A
(b) Both A and R are true, but R is not a correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
[I.A.S. (Pre) 1999, U.P.U.D.A./L.D.A. (Pre) 2001]
Ans. (a) Both A and R are true and R is the correct explanation of A
- Devaluation means that the value of a country’s currency is lowered compared to other currencies.
- This makes the country’s exports more affordable in foreign markets, which boosts exports.
- At the same time, imports become more expensive, making domestic consumers less likely to buy them and helping domestic businesses.
- The balance of payments usually improves because the trade deficit decreases.
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21. Statement (A): Devaluation of currency is done to increase exports.
Reason (R): Domestic items become cheaper in the foreign market.
Select the correct answer from the codes given below :
(a) (A) and (R) both are correct and (R) is the correct explanation of (A)
(b) (A) and (R) both are correct, but (R) is not the correct explanation of (A)
(c) (A) is true, but (R) is false
(d) (A) is false, but (R) is true
[U.P. Lower Sub. (Pre) 2004]
Ans. (a) (A) and (R) both are correct and (R) is the correct explanation of (A)
- Devaluation is when the value of a country’s currency is lowered in comparison to other currencies or currency standards.
- This causes the price of exports to go down and makes them more attractive to foreign buyers.
- It also makes imports more expensive, so people in the country are less likely to buy them, which helps domestic businesses.
- In the end, this usually reduces the trade deficit.
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22. The outcome of the devaluation of currency is :
(a) Increase in imports and exports in the country
(b) Decrease in imports and exports in the country
(c) Increase of exports and decrease of imports in the country
(d) Increase of imports and decrease of exports in the country
[U.P.R.O./A.R.O. (Pre) 2014]
Ans. (c)Increase of exports and decrease of imports in the country
- When a country devalues its currency, it makes its money cheaper which makes its products more attractive in the international market.
- This also makes foreign products more expensive, so people buy fewer imports.
- Governments devalue their currency to make it so that the number of exports is greater than the number of imports.
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23. When a country devalues its currency, its effect would be :
(a) imports become cheaper and exports become costly
(b) imports become costly and exports become cheaper
(c) both imports and exports become cheaper
(d) both imports and exports become costly
[U.P.P.C.S. (Spl.) (Mains) 2008]
Ans. (b) imports become costly and exports become cheaper
- When a country reduces the value of its money, its products become cheaper and can be sold more competitively in the world market.
- On the other hand, products from foreign countries become more expensive, so people don’t buy as many imports.
- Governments often do this to try to make sure that the number of exports is higher than the number of imports.
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24. A country resorts to devaluation of its currency to :
(a) Fix the balance of trade
(b) Reduce the cost of imported goods and services
(c) Curb inflationary trends in the country
(d) All of the above
[U.P.P.C.S. (Mains) 2003]
Ans. (a) Fix the balance of trade
- A country can make its money worth less compared to other currencies to make its exports more attractive in the global market.
- This makes foreign goods cost more, so people buy less of them.
- Governments do this to make sure they are selling more than they are buying from other countries.
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25. Which one of the following is not the effect of devaluation of currency?
(a) This causes deflation in the importing country.
(b) This causes inflation in the exporting country.
(c) This causes authorization of currency in the exporting country.
(d) This causes devaluation of currency in the importing country.
[U.P. Lower Sub. (Pre) 1998]
Ans. (a) This causes deflation in the importing country.
- When a country devalues its currency, it doesn’t cause deflation – instead, prices in the country go up because of the higher prices of imported goods.
- Prices of things like export substitutes, potential exports, and intermediate goods will also increase because of the devaluation.
- Unless the country’s monetary authorities make changes to reduce prices, the devaluation will cause the overall price level in the country to go up.
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26. Assertion (A): The rate of growth of India’s exports has shown an appreciable increase after 1991.
Reason (R): The Govt. of India has resorted to devaluation.
(a) Both A and R are true and R is the correct explanation of A
(b) Both A and R are true, but R is not a correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
[I.A.S. (Pre) 2000]
Ans. (a) Both A and R are true and R is the correct explanation of A
- The Indian government made two big changes in 1991 to help make exports from India more competitive and reduce trade deficits and the Current Account Deficit (CAD).
- The government lowered the value of the Indian rupee by 18 percent and also introduced various export promotion measures.
- This led to an increase in the rate of growth of India’s exports, so both statements A and R are correct, and R is the correct explanation of A.
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27. The problem of International liquidity is related to the non-availability of :
(a) Goods and services
(b) Gold and Silver
(c) Dollars and other hard currencies
(d) Exportable surplus
[I.A.S. (Pre) 2015]
Ans. (c) Dollars and other hard currencies
- International Liquidity is the total of financial resources and tools that countries have access to in order to pay for an imbalance in their international balance of payments.
- This includes gold reserves held by the Central Bank and International Monetary Fund, as well as hard currencies such as the US Dollar, Pound, and Euro.
- Hard currencies are types of money that are trusted and accepted as payment for products and services around the world.
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28. The economic crisis in the latter half of the 1990s most seriously affected Indonesia, Thailand, Malaysia, and South Korea. The cause of the crisis was :
(a) mismanagement of the financial resources and financial sector, in general
(b) the prolonged over-valuation of local currencies vis-avis the Western currencies
(c) the downswing and recession in the Western economies which earlier provided export markets to these export-oriented countries
(d) None of the above
[I.A.S. (Pre) 1999]
Ans. (b) the prolonged over-valuation of local currencies vis-avis the western currencies
- In the late 1990s, Southeast Asian countries, such as Indonesia, Thailand, Malaysia, and South Korea, were heavily impacted by an economic crisis.
- This crisis was caused by the over-valuation of their currencies compared to Western currencies, which caused a collapse of currency exchange rates and a ‘hot money bubble’.
- It all started in Thailand in July 1997 when the Thai baht dropped in value and spread to East and Southeast Asian countries.
- Due to the crisis, currency values, stock markets, and other assets in many of these countries fell drastically.
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29. What has been the impact of the heavy devaluation of currencies in Southeast Asian countries in recent months on Indian exports?
(a) Favourable
(b) Unfavourable
(c) No impact
(d) On some exports favorable and others unfavorable
[M.P.P.C.S. (Pre) 1998]
Ans. (b) Unfavourable
- The Southeast Asian crisis in 1997-98 caused the currencies of these countries to lose value.
- Because India’s exports were competing with those from these countries, the decrease in currency value impacted India’s exports in a negative way.
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30. 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:
(a) 1 only
(b) 1 and 2 only
(c) 3 only
(d) 1, 2 and 3
[I.A.S. (Pre) 2020]
Ans. (a) 1 only
- Getting money from other countries needs to be paid back quickly, which can make an economy unstable if it is already having financial problems.
- Statement 1 is true because getting funds from foreign banks can make a financial crisis worse.
- Statement 2 is false because converting currency to other countries’ money without restrictions can make the economy vulnerable if the economy isn’t doing well.
- Statement 3 is incorrect because if there is a global financial crisis, the money flowing into a country can stop or reverse.
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31. 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.
(a) 1 only
(b) 1 and 3 only
(c) 2 only
(d) 1, 2 and 3
[I.A.S. (Pre) 2019]
Ans. (b) 1 and 3 only
- A currency crisis means that people don’t trust a country’s central bank to have enough money in foreign exchange to keep the same value for the country’s currency.
- This type of crisis typically happens when too much money is being spent compared to the amount coming in.
- India’s IT sector and money sent from Indians living abroad can help reduce the risk of a currency crisis in India.
- However, if the government starts spending more money, it can lead to more imports which could cause the currency crisis to worsen.
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32. Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of the Indian rupee?
(a) Curbing imports of non-essential goods and promoting exports
(b) Encouraging Indian borrowers to issue rupee-denominated Masala Bonds
(c) Easing conditions relating to external commercial borrowing
(d) Following an expansionary monetary policy
[I.A.S. (Pre) 2019]
Ans. (d) Following an expansionary monetary policy
- If India limits the import of non-essential items, encourages export and Masala Bonds, and makes it easier to borrow money from outside, it will bring more dollars into the country and stop the rupee from decreasing.
- If, on the other hand, the country follows an expansionary monetary policy (printing more money without getting more dollars), it will make the dollar stronger and the rupee weaker, and could also lead to inflation and more imports, making the rupee drop even further.
- Option (d) is the right answer.
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33. Which one of the following measures is not likely to aid in improving India’s Balance of Payment position?
(a) Promotion of Import Substitution Policy
(b) Devaluation of rupee
(c) Imposition of higher tariff on imports
(d) Levying of higher duties on exports
(e) None of the above/More than one of the above
[60th to 62nd B.P.S.C. (Pre) 2016]
Ans. (d) Levying of higher duties on exports
- India should promote policies that replace imports, lower the value of the rupee, and raise taxes on imports to help its balance of payments.
- Raising taxes on exports, however, will reduce the amount of exports and will not help improve the balance of payments.
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34. Consider the following actions that the Government can take:
1. Devaluing the domestic currency.
2. Reduction in the export subsidy.
3. Adopting suitable policies that attract greater FDI and more funds from FIIs.
Which of the above action/actions can help in reducing the current account deficit?
(a) 1 and 2
(b) 2 and 3
(c) 3 only
(d) 1 and 3
[I.A.S. (Pre) 2011]
Ans. (d) 1 and 3
- The current account deficit refers to the surplus of total imports of goods, services, and transfer payments over total exports of goods, services, and transfer payments.
- Devaluing the domestic currency can be beneficial in boosting exports and reducing imports because it makes foreign goods and services more expensive and domestic goods and services more affordable.
- This, in turn, helps in reducing the current account deficit.
- Therefore, devaluation of the domestic currency can assist in increasing exports and decreasing imports, ultimately leading to a reduction in the current account deficit.
- Additionally, decreasing the export subsidy is unnecessary as it would result in reduced exports.
- On the other hand, implementing appropriate policies to attract more foreign direct investment (FDI) and funds from foreign institutional investors (FIIs) can contribute to reducing the current account deficit in the long term.
- Although attracting FDI and FIIs falls under the capital account, it still plays a role in decreasing the current account deficit.
- Consequently, option (d) would be the correct answer.
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35. In the last decade, which one among the following sectors has attracted the highest Foreign Direct Investment inflows into India?
(a) Chemicals other than fertilizers
(b) Services sector
(c) Food Processing
(d) Telecommunication
[U.P.P.C.S. (Main) 2006, U.P.P.C.S. (Pre) 2006]
Ans. (b) Services sector
- Based on the given time frame, option (d) was determined to be the correct answer.
- In recent years, the services sector has emerged as the recipient of the highest Foreign Direct Investment (FDI) inflows into India.
- Over the period from April 2000 to December 2021, the top five sectors attracting FDI are as follows:
- Services Sector: 16.13%
- Computer Software and Hardware: 14.19%
- Telecommunication: 6.68%
- Trading: 5.79%
- Automobile Industry: 5.55%
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36. Which sector in India attracts the highest FDI equity flow?
(a) Construction Sector
(b) Energy Sector
(c) Automobile Sector
(d) Service Sector
(e) None of the above / More than one of the above
[63rd B.P.S.C. (Pre) 2017]
Ans. (d)Service Sector
- Option (d) was the right answer according to the question period.
- For the latest information, refer to the explanation of the question.
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37. Which sector in India attracts the highest FDI equity flow?
(a) Construction sector
(b) Energy sector
(c) Service sector
(d) Automobile sector
[Uttarakhand P.C.S (Pre) 2016]
Ans. (c) Service sector
- Option (c) was the right answer according to the question.
- For more information, check the explanation for the question.
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38. The Largest inflow of foreign direct investment in India in 2007-08 took place in which sector?
(a) Infrastructure
(b) Services
(c) Energy
(d) Industry
[U.P.P.C.S. (Spl.) (Mains) 2008]
Ans. (b) Services
- Option (b) was the right answer to the question.
- For more details, look at the explanation of the question.
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39. Which of the following sectors has attracted the highest foreign direct investment flow in India in the last decade?
(a) Other chemicals except fertilizers
(b) Service sector
(c) Food-processing
(d) Electronics
(e) None of these
[Chhattisgarh P.C.S. (Pre) 2016]
Ans. (b) Service sector
- Option (b) was the right answer to the question.
- For more information, read the explanation for the question.
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40. The largest share of Foreign Direct Investment (1997-2000) went to :
(a) Food and food-product sector
(b) Engineering sector
(c) Electronics and electric equipment sector
(d) Services sector
[I.A.S. (Pre) 2001]
Ans. (d) Services sector
- According to the question period, the right answer was option (d).
- During the past three years (2018-2021), the majority of Foreign Direct Investment was directed towards the Computer Software and Hardware sector, with the Services Sector following closely.
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41. India in the recent past has succeeded in attracting large foreign investment in :
1. Life Insurance Business
2. Banking Sector
3. Automobiles Sector
4. Film making
5. Medical Tourism Select the correct answer from the codes given below:
(a) 1, 2 and 3
(b) 1, 3 and 4
(c) 2, 3 and 4
(d) 2, 3, 4 and 5
[U.P.P.C.S. (Pre) 2009]
Ans. (a) 1, 2 and 3
- According to the most recent figures, the sectors that have been receiving the highest levels of foreign direct investment are services (such as banking, insurance, etc.), computer software and hardware, telecommunications, trading, automobile industry, construction (infrastructure projects), construction development (townships, housing, etc.), chemicals (other than fertilizers), drugs and pharmaceuticals, and hotel and tourism since April 2000 until December 2021
|
42. The opportunities available in the Indian market for foreign exchange earnings are in the fields of
1. Tourism
2. Medical care
3. Garments
4. Leather goods
Select the correct answer from the codes given below :
Code:
(a) 1 and 2
(b) 1, 2 and 3
(c) 2, 3 and 4
(d) All the four
[U.P.P.C.S. (Spl.) (Mains) 2008]
Ans. (d) All the four
- The Indian market offers plenty of chances for foreign countries to make money.
- According to the information from the Department for Promotion of Industry and Internal Trade, investments in different sectors from April 2000 to December 2021 are listed below.
- Sector Amount of FDI inflow % of Total (in US $ million) inflow Services 92412.61 16.13 Hotel & Tourism 16300.50 2.85 Textiles 3930.33 0.69 Drugs & Pharma. 19197.40 3.35 Hospitals & Diagnostic Centres 7728.63 1.35 Leather goods 219.48 0.04
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43. In Bihar, during April-June 2018, which sector attracted the highest FDI equity inflow?
(a) Service sector
(b) Steel industry
(c) Processing industry in agriculture
(d) Cement industry
(e) None of the above/More than one of the above
[64thB.P.S.C. (Pre) 2018]
Ans. (a) Service sector
- During the months of April to June 2018, Bihar saw the most investment in the services sector from foreign direct equity.
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44. The maximum foreign exchange inflow came to India in the year 2005-06 through which of the following sources :
(a) N.R.I. Deposits
(b) Portfolio investment
(c) Loans taken by the private sector
(d) Grants to Government
[U.P.P.C.S. (Spl.) (Mains) 2004]
Ans. (b) Portfolio investment
- In 2005-06, the most money coming into India was from portfolio investments, according to the Reserve Bank of India’s data released on June 30th, 2021.
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45. The flow of foreign exchange in which of the following forms can be said to be most volatile in the Indian context?
(a) Export Earnings
(b) NRI deposits
(c) Foreign Portfolio Investment
(d) Both (b) and (c) above
[M.P.P.C.S. (Pre) 1998]
Ans. (d) Both (b) and (c) above
- Foreign investors and Non-Resident Indians (NRIs) invest in India because they can get a higher return from the differences in interest rates.
- They want to make a profit from the changes in interest rates.
- When the interest rate changes become unfavorable, they take their money out. This is why these investments are called volatile or “flying” currencies.
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46. Foreign currency which has a tendency for quick migration is called :
(a) Hot currency
(b) Gold currency
(c) Soft currency
(d) Hard currency
[56th to 59th B. P. S.C. (Pre) 2015]
Ans. (a) Hot currency
- Money that is constantly moving between different financial markets and gets the best possible interest rate is called hot money.
- This money moves from places with low-interest rates to places with higher interest rates, which can affect a country’s exchange rate and balance of payments.
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47. With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?
(a) It is the investment through capital instruments essentially in a listed company.
(b) It is a largely non-debt-creating capital flow.
(c) It is the investment that involves debt-servicing.
(d) It is the investment made by foreign institutional investors in Government securities.
[I.A.S. (Pre) 2020]
Ans. (b) It is a largely non-debt-creating capital flow.
- Foreign Direct Investment (FDI) is when a person who lives outside India invests in an unlisted Indian company or buys at least 10% of the shares in a listed Indian company.
- This investment brings long-term money to the economy, technology, and other benefits, like creating jobs.
- Therefore, the correct answer is option (b).
- Foreign investment can be made in stocks, bonds, preferred stocks, and stock options issued by Indian companies, but not in government bonds. Therefore, option (d) is not correct.
- Foreign Direct Investment does not include paying off loans. Debt service is money that is used to repay the amount borrowed plus any interest due.
- FDI can help to provide technology, ideas, competition, and abilities and create jobs. Therefore, choice (c) is incorrect.
- Foreign Direct Investment (FDI) is when money is put into a business in India, either listed or unlisted, using shares, debentures, preference shares, or share warrants.
- This has lots of advantages like bringing in long-term money for the economy, creating more new ideas, making it more competitive, and creating more jobs.
- FDI is a great way to get money for development without having to borrow.
|
48. 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 :
(a) 1, 2, 3, and 4
(b) 2 and 4 only
(c) 1 and 3 only
(d) 1, 2 and 3 only
[I.A.S. (Pre) 2012]
Ans. (d) 1, 2 and 3 only
- Foreign investment involves two types: Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI).
- FDI is when someone who lives outside India invests in an unlisted or listed Indian company, where the investment is 10% or more of the post-issue paid-up equity capital.
- Examples are subsidiaries of foreign companies, majority foreign holdings in Indian companies, and companies funded exclusively by foreign companies.
- FPI is when someone outside India invests in a listed Indian company, but the investment is less than 10% of the post-issue paid-up capital or less than 10% of the paid-up value of each series of capital investments.
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49. 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?
(a) 1, 2, and 3
(b) 3 only
(c) 2 and 4
(d) 1 and 4
[I.A.S. (Pre) 2021]
Ans. (a) 1, 2 and 3
- A Foreign Currency Convertible Bond (FCCB) is a type of bond that can be converted into shares over time. Money coming into India through the issuing of FCCBs is considered FDI.
- Foreign Institutional Investors (FIIs) can invest in Indian companies through the Portfolio Investment Scheme.
- If their total holding reaches 10% of the paid-up equity capital, it is considered FDI.
- Depository Receipts (DRs) like Global Depository Receipts (GDRs) are also considered FDI.
- Non-resident external deposits and investments by Non-resident Indians and People of Indian Origin (NRIs/PIOs) are not considered FDI.
- FIIs are allowed to invest up to 24% and NRIs/PIOs are allowed to invest up to 10% of the paid-up capital of the Indian company.
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50. As part of the liberalization program and with a view to attracting foreign exchange, the Government and the RBI have devised two schemes known as FCNR ‘A’ and FCNR ‘B’. Which of the following is/are true regarding these two schemes?
1. Under scheme ‘A’ RBI bears exchange rate fluctuations.
2. Under the scheme ‘B’ other banks are to meet out the difference in exchange rate fluctuations.
3. Both the schemes stand withdrawn now.
4. Only scheme ‘A’ has been withdrawn.
Codes :
(a) 3 only
(b) 1 and 2
(c) 1, 2, and 3
(d) 1, 2 and 4
[IAS (Pre) 1995]
Ans. (d) 1, 2 and 4
- Except for statement 3, all the other statements are true. FCNR (A) was a program started in 1975 to encourage NRIs to save money in India.
- The RBI (Reserve Bank of India) guaranteed the exchange rate so depositors wouldn’t face any risk. This program was stopped in 1993.
- FCNR (B) was started in 1993 to replace FCNR (A).
- This account is for NRIs who have earned money abroad and want to save it in India.
- The account is held in a foreign currency and the interest earned is tax-free.
- It also offers NRIs higher interest rates in India while protecting them from exchange rate changes.
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51. Global capital flows to developing countries increased significantly during the nineties.
In view of the East Asian financial crisis and Latin American experience, which type of inflow is good for the host country?
(a) Commercial loans
(b) Foreign Direct Investment
(c) Foreign Portfolio Investment
(d) External Commercial borrowings
[I.A.S. (Pre) 2002]
Ans. (b) Foreign Direct Investment
- Foreigners investing in too many stocks caused a crisis in East Asian and Latin American countries.
- This kind of investment is unstable.
- Foreign Direct Investment (FDI) is more reliable and helps countries develop.
- FDI is a great source of foreign money for the country and it increases growth because of new technology and more competition.
- FDI also helps the country’s exports.
- FDI is also a sign of commitment from foreign investors since it requires a lot of money and is difficult to get out of.
- This means that the investors will stay in the country for a long time, which helps the country’s growth.
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52. Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FDI) are related to investment in a country. Which one of the following statements best represents an important difference between the two?
(a) FII helps bring better management skills and technology, while FDI only brings in capital
(b) FII helps in increasing capital availability in general, while FDI only targets specific sectors
(c) FDI flows only into the secondary market, while FII targets the primary market
(d) FII is considered to be more stable than FDI
[I.A.S. (Pre), 2011]
Ans.(b) FII helps in increasing capital availability in general, while FDI only targets specific sectors
- FDI is more stable than investments by Foreign Institutional Investors (FII).
- FDI can bring better management skills and technology transfer, but FII only brings capital.
- FII usually operates in the secondary market, so options (a), (c), and (d) are not correct.
- FIIs can make more foreign capital available on a large scale, even if they are short-term and volatile, while FDI is focused on specific areas.
- Therefore, option (b) is the correct answer.
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53. Participatory Notes (PNs) are associated with which one of the following?
(a) Consolidated Fund of India
(b) Foreign Institutional Investors
(c) United Nations Development Programme
(d) Kyoto Protocol
[I.A.S. (Pre) 2007]
Ans. (b) Foreign Institutional Investors
- P-notes are a type of instrument used by foreign investors who want to invest in India without registering with the stock market regulator SEBI.
- This special type of investment was created in India in 2000 and makes it possible for foreign businesses and wealthy investors to access the Indian market without having to register as an FII.
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54. India receives the largest inflow of foreign capital in equity investment from :
(a) USA
(b) Singapore
(c) Switzerland
(d) Mauritius
[U.P.P.C.S. (Mains) 2010]
Ans. (b) Singapore
- In 2020-21, Singapore was the biggest investor in India’s foreign direct investment in equity, followed by the USA, Mauritius, the UAE, and the Cayman Islands.
- For the previous year, the top five investors in India were Singapore, Mauritius, the Netherlands, the USA, and the Cayman Islands.
- Since 2000, Mauritius has been the largest investor in India with 27.05%, followed by Singapore (22.13%), the USA (8.93%), the Netherlands (6.86%), and Japan (6.35%).
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55. Which country among the following has the highest share in cumulative FDI inflows into India?
(a) Mauritius
(b) USA
(c) Japan
(d) UK
[U.P.P.C.S. (Mains) 2006]
Ans. (a) Mauritius
- Total FDI inflows in the country in FY 22-23 is $ 70.97 Bn and total FDI equity inflows stand at $ 46.03 Bn. Mauritius (26%), Singapore (23%), USA (9%), Netherlands (7%), and Japan (6%) emerge as the top 5 countries for FDI equity inflows into India FY 2022-23.
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56. During 1991-95 the countries which brought the largest foreign direct investment to India were:
(a) USA and Japan
(b) USA and Germany
(c) Japan and Israel
(d) USA and Israel
[U.P.P.C.S. (Pre) 1995]
Ans. (a) USA and Japan
- The total amount of foreign investment into India for the fiscal year 2022-2023 is $70.97 billion, and the total amount of foreign equity investments is $46.03 billion.
- Mauritius, Singapore, the United States, the Netherlands, and Japan are the top five countries investing in India, with
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57. In terms of the share in Foreign Direct Investment Equity inflows in India during 2016-17, which of the following countries is on the top?
(a) Mauritius
(b) Singapore
(c) Japan
(d) USA
[R.A.S./R.T.S. (Pre) 2018]
Ans. (a) Mauritius
- In terms of the share in FDI equity inflows in India during 2016-17, the top 3 countries were in the following order: Mauritius > Singapore > Japan As per the latest data, in descending order of top investing countries’ FDI equity inflows (in 2020-21) is Singapore > USA > Mauritius > UAE > Cayman Islands.
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58. A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies like the UK and France. Why?
(a) India has a preference for certain countries as regards receiving FDI
(b) India has a double taxation avoidance agreement with Mauritius
(c) Most citizens of Mauritius have an ethnic identity with India so they feel secure investing in India
(d) Impending dangers of global climatic change prompt Mauritius to make huge investments in India
[I.A.S. (Pre) 2010]
Ans. (b) India has a double taxation avoidance agreement with Mauritius
- The Double Taxation Avoidance Agreement (DTAA) allowed overseas investors to invest their money in Mauritius first instead of India, where they paid much less tax.
- This gave them tax benefits and was the main reason why a lot of Foreign Direct Investment (FDI) came to India from Mauritius.
- However, in 2016 the Indian government changed the DTAA, taking away the tax benefits partially in 2017-18 and completely in 2019-20.
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59. The Foreign Account Tax Compliance Act (FATCA) has been operationalized between India and the United States from
(a) 1 October 2015
(b) 2 October 2015
(c) 30 September 2015
(d) 30 October 2015
[U.P. Lower Sub. (Pre) 2015]
Ans. (c) 30 September, 2015
- In 2010, the United States passed the Foreign Account Tax Compliance Act (FATCA) to stop tax evasion by getting information about money held by US citizens in other countries.
- Because other countries usually don’t allow their banks to give out private customer data, the US has set up agreements with many countries, including India, to exchange information.
- The India-US agreement was signed in 2015 and started working in September of that year.
- This agreement also allows the US to give information to India about Indian citizens who keep money there.
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60. With reference to the Government of India’s decisions regarding Foreign Direct Investment (FDI) during the years 2001-2002, consider the following statements:
1. Out of the 100% FDI allowed by India in the tea sector, the foreign firm would have to disinvest 33% of the equity in favor of an Indian partner within four years.
2. Regarding the FDI in print media in India, the single largest Indian shareholder should have a holding higher than 26%.
Which of these statements is/are correct?
(a) Only 1
(b) Only 2
(c) Both 1 and 2
(d) Neither 1 nor 2
[I.A.S. (Pre) 2003]
Ans. (b) Only 2
- According to the Indian government’s FDI policy, a foreign company must give 26% of their equity in the tea sector to an Indian partner within 5 years, so statement 1 is wrong.
- For print media, the Indian government has set a limit of 26% for foreign investment.
- Also, the largest Indian shareholder must own more than 26%.
- Therefore, option b is the correct answer.
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61. In the calendar year 2005, the amount of capital invested by foreign institutional investors was approximately :
(a) US $ 5.7 bn.
(b) US $ 7.7 bn.
(c) US $ 8.7 bn.
(d) US $ 10.7 bn.
[U.P.P.C.S. (Spl.) (Mains) 2004]
Ans. (d) US $ 10.7 bn
- In the calendar year 2005, invested capital in Indian companies by foreign institutional investors (FIIs) was US $ 10.7 bn. (Rs. 4781 crore).
- As per data of NSDL, Foreign Portfolio Investment (FPI), details (in recent calendar years and financial years) are as follows : (US $ million) Calendar FPI Net Financial FPI Net
- Year Investments Year Investments
- 2017 30784 2017-18 22465
- 2018 11334 2018-19 5499
- 2019 19408 2019-20 3041
- 2020 14035 2020-21 36180
- 2021 7069 2021-22 16017
- As per FDI Statistics of the Department for Promotion of Industry and Internal Trade (DPIIT), investments by FII’s Foreign Institutional Investors Fund (net) in recent years are as follows : (US $ million)
- Year Net Investments
- 2017-18 22165
- 2018-19 2,225
- 2019-20 552
- 2020-21 38,725
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62. In India, the Foreign Investment Promotion Board now works under :
(a) Reserve Bank of India
(b) Ministry of External Affairs
(c) Ministry of Commerce
(b) Ministry of Finance
[U.P.P.C.S. (Mains) 2007]
Ans. (d) Ministry of Finance
- In 2003, the Indian President ordered the Foreign Investment Promotion Board (FIPB) to be moved to the Department of Economic Affairs in the Ministry of Finance.
- FIPB was then abolished in 2017. After FIPB was abolished, the task of giving government approval for foreign investment under the existing FDI Policy and FEMA Regulations was given to the relevant Administrative Ministries/Departments.
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63. Most recently, FDI has opened in which of the following sectors in India?
(a) Gambling and betting for profit
(b) Lottery business
(c) Chit fund and Nidhi
(d) Retail trade
[U.P.P.C.S. (Mains) 2010]
Ans. (d) Retail trade
- In 2006, the Government made it easier for foreign companies to invest in the retail sector by allowing up to 51% of the business to be owned by them.
- This was the first time this had been allowed.
- In 2012, they allowed up to 51% of multi-brand retail to be owned by foreign companies.
- They also allowed 100% of single-brand retail to be foreign-owned, but they had to source at least 30% of
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64. On October 4, 2012, the Government of India proposed to change the limits of FDI in the Insurance Sector. It is proposed to :
(a) raise the FDI limit from 26% to 49%
(b) raise the FDI limit from 49% to 74%
(c) raise the FDI limit from 26% to 51%
(d) decrease the FDI limit from 74% to 49%
[U.P.P.C.S. (Mains) 2012]
Ans. (a) Raise the FDI limit from 26% to 49%
- In 2012, the Indian government suggested raising the FDI limit in the insurance sector from 26% to 49%.
- Then in 2021, the Finance Minister declared in the Union Budget that the FDI limit in the insurance sector would increase from 49% to 74%.
- This change went into effect on May 19th, 2021.
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65. A country is said to be in a debt trap if :
(a) it has to abide by the conditionalities imposed by the International Monetary Fund
(b) it has to borrow to make interest payments on outstanding loans
(c) it has been refused loans or aid by creditors abroad
(d) the World Bank charges a very high rate of interest on outstanding as well as new loans
[I.A.S. (Pre) 2002]
Ans. (b) it has to borrow to make interest payments on outstanding loans
- A country is in a debt trap when they have to borrow money to pay back the interest on the loans they already took out.
- This is a difficult situation to get out of since the high-interest payments make it hard to pay back the original loan amount.
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66. At the end of 2010, India’s external debt had crossed the mark of :
(a) US $ 100 Billion
(b) US $ 300 Billion
(c) US $ 500 Billion
(d) US $ 1000 Billion
[U.P.P.C.S. (Mains) 2010]
Ans. (b) US $ 300 Billion
- At the end of March 2021, India’s external debt was US $570 billion, which was an increase of US $11.6 billion since the end of March 2020.
- By the end of December 2021, the debt had risen to US $614.9 billion. Option (b) was the correct answer to the question.
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67. Consider the following statements:
1. Most of India’s external debt is owed by governmental entities.
2. All of External debt is denominated in US dollars.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
[I.A.S. (Pre) 2019]
Ans. (d) Neither 1 nor 2
- Most of India’s external debt is owed by non-government entities.
- India’s total external debt in December 2021 was $614.9 billion, with the government owing $131.4 billion and non-government owing $483.6 billion.
- Commercial borrowings are the biggest part of India’s external debt, making up 36.8%.
- Not all of India’s external debt is in US dollars – US dollars make up 52.0%, Indian Rupees 32.0%, SDR 6.7%, Yen 5.3%, and Euros 3.1%.
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68. Which of the following continued to be the major component of India’s external credit till 2017?
(a) NRI deposits
(b) Short-term debt
(c) Trade Credit
(d) Commercial borrowing
[U.P. R.O./A.R.O. (Pre) 2017]
Ans. (d) Commercial borrowing
- In 2017, commercial loans made up the largest portion (38%) of India’s total external debt.
- At the end of 2021, India’s external debt was $614.9 billion, and commercial loans still made up the biggest part (36.8%), followed by deposits from non-resident Indians (23.1%) and short-term loans with an original maturity of less than a year (18.6%).
- Trade credit which is part of the short-term debt was 18% of the total external debt at the end of 2021.
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69. India’s external debt increased from US 98,158 million at the end of March 2000 to US $ 100,225 million at the end of March 2001 due to an increase in
(a) multilateral and bilateral debt
(b) rupee debt
(c) commercial borrowings and NRI deposits
(d) borrowing from International Monetary Fund
[I.A.S. (Pre) 2002]
Ans. (c) commercial borrowings and NRI deposits
- Option (c) was the right answer according to the question. India’s external debt at the end of March 2021 was different from the end of March 2020.
- Here are the figures for each component: end of March 2020 = US$ billion, end of March 2021 = US$ billion
-
- Multilateral 59.9 69.7 9.7
- Bilateral 28.1 31.0 2.9
- IMF 5.4 5.6 0.2
- Trade Credit 7.0 6.5 – 0.5
- Commercial Borrowings 219.5 213.2 – 6.3
- NRI Deposits 130.6 141.9 11.3
- Rupee Debt 1.0 1.0 0.0
- Short-term Debt of which: 106.9 101.1 – 5.8 Short-term Trade Credit 101.4 97.3 – 4.1 Total External Debt 558.4 570.0 11.6
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70. Which among the following institutions regulates external commercial borrowings?
(a) SEBI
(b) Ministry of Finance
(c) Ministry of Commerce
(d) Reserve Bank of India
[U.P.P.C.S. (Mains) 2010]
Ans. (d) Reserve Bank of India
- Non-resident entities can provide commercial loans to eligible entities in India, which are regulated by the Reserve Bank of India.
- These regulations include who is allowed to borrow and lend, what the money can be used for, how long it must be borrowed for, and how much it can cost.
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71. According to the World Bank’s Global Development Finance Report 2010, the correct descending order of the world’s five most indebted countries is :
(a) Russia, Brazil, China, Turkey, India
(b) Russia, China, Turkey, Brazil, India
(c) Russia, China, Brazil, India, Turkey
(d) Russia, Brazil, India, China, Turkey
[U.P.P.C.S (Pre) 2011]
Ans. (b) Russia, China, Turkey, Brazil, India
- Option (b) was the correct answer for emerging economies.
- According to the World Bank’s ‘International Debt Statistics 2022’, the 10 countries with the most external debt at the end of 2020 are low- and middle-income borrowers.
- 1. China, 2.India, 3. Brazil, 4. Russia, 5. Mexico, 6. Turkey, 7. Indonesia, 8. Argentina, 9. Thailand, 10. South Africa.
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72. As of today, which one of the following countries has the largest external debt?
(a) India
(b) Brazil
(c) USA
(d) Mexico
[I.A.S. (Pre) 1993]
Ans. (b) Brazil
- According to the report released on September 28, 2021, the United States has the highest amount of external debt in the world, estimated at 21.4 trillion dollars and making up 22.6 percent of the world’s total debt.
- The UK, France, Germany, and Japan are the countries with the next highest external debt amounts.
- China is in 12th place when it comes to external debt.
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73. On the basis of the size and composition of external debt, the World Bank has classified India as
(a) a moderately indebted country
(b) a less indebted country
(c) a heavily indebted country
(d) a critically indebted country
[U.P.P.C.S. (Mains) 2009]
Ans. (b) a less indebted country
- The World Bank has labeled India as a country with low debt, based on the size of its external debt, components, and debt-to-GDP ratio.
- According to the Indian Ministry of Finance, India’s external debt is still in a good spot and is being managed carefully.
- At the end of December 2021, India’s external debt as a ratio to GDP dropped slightly to 20.0% from 21.2% at the end of March 2021.
- The amount of foreign currency reserves compared to external debt, however, increased to 103.0% from 100.6% in the same period, which means that India is now a net lender to the world.
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74. Which country has the highest loan from the World Bank after India?
(a) South Africa
(b) Brazil
(c) Mexico
(d) Iran
[R.A.S./R.T.S.(Pre) 2010]
Ans. (c) Mexico
- As per the question period, option (c) was the correct answer. According to World Bank’s data, 5 countries having the highest debt stock of IBRD loans and IDA credits (DOD, current US $) in 2020 are as follows:
1. India (US $ 39.58 billion)
2. Indonesia (US $ 19.67 billion)
3. Bangladesh (US $ 17.57 billion)
4. Pakistan (US $ 17.18 billion)
5. Vietnam (US $ 16.38 billion).
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75. In the year 2001, India offered a grant of five million dollars to Tajikistan to :
(a) tackle the drought situation
(b) set up a Software Technology Park
(c) promote mineral exploration
(d) procure defense equipment
[I.A.S. (Pre) 2002]
Ans. (a) tackle the drought situation
- In May 2001, India gave Tajikistan $5 million to help deal with the drought.
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76. In the year 2001, Germany approved a $ 32 million credit to India :
(a) to promote primary education in selected states
(b) for the Tehri Dam project
(c) to assist in the development of nuclear power generation projects
(d) for oceanographic research
[I.A.S. (Pre) 2002]
Ans. (b) for the Tehri Dam project
- In October 2001, Germany gave the US $32 million to help pay for the Tehri dam project in Uttarakhand.
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77. Which of the following statements about green bonds is NOT true?
(a) Green Bond investment is only for climate-friendly projects.
(b) Green bonds were first introduced by the European Investment Fund in 2007
(c) Green Bonds are Financial Market Innovation
(d) Green Bonds are fixed-interest loans with short-date maturities
[U.P. R.O./A.R.O. (Re-Exam) (Pre) 2016]
Ans. (d) Green Bonds are fixed-interest loans with short-date maturities
- Green bonds are special loan-type investments meant to fund projects that are related to the environment or climate.
- They often have tax breaks, making them attractive to investors.
- They are usually long-term loans and are a relatively new type of asset.
- The first green bond was issued by the European Investment Bank in 2007 and the World Bank followed in 2008.
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78. Consider the following statements for `India Millennium Deposit Scheme :
1. The scheme was launched by the State Bank of India.
2. It was intended for Resident Indians only.
3. The maturity period of the scheme was six years only.
Which of the Statements given above is/are correct?
(a) 1 and 2 only
(b) 1 and 3 only
(c) 1, 2 and 3 only
(d) 1 only
[U.P.P.C.S. (Mains) 2005]
Ans. (d) 1 only
- On October 21, 2000, the State Bank of India started the ‘Indian Millennium Deposit’ (IMD) Scheme.
- It gave depositors an 8.5% return and raised $5.5 billion.
- The scheme allowed people to make deposits in US dollars, pounds sterling, and euros for five years and was designed to draw in foreign exchange from Non-Resident Indians (NRIs).
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79. Resurgent India Bonds were issued in US dollars, Pound Sterling and:
(a) Japanese Yen
(b) Deutsche Mark
(c) Euro
(d) French France
[I.A.S. (Pre) 2000]
Ans. (b) Deutsche Mark
- On August 5th, 1998, the State Bank of India released the “Resurgent India Bond” in three different currencies: US Dollars, British Pound Sterling, and Deutsche Mark.
- This bond was available for five years.
|
80. Which of the following is a bond through which Indian entities can raise money from foreign markets in rupees, and not in foreign currency?
(a) Corporate Bonds
(b) Masala Bonds
(c) Municipal Bonds
(d) Zero-coupon Bonds
(e) None of the above/More than one of the above
[60th to 62nd B.P.S.C. (Pre) 2016]
Ans. (b) Masala Bonds
- Masala Bonds are a way for Indian companies to get money from overseas markets using Indian rupees instead of foreign currency.
- The purpose of these bonds is to pay for infrastructure projects in India, help the country grow, and make the Indian rupee more widely used.
- The companies issuing these bonds don’t have to worry about currency exchange risks, which usually come with borrowing in Indian rupees.
|
81. With reference to ‘IFC Masala Bonds’ sometimes seen in the news, which of the statements given below is/are correct?
1. The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
2. They are the rupee-denominated bonds and a source of debt financing for the public and private sector.
Select the correct answer using the code given below :
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
[I.A.S. (Pre) 2016]
Ans. (c) Both 1 and 2
- Masala bonds are bonds that are issued in India but in Indian rupees, not the local currency.
- The big difference with masala bonds is that the investor, not the borrower, takes on the risk of the currency.
- The first masala bond was issued by the IFC (International Finance Corporation) in November 2014 to fund infrastructure in India.
- In September 2015, the RBI (Reserve Bank of India) allowed Indian companies to raise money through masala bonds.
- This falls under External Commercial Borrowings (ECB).
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82. Closure of Oil-Pool account effected from :
(a) 30-3-2002
(b) 1-4-2002
(c) 30-3-2003
(d) 1-4-2003
[U.P.P.S.C. (GIC) 2010]
Ans. (b) 1-4-2002
- The administered price mechanism (APM) in the oil sector in India was eliminated on April 1, 2002, during Yashwant Sinha’s tenure as the finance minister.
- As a result, the oil pool account was also abolished.
- Although the APM was dismantled from April 1, 2002, starting from 2004, certain sensitive petroleum products such as Petrol (decontrolled as of June 26, 2010), Diesel (decontrolled as of October 19, 2014), PDS Kerosene, and Domestic LPG have been shielded from the impact of exceptionally high international oil prices by the Public Sector Oil Marketing Companies (OMCs) – IOCL, HPCL, and BPCL.
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83. Which of the following best describes the term ‘import cover’, sometimes seen in the news?
(a) It is the ratio of the value of imports to the Gross Domestic Product of a country
(b) It is the total value of imports of a country in a year
(c) It is the ratio between the value of exports and that of imports between two countries
(d) It is the number of months of imports that could be paid for by a country’s international reserves
[I.A.S. (Pre) 2016]
Ans. (d) It is the number of months of imports that could be paid for by a country’s international reserves
- The Economic Survey 2021-22 reported that there was enough in the international reserves of a country (US $ 634 billion on 31st December 2021) to cover 13.2 months of imports.
- This is known as import cover.
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84. In the fiscal year 2018-19, the total foreign exchange reserves are :
(a) Rs. 34,55,882 crores
(b) Rs. 30,55,882 crores
(c) Rs. 32,55,882 crore
(d) Rs. 28,55,882 crore
(e) None of the above/More than one of the above
[65th B.P.S.C. (Pre) 2019]
Ans. (d) Rs. 28,55,882 crore
- In 2018-19, India had a total of 28,55,882 crore rupees in foreign exchange reserves.
- By March 25th, 2022, this had increased to 47,07,396 crore rupees (or US $617.65 billion).
- According to the 2021-22 Economic Survey, India was the fourth largest holder of foreign exchange reserves in the world at the end of November 2021, after China, Japan, and Switzerland.
|
85. According to the Reserve Bank of India, what were the total values of the foreign exchange reserves of India in 2018-19?
(a) 493560 million US dollar
(b) 481078 million US dollar
(c) 477807 million US dollar
(d) 412871 million US dollar
(e) None of the above / More than one of the above
[66th B.P.S.C. (Pre) (Re-Exam) 2020]
Ans. (d) 412871 million US dollar
- The Reserve Bank of India reported that India’s foreign exchange reserves in 2018-19 ended at $412,871 million.
- In June 2021, it went over the $600 billion mark and reached $605,008 million.
- As of March 25, 2022, the reserves were at $617,648 million.
|
86. Which of the following statements is not true in the context of foreign exchange reserves of India?
(a) Gold and Foreign currency assets present with the Reserve Bank of India are included in it
(b) It is maintained by the Reserve Bank of India
(c) Special Drawing Rights are not included in this
(d) The current state of Foreign exchange is satisfactory in India
[U.P. U.D.A./L.D.A. (Pre) 2001]
Ans. (c) Special Drawing Rights are not included in this
- India’s foreign exchange reserves are made up of FCAs (foreign currency assets), gold, SDRs (special drawing rights), and India’s share of the IMF’s (International Monetary Fund’s) money.
- The Reserve Bank of India takes care of it on behalf of the Indian government. So, all statements are true except statement (c).
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87. Which among the following has the largest share in the foreign exchange reserves of India?
(a) Securities of international institutions
(b) Gold reserves
(c) Foreign currency assets
(d) NRI deposits
[U.P.P.C.S. (Mains) 2002]
Ans. (c) Foreign currency assets
- Foreign currency assets (FCAs) have the largest share in the foreign exchange reserves of India. As of 25 March 2022, the value of components of India’s foreign exchange reserves is as follows :
- Foreign Exchange Reserves of India
- Item Value Rs. cr. US $ million (As of 25 March 2022)
- Foreign Currency Assets 4195294 550454
- Gold 329562 43241
- SDRs 143446 18821
- Reserve Position in the IMF 39094 5132
- Total Reserves 4707396 617648
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88. Which one of the following groups of items is included in India’s foreign exchange reserves?
(a) Foreign currency assets, Special Drawing Rights (SDRs), and loans from foreign countries
(b) Foreign currency assets, gold holdings of the RBI and SDRs
(c) Foreign currency assets, loans from the World Bank, and SDRs
(d) Foreign currency assets, gold holdings of the RBI, and loans from the World Bank
[I.A.S. (Pre) 2013]
Ans. (b) Foreign currency assets, gold holdings of the RBI and SDRs
- India’s foreign exchange reserves include foreign currency, gold, SDRs, and money held in the International Monetary Fund.
- It does not include loans from the World Bank or other countries.
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89. Consider the following statements:
1. During the year 2004, India’s foreign exchange reserves did not exceed the 125 billion U.S. Dollar mark.
2. The series of index numbers of wholesale prices introduced from April 2000 has the year 1993-94 as the base year.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
[I.A.S. (Pre) 2005]
Ans. (b)2 only
- The amount of money India had in foreign exchange on December 10th, 2004 was 129.7 billion US dollars.
- Statement 1 is wrong because the starting year for the Wholesale Price Index (WPI) was 1993-94 and statement 2 is right.
- The new base year for the WPI is 2011-12 and it took effect on April 2017.
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90. Consider the following statements, the price of any currency in the 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 statement(s) given above are correct?
(a) 1, 2, 3 and 4
(b) 2 and 3
(c) 3 and 4
(d) 1 and 4
[I.A.S. (Pre) 2012]
Ans. (b) 2 and 3
- The World Bank has no say in what the price of any currency is in the global market.
- Prices are determined by the strength of the government of the country involved and the demand for the goods and services that the country produces.
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91. According to the new RBI Governor, which among the following factors determines the exchange value of money?
1. High inflation rate
2. High fiscal deficit
3. High crude oil prices Choose the correct answer from the code below:
Code :
(a) All the three above factors
(b) Only 1 and 2
(c) Only 3
(d) Only 1
[U.P.P.C.S. (Mains) 2013]
Ans. (a) All the three above factors
- Raghuram Rajan, the Governor of the Reserve Bank of India, said that the exchange value of money is affected by three things: a high rate of inflation, a large amount of government debt, and high prices for oil.
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92. Which one of the following is the correct sequence of decreasing order of the given currencies in terms of their value in Indian Rupees?
(a) US dollar, Canadian dollar, New Zealand dollar, Hong Kong dollar
(b) US dollar, New Zealand dollar, Canadian dollar, Hong Kong dollar
(c) US dollar, Hong Kong dollar, New Zealand dollar, Canadian dollar
(d) US dollar, Hong Kong dollar, Canadian dollar, New Zealand dollar
[I.A.S. (Pre) 1998]
Ans. (a) US dollar, Canadian dollar, New Zealand dollar, Hong Kong dollar
- As per the question period as well as at present, option (a) is the correct answer. Indian Rupee exchange rates with other currencies mentioned in the question are as follows (as of 15 April 2022) :
- Currency Value in Rupee 1 U.S. Dollar Rs. 76.33 1 Canadian Dollar Rs. 60.51 1 New Zealand Dollar Rs. 51.61 1 Hong Kong Dollar Rs. 9.66
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93. The Indian Rupee, in recent years, has gained strength against which of the following currencies?
(a) Yen
(b) Euro
(c) Dollar
(d) Pound Sterling
[U.P.P.C.S. (Pre) 2007]
Ans. (c) Dollar
- The exchange rates of the Indian rupee in the preceding years of the question period are as follows :
- Year U.S.Dollar Pound Euro Yen
Sterling
- 2002-03 48.395 74.819 48.090 0.397
- 2003-04 45.952 77.729 53.990 0.407
- 2004-05 44.932 82.864 56.513 0.418
- 2005-06 44.273 79.047 53.912 0.391
- The Indian rupee changed in value (went up and down) compared to the Euro, Yen and Pound Sterling. In contrast, it only increased in value against the US dollar.
- Therefore, option (c) is the correct answer.
|
94. If the rupee per US Dollar exchange rate changes from Rs. 60 to Rs. 65 in a time period by the market forces, it implies
(a) Devaluation of Rupee
(b) Appreciation of Rupee
(c) No change in the exchange rate
(d) Depreciation of Rupee
[Jharkhand P.C.S. (Pre) 2021]
Ans. (d) Depreciation of Rupee
- When the value of a currency falls compared to a foreign currency under a Floating Rate System, it is known as depreciation.
- When the value rises, it is called appreciation.
- Devaluation is when the government lowers the value of a currency under a Fixed Rate System.
- In this case, the domestic currency (rupee) has gone down in value compared to a foreign currency, so it has depreciated.
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95. When the exchange rate changes from 1$ = Rs. 60 to 1$ = Rs. 58, it means
I. Rupee value has appreciated
II. Dollar value has depreciated
III. Rupee value has depreciated
IV. Dollar value has appreciated
(a) I and II are correct
(b) II and III are correct
(c) I and IV are correct
(d) II and IV are correct
[Uttarakhand P.C.S. (Pre) 2012]
Ans. (a) I and II are correct
- When the rate of exchange changed from 1$ = Rs. 60 to 1$ = Rs. 58, it meant that the Indian rupee became stronger compared to the US dollar, while the US dollar became weaker compared to the Indian rupee.
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96. Which of the following is/are treated as artificial currency?
(a) ADR
(b) GDR
(c) SDR
(d) Both ADR and SDR
[I.A.S. (Pre) 2010]
Ans. (c) SDR
- An artificial currency, like the Special Drawing Right (SDR) created by the International Monetary Fund (IMF), is a type of currency used instead of real money in economic activities. IMF members use SDRs to pay fees and move money between countries.
- The value of SDRs is based on a group of other currencies, and changes as the prices of those currencies change.
- SDRs are the currency of the IMF, while ADR/GDRs are financial tools.
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97. What is the name of the New Single European Currency :
(a) Peso
(b) Euro
(c) Pound
(d) Sterling
[U.P.P.C.S. (Pre) 1995]
Ans. (b) Euro
- The euro is the main form of money used in 19 countries that are part of the European Union.
- It is also used by the European Union itself, four countries that are not in the EU, and some British Overseas Territories.
- Additionally, Montenegro and Kosovo use the euro too. Lastly, some non-EU territories of EU members also use the euro for their currency.
- The euro was created as part of the 1992 Maastricht Treaty and given its name in Madrid on December 16, 1995.
- It was used for accounting purposes on January 1, 1999, and replaced the ECU at a 1:1 ratio.
- Physical euro coins and bills were put into circulation in 2002.
- Currently, the euro is the second most valuable reserve and traded currency in the world after the US dollar.
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98. The currency of the proposed European Monetary Union will be
(a) Dollar
(b) Euro
(c) Guilder
(d) Mark
[I.A.S. (Pre) 1998]
Ans. (b) Euro
- The euro is the main form of currency in 19 countries that are part of the European Union.
- It is also accepted by the EU itself, four countries outside of the EU, and some British Overseas Territories.
- Additionally, Montenegro and Kosovo also use the euro.
- Lastly, some territories that are not in the EU, but belong to EU members, also use the euro.
- The euro was created in 1992 as part of the Maastricht Treaty and was officially named in Madrid in 1995.
- It was used for accounting from 1999, replacing the ECU at a 1:1 rate. Physical euro coins and bills were released in 2002.
- Today, the euro is the second most sought-after and traded currency in the world after the US dollar.
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99. Which one of the following is not true for ‘Euro’ in 1999 :
(a) It is a unit of account
(b) It is a means of deferred payments
(c) It is a mode of payment
(d) It is in circulation
[U.P.P.C.S. (Pre) 1999]
Ans. (d) It is in circulation
- As per the question period option (d) was not correct. See the explanation of the above question.
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100. In which year the new currency ‘Euro’ was introduced?
(a) 1996
(b) 1997
(c) 1998
(d) 1999
[48th to 52nd B.P.S.C. (Pre) 2008]
Ans. (d) 1999
- The euro became an official currency on January 1, 1999.
- At first, it was only used in financial markets and certain businesses.
- But in 2002, member states started using euro notes and coins.
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101. Euro is the national currency of :
(a) All states of Europe
(b) All states of the European Union
(c) Only 12 states of the European Union
(d) Only 10 states of the European Union
[U.P.U.D.A./L.D.A. (Pre) 2001]
Ans. (c) Only 12 states of the European Union
- At first, only 12 countries in the European Union (EU) used the euro as their official currency.
- Now, 19 out of 27 EU countries use the euro.
- Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden are the 8 EU countries that do not use the euro.
- Additionally, the euro is also used by institutions of the EU, four European microstates, Montenegro and Kosovo.
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102. Which country has not accepted the Euro as its currency?
(a) Britain
(b) Denmark
(c) Sweden
(d) All the above
[Jharkhand P.C.S. (Pre) 2003]
Ans. (d) All the above
- The UK, Denmark, and Sweden do not use the euro as their currency.
- There are seven euro banknote denominations: 5, 10, 20, 50, 100, 200, and 500 euros.
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103. Eurodollars are :
(a) a currency issued by the European Monetary Union
(b) a special currency issued by the federal government of the USA, to be used only in Europe
(c) U.S. dollars circulating in Europe
(d) European currencies exchanged for the US Dollar in the USA
[I.A.S. (Pre) 1993]
Ans. (c) U.S. dollars circulating in Europe
- Eurodollar is a term used to describe US dollars held in banks located in places other than the United States. These banks are not regulated by the Federal Reserve of the US.
- The term was first used to describe US dollars held in European banks, but it has since been broadened to include US dollars held in other international banks.
- After World War II, the US gave money to Europe to help rebuild the continent.
- This caused many dollars to be circulated in Europe, which created a new market for where those dollars could be deposited.
- This market was not regulated by the Federal Reserve, meaning it had higher interest rates than domestic US deposits.
- This is how the eurodollar market started.
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104. In which one of the following countries is Rupee its currency?
(a) Bhutan
(b) Malaysia
(c) Maldives
(d) Seychelles
[I.A.S. (Pre) 2003]
Ans. (d) Seychelles
- The Rupee is the official currency of Seychelles.
- Bhutan’s currency is Ngultrum, Malaysia’s currency is Ringgit and Maldives’ currency is Rifiyaa.
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105. Bangladesh’s currency is :
(a) Taka
(b) Rupiah
(c) Dinar
(d) Lira
[M.P.P.C.S. (Pre) 1999]
Ans. (a) Taka
- Iran uses the Dinar as their currency, Italy uses the Lira (or Euro) and Indonesia uses the Rupiah.
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106. Baht is the currency of
(a) Turkey
(b) Thailand
(c) Vietnam
(d) Iran
[M.P.P.C.S. (Pre) 1990]
Ans. (b) Thailand
- Baht is the currency of Thailand.
- Turkey’s – Turkish Lira, Vietnam’s – Dong, Iran’s – Rial.
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107. The currency of China is
(a) Yuan
(b) Leera
(c) Yen
(d) Rupee
[M.P. P.C.S. (Pre) 1990]
Ans. (a) Yuan
- The currency of China is the Yuan (a unit of the official currency Renminbi), while the Lira (at present Euro) is the currency of Italy.
- Japan’s currency is Yen and India’s currency is Rupee.
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108. Yuan is the currency of which country?
(a) Japan
(b) Korea
(c) China
(d) Bhutan
[Chhattisgarh P.C.S. (Pre) 2005]
Ans. (c) China
- The Chinese yuan (CNY) is the official money in China.
- The word “yuan” means “round” and “renminbi” means “the people’s currency” in Chinese.
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109. Dinar/New Dinar is not the currency of
(a) Sudan
(b) Yugoslavia
(c) U.A.E.
(d) Tunisia
[I.A.S. (Pre) 1999]
Ans. (c) U.A.E.
- Out of the countries listed, Dinar/New Dinar is not used in U.A.E. The currency used in the U.A.E. is Dirham.
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110. Match List I with List II and select the correct answer using the codes given below the lists:
List I List II
A. Ringgit 1. Indonesia
B. Baht 2. South Korea
C. Rupiah 3. Thailand
D. Won 4. Malaysia
Codes :
A B C D
(a) 1 3 4 2
(b) 4 3 1 2
(c) 1 2 4 3
(d) 4 2 1 3
[I.A.S. (Pre) 1998]
Ans. (b) 4 3 1 2
- The correctly matched lists are as follows :
Country-Currency
Malaysia – Ringgit
Thailand – Baht
Indonesia – Rupiah
South Korea – Won
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111. Match List 1 (Country) with List 2 (Currency) on the basis of given codes:
List 1 List 2
A. Mexico 1. Yen
B. Austria 2. Peso
C. Japan 3. Riyal
D. Saudi Arab 4. Schilling
Codes :
A B C D
(a) 2 1 3 4
(b) 2 4 1 3
(c) 2 3 4 1
(d) 2 3 1 4
[Chhattisgarh P.C.S. (Pre) 2008]
Ans. (b) 2 4 1 3
- The correctly matched lists are as follows:
- Country Currency
Mexico Peso
Austria Schilling
Japan Yen
Saudi Arab Riyal
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112. Which one of the following statements is correct with reference to FEMA in India?
(a) The Foreign Exchange Regulation Act (FERA) was replaced by the Foreign Exchange Management Act (FEMA) in the year 2001.
(b) FERA was given a sunset clause of one year till 31st May 2002 to enable the Enforcement Directorate to complete the investigation of pending issues.
(c) Under FEMA, violation of foreign exchange rules has ceased to be a criminal offense.
(d) As per the new dispensation, the Enforcement Directorate can arrest and prosecute the people for the violation of foreign exchange rules.
[I.A.S. (Pre) 2003]
Ans. (c) Under FEMA, violation of foreign exchange rules has ceased to be a criminal offense.
- The Foreign Exchange Regulation Act (FERA) of 1973 was replaced by the Foreign Exchange Management Act (FEMA) of 1999 on June 1, 2000.
- Under FEMA, breaking foreign exchange rules was no longer seen as a crime.
- Instead, it was treated as a civil offense, which was different from FERA.
- Additionally, a two-year sunset clause was instituted until May 31, 2002, so that the Enforcement Directorate could finish any investigations.
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113. From which year the FEMA came into force?
(a) 2003
(b) 2002
(c) 2000
(d) 1999
[M.P.P.C.S. (Pre) 2006]
Ans. (c) 2000
- The Foreign Exchange Management Act (FEMA) was put into effect in India on June 1, 2000.
- It was first suggested in 1998 and was designed to make it easier to buy and sell goods from other countries.
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114. Which act came into force in place of FERA?
(a) The Competition Act
(b) The FEMA
(c) The Monopolies Act
(d) The MRTP Act
[U.P.P.C.S. (Mains) 2007]
Ans. (b) The FEMA
- In 1998, the Atal Bihari Vajpayee government got rid of FERA and brought in the Foreign Exchange Management Act.
- This new law made it easier for people to exchange foreign money and to invest in other countries.
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115. FEMA (Foreign Exchange Management Act) was finally implemented in the year :
(a) 1991
(b) 1997
(c) 2002
(d) 2007
[U.P.P.C.S.(Pre) 2013]
Ans. (c) 2002
- FEMA was created in 1999 to help people in India do international trade and payments.
- It went into effect on June 1, 2000, but wasn’t completely implemented until 2002.
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116. Which of the following authorities sanctions foreign exchange for the import of goods?
(a) Any Nationalized Bank
(b) Exchange Bank
(c) Reserve Bank of India
(d) Ministry of Finance
[U.P.P.C.S (Pre) 2011]
Ans. (b) Exchange Bank
- The FEMA 1999 law says that people are only allowed to do foreign exchange activities through an authorized dealer (AD).
- Exchange banks (AD Category-I banks) can let people send money to India for importing goods, but only after making sure that all the required information has been given and the money is for a legitimate reason that follows the laws.
- Except for goods in the “negative list” (which need special permission), AD Category-I banks can open letters of credit and let people send money for imports.
- If the foreign exchange was used to import something, the AD Category-I bank should make sure the importer can show evidence, like the Bill of Entry or Customs Assessment Certificate, that the goods were imported.
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117. Assertion (A): Ceiling on foreign exchange for a host of current account transaction heads was lowered in the year 2000. Reason (R): There was a fall in foreign currency assets also.
(a) Both A and R are individually true, and R is the correct explanation of A
(b) Both A and R are individually true, but R is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R is true
[I.A.S. (Pre) 2001]
Ans. (c) A is true, but R is false
- In 2000, the maximum amount of foreign exchange allowed for certain financial transactions was reduced when FEMA replaced FERA.
- India’s foreign currency assets rose from $38,036 million at the end of March 1999 to $42,281 million at the end of March 2001.
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118. What is the correct chronological sequence of the following Indian Acts?
1. MRTP Act
2. Industries (Development and Regulation) Act
3. FERA
4. Minimum Wages Act
Select the correct answer from the codes given below :
(a) 2, 3, 4, 1
(b) 2, 3, 1, 4
(c) 4, 2, 1, 3
(d) 4, 2, 3, 1
[U.P.P.C.S. (Mains) 2017]
Ans. (c) 4, 2, 1, 3
- The correct chronological sequence of the given Acts is as follows:
Minimum Wages Act – 1948
Industries(Development and Regulation) Act – 1951
Monopolistic and Restrictive Trade Practices – 1969
(MRTP) Act Foreign Exchange Regulation Act (FERA) – 1973
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119. Hawala transactions relate to payments :
(a) received in rupees against overseas currencies and vice versa without going through the official channels
(b) received for sale/transfer of shares without going through the established stock exchanges
(c) received as commission for services rendered to overseas investors/buyers/sellers in assisting them to get over the red tape and/or to get preferential treatment
(d) made to political parties or to individuals to meet election expenses
[I.A.S. (Pre) 1996]
Ans. (a) received in rupees against overseas currencies and vice versa without going through the official channels
- Buying and selling foreign currency and transferring it abroad should be done through official dealers, but people usually move black money through underground networks.
- Hawala is one of these networks, that lets people transfer money without actually sending it. It is anonymous, as no records are kept and the source of the money cannot be tracked.
- For example, if someone (A) wants to send $200 to their wife (B) in another country, they will go to a Hawala dealer H1 in their own country and give them the money.
- H1 will then contact another Hawala dealer H2 in B’s country and ask them to give B the money, minus a commission.
- H1 and H2 will settle the transaction in the future.
- Hawala operations are illegal in India, under the Prevention of Money Laundering Act.
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120. The Prevention of Money Laundering Act came into force in India during
(a) 1998
(b) 1999
(c) 2001
(d) 2005
(e) None of the above / More than one of the above
[63rd B.P.S.C. (Pre) 2017]
Ans. (d) 2005
- The Prevention of Money Laundering Act (PMLA) was passed by the NDA government in 2002 to stop money laundering and take away any property that was gained from it.
- The President agreed to it on 17th January 2003 and it became active on 1st July 2005.
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121. Which of the following economists propagated the Pure Monetary Theory of Trade Cycle?
(a) Hawtrey
(b) Hayek
(c) Keynes
(d) Hicks
[Uttarakhand P.C.S. (Pre) 2012]
Ans. (a) Hawtrey
- R.G. Hawtrey, a British economist, proposed what is known as the ‘Pure Monetary Theory of Trade Cycle’.
- He believed that the economic fluctuations of industry and commerce are caused by changes in the amount of money available.
- Hawtrey recommended changing the bank rate of interest to control the money supply, which was an idea later developed by Keynes.
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122. Which one of the following items has not been granted protection under the Geographical Indications Act, of 1998?
(a) Lucknow Chikan Craft
(b) Banarsi Sarees
(c) Darjeeling Tea
(d) Surkha Guava of Allahabad
[U.P.P.C.S. (Mains) 2011]
Ans. (*)
- All of the items listed have been given special status and protection under the Geographical Indications Act of 1998.
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123. Which of the following pairs are correctly matched?
1. Increase in foreign exchange reserves–monetary expansion
2. Low import growth rate in India– Recession in Indian industry
3. Euro-issues –Shares held by Indian companies in European countries
4. Portfolio investment– Foreign institutional investors
Select the correct answer by using the following codes:
Codes :
(a) 1, 2 and 4
(b) 3 and 4
(c) 1, 2, and 3
(d) 1,2,3, and 4
[I.A.S. (Pre) 1995]
Ans. (a) 1, 2 and 4
- When the amount of foreign exchange reserves goes up, it affects the amount of money in a country.
- India is very reliant on imported goods and machinery, so if the amount of imports decreases, it can lead to a decrease in industrial activity.
- Foreign Portfolio Investment is connected to Foreign Institutional Investors (FIIs).
- Euro issue is when Indian companies borrow money from outside India in a foreign currency and it is listed on the European Stock Exchange, even though the money may come from anywhere in the world other than India.
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