INSIGHTS STATIC QUIZ 2019
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Question 1 of 5
1. Question
Which of the following is disadvantageous to developing countries’ international trade?
Correct
Solution: c)
The present integration of global markets favours the more competitive product from a more competitive country.
Developed countries have an edge over manufactured goods due to advance in physical as well as human capital.
Developing countries are preferred for exporting primary articles because they have an abundance of it.
This affects their competitiveness in the long-run as they miss out on the chance to build a manufacturing base, and remain a primary producer backward economy.
Incorrect
Solution: c)
The present integration of global markets favours the more competitive product from a more competitive country.
Developed countries have an edge over manufactured goods due to advance in physical as well as human capital.
Developing countries are preferred for exporting primary articles because they have an abundance of it.
This affects their competitiveness in the long-run as they miss out on the chance to build a manufacturing base, and remain a primary producer backward economy.
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Question 2 of 5
2. Question
Which of the following can be a form of economic “Protectionism” by India?
- Entry restrictions for foreign nationals
- Preferential market access policies for domestic industries
- Increasing custom duties on imported goods and services
Select the correct answer code:
Correct
Solution: d)
Protectionism can be any attempt to protect domestic industries from global competition. Restricting movements of people (labour), goods, services will all be considered under economic protectionism.
Preference to domestic industries creates barriers for other MNCs that desire investing in India.
Increasing custom duties on imported goods and services renders Indian goods to be more competitive than goods imported from abroad.
Incorrect
Solution: d)
Protectionism can be any attempt to protect domestic industries from global competition. Restricting movements of people (labour), goods, services will all be considered under economic protectionism.
Preference to domestic industries creates barriers for other MNCs that desire investing in India.
Increasing custom duties on imported goods and services renders Indian goods to be more competitive than goods imported from abroad.
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Question 3 of 5
3. Question
Which of the following can lead to an increase and saving in forex reserves in India?
- Rise in investment by foreign portfolio investors in Indian stocks and foreign direct investments (FDIs).
- Fall in crude oil prices
- Fall in overseas remittances and foreign travels from India
- Cut corporate tax rates in India
Select the correct answer code:
Correct
Solution: d)
Why are forex reserves rising despite the slowdown in the economy?
The major reason for the rise in forex reserves is the rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs). Foreign investors had acquired stakes in several Indian companies in the last two months. According to the data released by RBI, while the FDI inflow stood at $4 billion in March, it amounted to $2.1 billion in April.
After pulling out Rs 60,000 crore each from debt and equity segments in March, Foreign Portfolio Investments (FPIs), who expect a turnaround in the economy later this financial year, have now returned to the Indian markets and bought stocks worth over $2.75 billion in the first week of June. Forex inflows are set to rise further and cross the $500 billion as Reliance Industries subsidiary, Jio Platforms, has witnessed a series of foreign investments totalling Rs 97,000 crore.
On the other hand, the fall in crude oil prices has brought down the oil import bill, saving precious foreign exchange. Similarly, overseas remittances and foreign travels have fallen steeply – down 61 per cent in April from $12.87 billion.
The sharp jump in reserves seen over the last nine-months started with the finance minister, Nirmala Sitharaman’s announcement to cut corporate tax rates on September 20. Since then the forex reserves have grown by $73 billion.
Incorrect
Solution: d)
Why are forex reserves rising despite the slowdown in the economy?
The major reason for the rise in forex reserves is the rise in investment in foreign portfolio investors in Indian stocks and foreign direct investments (FDIs). Foreign investors had acquired stakes in several Indian companies in the last two months. According to the data released by RBI, while the FDI inflow stood at $4 billion in March, it amounted to $2.1 billion in April.
After pulling out Rs 60,000 crore each from debt and equity segments in March, Foreign Portfolio Investments (FPIs), who expect a turnaround in the economy later this financial year, have now returned to the Indian markets and bought stocks worth over $2.75 billion in the first week of June. Forex inflows are set to rise further and cross the $500 billion as Reliance Industries subsidiary, Jio Platforms, has witnessed a series of foreign investments totalling Rs 97,000 crore.
On the other hand, the fall in crude oil prices has brought down the oil import bill, saving precious foreign exchange. Similarly, overseas remittances and foreign travels have fallen steeply – down 61 per cent in April from $12.87 billion.
The sharp jump in reserves seen over the last nine-months started with the finance minister, Nirmala Sitharaman’s announcement to cut corporate tax rates on September 20. Since then the forex reserves have grown by $73 billion.
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Question 4 of 5
4. Question
Consider the following statements.
- The Reserve Bank of India functions as the custodian and manager of forex reserves.
- Majority of India’s foreign currency reserves are deposited in foreign central banks.
- Under the Liberalised Remittances Scheme, individuals from India are allowed to remit up to $25000 every year to another country for investment and expenditure.
Which of the above statements is/are incorrect?
Correct
Solution: c)
The Reserve Bank functions as the custodian and manager of forex reserves, and operates within the overall policy framework agreed upon with the government. The RBI allocates the dollars for specific purposes. For example, under the Liberalised Remittances Scheme, individuals are allowed to remit up to $250,000 every year. The RBI uses its forex kitty for the orderly movement of the rupee. It sells the dollar when the rupee weakens and buys the dollar when the rupee strengthens. Of late, the RBI has been buying dollars from the market to shore up the forex reserves. When the RBI mops up dollars, it releases an equal amount in rupees. This excess liquidity is sterilised through issue of bonds and securities and LAF operations.
The RBI Act, 1934 provides the overarching legal framework for deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties. As much as 64 per cent of the foreign currency reserves are held in securities like Treasury bills of foreign countries, mainly the US, 28 per cent is deposited in foreign central banks and 7.4 per cent is also deposited in commercial banks abroad, according to the RBI data.
The return on India’s forex reserves kept in foreign central banks and commercial banks is negligible. While the RBI has not divulged the return on forex investment, analysts say it could be around one per cent, or even less than that, considering the fall in interest rates in the US and Euro zone. There was a demand from some quarters that forex reserves should be used for infrastructure development in the country. However, the RBI had opposed the plan.
Another issue is the high ratio of volatile flows (portfolio flows and short-term debt) to reserves which is around 80 per cent. This money can exit at a fast pace.
Incorrect
Solution: c)
The Reserve Bank functions as the custodian and manager of forex reserves, and operates within the overall policy framework agreed upon with the government. The RBI allocates the dollars for specific purposes. For example, under the Liberalised Remittances Scheme, individuals are allowed to remit up to $250,000 every year. The RBI uses its forex kitty for the orderly movement of the rupee. It sells the dollar when the rupee weakens and buys the dollar when the rupee strengthens. Of late, the RBI has been buying dollars from the market to shore up the forex reserves. When the RBI mops up dollars, it releases an equal amount in rupees. This excess liquidity is sterilised through issue of bonds and securities and LAF operations.
The RBI Act, 1934 provides the overarching legal framework for deployment of reserves in different foreign currency assets and gold within the broad parameters of currencies, instruments, issuers and counterparties. As much as 64 per cent of the foreign currency reserves are held in securities like Treasury bills of foreign countries, mainly the US, 28 per cent is deposited in foreign central banks and 7.4 per cent is also deposited in commercial banks abroad, according to the RBI data.
The return on India’s forex reserves kept in foreign central banks and commercial banks is negligible. While the RBI has not divulged the return on forex investment, analysts say it could be around one per cent, or even less than that, considering the fall in interest rates in the US and Euro zone. There was a demand from some quarters that forex reserves should be used for infrastructure development in the country. However, the RBI had opposed the plan.
Another issue is the high ratio of volatile flows (portfolio flows and short-term debt) to reserves which is around 80 per cent. This money can exit at a fast pace.
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Question 5 of 5
5. Question
Consider the following statements regarding Financial Sector Regulatory Appointment Search Committee (FSRASC).
- FSRASC recommends names for the appointment of RBI Governor and chairman of SEBI.
- FSRASC is headed by Finance Secretary.
Which of the above statements is/are correct?
Correct
Solution: a)
As per the procedure for the appointment of regulator heads, the candidates will be shortlisted by the Financial Sector Regulatory Appointments Search Committee (FSRASC) headed by the Cabinet Secretary.
The shortlisted candidates are interviewed by a panel comprising Economic Affairs Secretary and three external members having domain knowledge.
Based on the interaction, FSRASC recommends name to the Appointments Committee of the Cabinet headed by Prime Minister Narendra Modi for approval.
Incorrect
Solution: a)
As per the procedure for the appointment of regulator heads, the candidates will be shortlisted by the Financial Sector Regulatory Appointments Search Committee (FSRASC) headed by the Cabinet Secretary.
The shortlisted candidates are interviewed by a panel comprising Economic Affairs Secretary and three external members having domain knowledge.
Based on the interaction, FSRASC recommends name to the Appointments Committee of the Cabinet headed by Prime Minister Narendra Modi for approval.
