Insights Static Quiz -427, 2019–Economy

Solution: d)

A sovereign bond is a specific debt instrument issued by the government. They can be denominated in both foreign and domestic currency. Just like other bonds, these also promise to pay the buyer a certain amount of interest for a stipulated number of years and repay the face value on maturity. They also have a rating associated with them which essentially speaks of their credit worthiness.

The Yield of the sovereign bond is the interest rate that the government pays on issuing bonds. Countries with volatile economies and high inflation rates have to issue higher interest returns on their bonds compared to more stable ones.

The Yield of the bonds are dependent on primarily 3 factors:
• Creditworthiness – The issuing countries’ perceived ability to repay their debts. This can be obtained from rating agencies.
• Country Risk – External/Internal factors like unrest and wars tend to jeopardize a country’s ability to pay off their debts.
• Exchange Rates- In cases where bonds are issued in foreign currency, fluctuations in exchange rate may lead to increased pay out pressure on the issuing government.

The central banks also control the supply of money within the economy by the use of these bonds. When the government is in expansionist mode, the central bank will back debt in exchange for cash to raise capital for the expenditure. In case it is in the contracting mode, the banks hope to slow growth by selling more securities to take out liquidity from the system.

Source

Solution: c)

IFC—a sister organization of the World Bank and member of the World Bank Group—is the largest global development institution focused exclusively on the private sector in developing countries. The Bank Group has set two goals for the world to achieve by 2030: end extreme poverty and promote shared prosperity in every country.

• The IFC is owned and governed by its member countries, but has its own executive leadership and staff that conduct its normal business operations.
• It is a corporation whose shareholders are member governments that provide paid-in capital and which have the right to vote on its matters.

Functions:

• It offers an array of debt and equity financing services and helps companies face their risk exposures, while refraining from participating in a management capacity.
• The corporation also offers advice to companies on making decisions, evaluating their impact on the environment and society, and being responsible.
• It advises governments on building infrastructure and partnerships to further support private sector development.

Since 2009, the IFC has focused on a set of development goals that its projects are expected to target. Its goals are to increase sustainable agriculture opportunities, improve healthcare and education, increase access to financing for microfinance and business clients, advance infrastructure, help small businesses grow revenues, and invest in climate health.

Source

Solution: c)

Under a negative rate policy, financial institutions are required to pay interest for parking excess reserves with the central bank.

That way, central banks penalise financial institutions for holding on to cash in hope of prompting them to boost lending.

Solution: d)

National Payments Corporation of India (NPCI), an umbrella organisation for operating retail payments and settlement systems in India, is an initiative of Reserve Bank of India (RBI) and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.

Considering the utility nature of the objects of NPCI, it has been incorporated as a “Not for Profit” Company under the provisions of Section 25 of Companies Act 1956 (now Section 8 of Companies Act 2013), with an intention to provide infrastructure to the entire Banking system in India for physical as well as electronic payment and settlement systems. The Company is focused on bringing innovations in the retail payment systems through the use of technology for achieving greater efficiency in operations and widening the reach of payment systems.

National Financial Switch (NFS) and Cheque Truncation System (CTS) continues to be the flagship products of NPCI.  Unified Payments Interface (UPI) has been termed as the revolutionary product in payment system and Bharat Bill Payment System (BBPS) has also been launched in pilot mode. The other products include RuPay Credit Card, National Common Mobility Card (NCMC) and National Electronic Toll Collection (NETC). With these products the aim is to transform India into a ‘less-cash’ society by touching every Indian with one or other payment services.

Solution: c)

Under the World Trade Organisation (WTO) agreements, countries cannot normally discriminate between their trading partners. If any country grants one country a special favour such as a lower customs duty rate for one of their products the same would need to be extended to all other WTO members. This principle is known as most-favoured nation (MFN) treatment.

MFN is so important a principle that it is the first article of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods. MFN is also a priority in the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Together, those three agreements cover all three main areas of trade handled by the WTO.