QUIZ – 2020: INSIGHTS STATIC QUIZ, 20 April 2020 – Economy

Solution: b)

External debt can be mainly classified into Long term and Short term debts. Long-Term debt is further classified into (a) Multilateral Debt (b) Bilateral Debt (c) ‘IMF’ signifying SDR allocations to India by the IMF (c) Export Credit (d) (External) Commercial Borrowings (e) NRI Deposits and (d) Rupee Debt.

Short Term Debt is classified into (a) Trade Credits (of up to 6 months and above 6 months and up to 1 year) (b) Foreign Institutional Investors’ (FII) Investment in Government Treasury-Bills and Corporate Securities (c) Investment in Treasury-bills by foreign Central Banks and International Institutions etc. and (iv) External Debt liabilities of the Central Bank and Commercial Banks. FDI does not lead to any debt on the country.

Solution: b)

Exchange rates – They link national currencies for purposes of international trade. There are broadly two kinds of exchange rates: fixed exchange rate and floating exchange rate

Fixed exchange rates – When exchange rates are fixed and governments intervene to prevent movements in them

Flexible or floating exchange rates – These rates fluctuate depending on demand and supply of currencies in foreign exchange markets, in principle without interference by governments.

Statement 1: IMF does not peg a currency’s level. Pegging of currencies by a central authority was done earlier in the Gold system where currencies were fixed in value.

Statement 2: In this system, currencies freely float apart from some occasional interventions. The more a nation’s currency is in demand, the higher will be its value in forex market.

If a nation follows managed floating system, all its external transactions are based on this system. It cannot fix its currency level in opposition to the market.

Solution: a)

Statement 1: Sterilization involves the infusion and extraction of liquidity in the market by the Central bank to control the total money supply in the economy. This keeps the exchange rate stable and thus blocks its free adjustment.

Statement 2: A nation usually exports a commodity of its comparative advantage meaning that it specializes in the export of those commodities that it can produce cheaply or at more competitive rates than the global economy.

This aids trade and does not block the free adjustment in the exchange rates.

Solution: b)

Solution: d)

Unlike core inflation, headline inflation takes into account changes in the price of food and energy. Since food and energy prices are highly volatile, headline inflation may not 9 give an accurate picture of how an economy is behaving.

Consumer Price Index Numbers for Industrial Workers, which measure a change over time in prices of a fixed basket of goods and services consumed by Industrial Workers, are compiled and maintained by the Labour Bureau since its inception.