[Mission 2023] STATIC QUIZ, 05 October 2022 – Economy

Solution: b)

The rupee’s exchange rate vis-a-vis a particular currency, say the US dollar, tells us how many rupees are required to buy a US dollar. To buy (import) a US product or service, Indians need to first buy the dollars and then use those dollars to buy the product. The same holds true for Americans buying something from India.

If the rupee’s exchange rate “falls”, it implies that buying American goods would become costlier. At the same time, Indian exporters may benefit because their goods now are more attractive (read cheaper) to the American customers.

In a free-market economy, the exchange rate is decided by the supply and demand for rupees and dollars.

Imagine that in the beginning, one rupee was equal to one dollar. After a year, Indians demand more dollars in comparison to Americans demanding the rupee. In such a case, the exchange rate will “fall” or “weaken” for rupee and “rise” or “strengthen” for dollar.

However, in India, the exchange rate is not fully determined by the market. From time to time, the RBI intervenes in the foreign exchange (forex) market to ensure that the rupee “price” does not fluctuate too much or that it doesn’t rise or fall too much all at once.

Solution: d)

The rapid jump of crude oil in the global market, and strengthening of the US dollar, will lead the rupee to a downward spiral.

Solution: d)

P-notes are issued by registered FPIs to overseas investors who wish to be part of the Indian stock market without registering themselves directly. They, however, need to go through a due diligence process.

P-note investments in Indian markets – equity, debt, hybrid securities and derivatives.

Solution: a)

Exchange Traded Funds (ETFs):

Typically, an ETF mirrors a particular index, which means the group of stocks in the ETF would be similar to those in the index that it is benchmarked to.

They are traded on stock exchanges like shares.

Usually, ETFs are passive funds where the fund manager doesn’t select stocks on your behalf. Instead, the ETF simply copies an index and endeavours to accurately reflect its performance.

In an ETF, one can buy and sell units at prevailing market price on a real time basis during market hours.

Solution: c)

A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct control.