Prefit2023batchi Test43 Explanation

PRELIMS FITNESS – 2023
TEST 43 – ECONOMICS
EXPLANATION
1. Consider the following statements about the exchange rate :

1. The price of one currency in terms of another currency is known as the foreign exchange rate.
2. India is currently following a flexible exchange regime where the Government fixes the exchange rate
at a particular level.
Which of the above statement is/are correct ?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
The foreign exchange rate is a rate/price at which one currency will be exchanged for another, affecting
trade and the movement of money between countries. Exchange rates are impacted by both the domestic
currency value and the foreign currency value. So, Statement 1 is correct.
India has been operating on a managed floating exchange rate regime since March 1993, marking the
start of an era of a market-determined exchange rate regime of the rupee with provision for timely
intervention by the central bank.
So, Statement 2 is not correct.
2. Which of the following are included as a part of the Balance of Payments (BOP) ?
1. Current account
2. Capital account
3. Financial account
Select the correct answer using the code given below :
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3
EXPLANATION:
The balance of payments (BoP) records the transactions in goods, services and assets between residents
of a country with the rest of the world for a specified time period, typically a year. There are two main
accounts in the BoP — the current account and the capital account.
However, following the new accounting standards introduced by the International Monetary Fund in the
sixth edition of the Balance of Payments and International Investment Position Manual, the Reserve Bank
of India also changed the structure of the balance of payments accounts.
According to the new classification, the transactions are divided into three accounts: current account,
financial account and capital account. The most important change is that almost all the transactions
arising on account of trade in financial assets such as bonds and equity shares are now placed in the
financial account. However, RBI continues publishing the balance of payments accounts per the old
system. So, option (d) is correct.
3. Consider the following statement about the Balance on Invisibles :

1. It includes trade in goods, services, transfer and flow of income that take place between different
countries.
2. It includes both factor and non-factor income.
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Which of the above statement is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
Net Invisibles is the difference between the value of exports and imports of Invisibles of a country in a
given period of time. Invisibles include services, transfers and income flows that occur between different
countries. It does not include trade in goods. So, Statement 1 is not correct
Services trade-in Balance on Invisibles includes both factor and non-factor income. Factor income
includes net international earnings on factors of production (like labor, land and capital). Non-factor
income is the net sale of service products like shipping, banking, tourism, software services, etc.
So, Statement 2 is correct
4. Consider the following statements about the exchange rates :

1. Depreciation of domestic currency implies that the price of foreign currency in terms of domestic
currency has increased.
2. Appreciation of domestic currency implies that the price of foreign currency in terms of domestic
currency has decreased.
Which of the above statement is/are not correct ?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
When the exchange rate is determined by the market forces of demand and supply, It is also known as
Floating Exchange Rate. An increase in the exchange rate implies that the price of foreign currency
(dollar) in terms of domestic currency (rupees) has increased. This is called the depreciation of domestic
currency (rupees) in terms of foreign currency (dollars). So, Statement 1 is correct
Similarly, in a flexible exchange rate regime, when the price of domestic currency (rupees) in terms of
foreign currency (dollars) increases, it is called Appreciation of the domestic currency (rupees) in terms
of foreign currency (dollars). This means that the value of rupees relative to the dollar has risen, and we
need to pay fewer rupees in exchange for one dollar.
So, Statement 2 is correct
5. Consider the following statement about the term 'Speculations' with reference to the foreign exchange
market :
1. It refers to trading a financial instrument involving high risk in expectation of significant returns.
2. A speculator can benefit more when there is a huge fluctuation in the foreign exchange market.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
The speculation involves trading a financial instrument involving high risk in expectation of significant
returns. The motive is to take maximum advantage of fluctuations in the market. So, Statement 1 is
correct.
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Speculators are prevalent in markets where price movements of securities are highly frequent and
volatile. They play very important roles in the markets by absorbing excess risk and providing much-
needed liquidity in the market by buying and selling when other investors don't participate.
⮚ Speculators can provide market liquidity and narrow the bid-ask spread, enabling producers to
hedge price risk efficiently.
⮚ Speculative short-selling may also keep rampant bullishness in check and prevent the formation
of asset price bubbles through betting against successful outcomes.
⮚ Mutual and hedge funds often speculate in the foreign exchange, bond, and stock markets.
So, Statement 2 is correct.
6. It refers to some government action that changes the exchange rate, thereby making domestic currency
cheaper. It happens in a country that follows a fixed exchange rate system.
Which of the following refers to the statement mentioned above ?
(a) Devaluation
(b) Revaluation
(c) Depreciation
(d) Appreciation
EXPLANATION:
In a fixed exchange rate system, when some government action increases the exchange rate (thereby
making domestic currency cheaper) is called Devaluation. Devaluing a currency reduces the cost of a
country's exports and can help shrink trade deficits. Countries use the Devaluation tool to boost exports
due to the lowered value in currency perceived by countries that import the goods, reduce trade deficits,
and lower the cost of interest payments on government debt.
The Indian Rupee was devalued in 1949, 1966 and 1991. But in 1991, it was carried out in two steps -
on July 1 and July 3. Hence, it was devalued in three instances but four times. So, option (a) is correct.
7. Consider the following statements about Devaluation and Revaluation in a fixed exchange rate system:
1. Devaluation of domestic currency will result in the depletion of the Government's foreign exchange
reserves.
2. The revaluation of domestic currency will result in the accumulation of foreign exchange reserves of
the Government.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
In a fixed exchange rate system, when some government action increases the exchange rate (thereby
making domestic currency cheaper) is called Devaluation.
⮚ Currency devaluation may lower productivity since imports of capital equipment and machinery
may become too expensive.
⮚ Devaluation also significantly reduces the overseas purchasing power of a nation's citizens.
⮚ It results in the accumulation of foreign exchange reserves by the Government.
Revaluation is said to occur when the Government decreases the exchange rate (thereby making domestic
currency costlier) in a fixed exchange rate system.
⮚ Revaluations affect the currency being examined and the valuation of assets held by foreign
companies in that particular currency.
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⮚ A currency revaluation increases the value of a currency in relation to other currencies. This
makes purchasing foreign goods in foreign currencies less expensive for domestic importers.
⮚ Conversely, domestic exporters will see a decline in exporting business as the exporting goods
are now more expensive to foreign importers. Thus, resulting in the depletion of the Government's
foreign exchange reserves.
8. It refers to the inability of some countries (mainly developing countries) to borrow in their own currencies.
As such, these countries are forced to borrow in foreign currencies, which exposes them to currency risk
and potential balance of payments crises.
Which of the following concept is referred to in the passage mentioned above ?
(a) Devaluation
(b) Original Sin
(c) Dutch Disease
(d) Triffin Dilemma
EXPLANATION:
Original Sin is a concept first introduced by Eichengreen and Hausmann in 1999 and subsequently
extended by the authors and Panizza in 2002 and 2003, it refers to the inability of some countries (mainly
developing countries) to borrow in their currencies.
As such, these countries are forced to borrow in foreign currencies, which, in turn, exposes them to
currency risk and potential balance of payments crises. An explanation for the unprecedented
accumulation of reserves by emerging markets in recent years is founded on the idea of self-insurance
for precautionary purposes when original sin may be an issue. So, option (b) is correct.
9. Which of the following are considered by the IMF while deciding the size of a country's quota?
1. The weighted average of the country's GDP
2. Openness
3. Official reserves
4. Economic Variability
5. Population
Select the correct answer using the code given below.
(a) 1, 2 and 3
(b) 1, 3 and 4
(c) 1, 2, 3 and 4
(d) 1, 2, 3, 4 and 5
EXPLANATION:
Quotas are the building blocks of the IMF's financial and governance structure. An individual member
country's quota broadly reflects its relative position in the world economy. Quotas are denominated
in Special Drawing Rights (SDRs), the IMF's unit of account.
A quota formula is used to help assess members' relative position in the world economy, and it can
play a role in guiding the distribution of quota increases. The current formula was agreed to in 2008.
IMF quota formula:
(0.50*GDP+0.30*Openness+0.15*Variability +0.05* Reserves).
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So, option (c) is correct.
10. Consider the following statements about different types of dumping :

1. Persistent dumping is a temporary sale of commodities at below cost prices abroad in order to drive
foreign producers out of business.
2. Sporadic dumping is the occasional sale of commodities below cost price abroad than domestically
in order to unload a temporary surplus.
3. Predatory dumping is the continuous tendency of a domestic monopolist to sell the commodity at a
higher price in the domestic market than internationally.
(a) 1 only
(b) 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
EXPLANATION:
Dumping is the act of exporting a commodity at below cost or the sale of a commodity at a lower price
abroad than domestically.
Conditions for successful dumping
● The company must have some degree of monopoly on the product, at least in the home market—
or well established and recognized brand.
● For a buyer in the foreign market, it should be impossible to re-sell the goods to another country,
where the product costs more.
● Elasticities of demand in the home and foreign markets should be different. If this condition is not
met, then price discrimination is not profitable.
● There should be a clear distinction between the home and foreign markets. This difference could
be based on customs, nationality, language, currency, etc
Types of Dumping:
● In persistent dumping, a company consistently sells a product at a lower price in the foreign
market than in the home market. Persistent dumping is the continuous tendency of a domestic
monopolist to maximize total profits by selling the commodity at a higher price in the domestic
market. So, Statement 1 is not correct.
● A company practices sporadic dumping if it has a large amount of unsold inventory. In this, the
company sells the product in the foreign market at a price that covers its variable and few fixed
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cost. Sporadic dumping is the occasional sale of a commodity at below cost or lower price abroad
to unload a surplus of the commodity without reducing domestic prices.
● In Predatory dumping, a company sells the product at a loss to gain entry and destroy the local
industry. Once the company gains some degree of monopoly in the foreign market or a substantial
market share, it slowly starts to raise the price. Predatory dumping is the temporary sale of a
commodity at below cost or a lower price abroad to drive foreign producers out of business.
● In reverse dumping, the company dumps the products in the home market while selling at a higher
price in the foreign market. It is usually the case when the demand for the product is less elastic
in the foreign market. It could happen when the product is well established and has become iconic
due to its features or status. Moreover, no such substitute product is available or possible in that
country.
11. Which of the following country is the largest FDI investor in India ?
(a) Singapore
(b) USA
(c) Mauritius
(d) UAE
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EXPLANATION:
Foreign direct investment (FDI) is when a company controls ownership of a business entity in another
country. With FDI, foreign companies are directly involved with day-to-day operations in the other
country. It means they aren't just bringing money with them but also knowledge, skills and technology.
Generally, FDI occurs when an investor establishes foreign business operations or acquires foreign
business assets, including establishing ownership or controlling interest in a foreign company.
FDI is an important monetary source for India's economic development. Economic liberalization started
in India in the wake of the 1991 crisis, and since then, FDI has steadily increased in the country. Today,
India is a part of the top 100-club on Ease of Doing Business (EoDB) and ranks number 1 in the greenfield
FDI ranking globally.
In terms of FDI inflow, Singapore was the top investing country with a 37.0 percent share, followed by
Mauritius (12.1 percent), UAE (11.0 percent), and the USA (10.0 percent). So, option (a) is correct.
12. Foreign investment in any form is prohibited in which of the following activities in India ?
1. Nidhi company
2. Chit Fund
3. Construction of farmhouses
4. Trading in Transferable Development Rights
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(a) 1, 2 and 4 only
(b) 2, 3 and 4 only
(c) 1 and 2 only
(d) 1, 2, 3 and 4
EXPLANATION:
An Indian company is permitted to receive foreign investment by issuing equity instruments to the
investor. The equity instruments are equity shares, convertible debentures, preference shares and share
warrants issued by the Indian company.
Foreign Investment' is any investment made by a person resident outside India on a repatriable basis
in equity instruments of an Indian company or to the capital of an LLP. A person resident outside India
may hold foreign investment either as Foreign Direct Investment or as Foreign Portfolio Investment in any
particular Indian company Foreign Investment in India is regulated in terms of the Foreign Exchange
Management Act, 1999 (FEMA). RBI issues directions to Authorised Persons under Section 11 of the
Foreign Exchange Management Act (FEMA), 1999. As per RBI's Master Direction – Foreign Investment in
India, Investment by a person resident outside India is prohibited in the following sectors:
⮚ Lottery Business, including Government/ private lottery and online lotteries.
⮚ Gambling and betting, including casinos.
⮚ Chit funds
⮚ Nidhi company
⮚ Trading in Transferable Development Rights (TDRs).
⮚ Agricultural or Plantation Activities (although there are many exceptions like horticulture,
fisheries, tea plantations, Pisciculture, animal husbandry, etc.)
⮚ Construction of farmhouses.
⮚ Foreign investment is not permitted in Atomic Energy Generation, Cigars, Cigarettes, or any
related tobacco industry and Inventory based model of e-commerce.
So, option (d) is correct.
13. Consider the following statements about Gold Standard :

1. It is a monetary system in which the standard unit of currency is a fixed quantity of gold or is kept
at the value of a fixed quantity of gold.
2. The currency is freely convertible at home or abroad into a fixed amount of gold per unit of currency.
3. The gold standard creates certainty in international trade by providing a fixed pattern of exchange
rates.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
EXPLANATION:
The gold standard was widely used from the late 19th century until the mid-20th century. In
an international gold-standard system, gold or a currency that is convertible into gold at a fixed price is
used as a medium of international payments.
The gold standard is a monetary system in which the value of a country's currency is directly tied to a
fixed quantity of gold. So, Statement 1 is correct.
The advantages of the gold standard are that
(1) it limits the power of governments or banks to cause price inflation by the excessive issue of paper
currency
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(2) the currency is freely convertible at home or abroad into a fixed amount of gold per unit of currency.
It means that anyone can exchange their paper money or coins for a fixed amount of gold, either
domestically or internationally. So, Statement 2 is correct.
(3) it creates certainty in international trade by providing a fixed pattern of exchange rates because it
allows businesses and investors to plan and invest with confidence, knowing that the exchange rates
between countries would remain relatively stable. This made it easier for countries to trade with each
other and helped to promote global economic growth and stability. So, Statement 3 is correct.
14. Which of the following is not a non-tariff barrier?

(a) Voluntary Export Restraints
(b) Quotas
(c) Compound duties
(d) Rules of Origin
EXPLANATION:
Trade Barriers are defined as government-induced restrictions on international trade. They are imposed
for various reasons, primarily to protect the domestic market and to earn revenue. It can be a Tariff or
Non-Tariff barrier.
A tariff Barrier is imposed by the government of the country importing goods. Its dual goals are to raise
the cost of imported goods so that domestic producers can compete with imports and to enhance
government revenue. Examples of tariff barriers include countervailing and anti-dumping duties, export
duties, specific duties, import duties, ad valorem duties, transit duties, revenue tariffs, protective tariffs,
single-column tariffs, and double-column tariffs, compound duties. So option (c) is not correct.
Non-tariff barriers are defined as non-tax measures adopted by a nation's Government to limit imports
from foreign countries. These can be in the form of laws, policies, practices, conditions, requirements, etc.
and are specified by the Government to restrict imports. Examples of non-tariff barriers are Import quotas,
Voluntary Export Restraints (VERs), Import licensing, Technical and administrative regulations, Price
control, Foreign exchange regulations, Consular formalities, Quantity restrictions, and Pre-shipment
inspection and Rules of origin.
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15. Consider the following statement about India's Foreign Exchange Reserve :
1. The biggest component of India's forex reserve is India's foreign currency assets, followed by gold.
2. According to IMF data, India is the world's sixth-largest foreign exchange reserve holder.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
The Reserve Bank of India's (RBI) foreign exchange reserves, also called forex reserves, refer to the assets
the central bank holds to provide import cover and protect against external shocks. The reserves are
accumulated on an ongoing basis, and variations occur as a result of the RBI's market operations. The
four components of forex reserves are foreign currency assets, gold, special drawing rights and the
reserve position in the International Monetary Fund. As on July 2, India's forex reserves stood at a record
high of $610 billion, of which $566.99 billion was in the form of foreign currency assets, and $36.37
billion was in the form of gold. So, Statement 1 is correct.
India's foreign exchange reserves stood at US$ 532.7 billion as of end-September 2022, covering 8.8
months of imports. The reserves augmented to US$ 562.7 billion as of the end. December 2022, covering
9.3 months of imports. As of end-November 2022, India was the sixth largest foreign exchange reserves
holder in the world, according to data compiled by the IMF. The import coverage of foreign currency
reserves has declined since the pre-pandemic levels in most emerging market economies; however, that
of India has increased from 95 percent in Q4 2019 to 96.5 percent in Q3 2022.
According to an economic survey, India's external debt, at USD 610.5 billion as of September-end 2022,
grew by 1.3 percent (USD 7.6 billion) over USD 602.9 billion as of September-end of 2021. However,
external debt as a ratio to gross domestic product (GDP) fell to 19.2 percent as of September-end of 2022
from 20.3 percent a year ago.
16. Consider the following statements about currency convertibility :

1. It refers to the ease with which the domestic currency can be converted into any other foreign
currency and vice-versa at a market-determined exchange rate.
2. Easing convertibility acts as an incentive to send remittance of foreign exchange by Indian workers
living abroad and by Non Resident Indians(NRI).
3. In India, full capital account convertibility and partial current account convertibility exist.
(a) 1 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
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EXPLANATION:
Convertibility refers to the ease with which the domestic currency can be converted; into any other foreign
currency and vice-versa at a market-determined exchange rate.
For example, convertibility of the rupee means that those with foreign currency (e.g. US dollars) can get
them converted into rupees and vice-versa at the market-determined exchange rate. Under the
convertibility of a currency, there are authorized dealers of foreign exchange, which constitute a foreign
exchange market. Convertibility is important in international trade, where instruments valued in
different currencies must be exchanged. So, Statement 1 is correct.
A country's balance of payments (BOP) records all economic transactions of a country (that is, of its
individuals, businesses and governments) with the rest of the world during a defined period, usually one
year.
These transactions are broadly divided into two heads – current account and capital account. The current
account covers exports and imports of goods and services, factor income and unilateral transfers. The
capital account records the net change in foreign assets and liabilities a country holds.
An incentive to send remittances from abroad is rupee convertibility provides greater incentives to send
remittances of foreign exchange by Indian workers living abroad and by NRI. Further, it makes illegal
remittances such 'as hawala money' and the smuggling of gold less attractive. So, Statement 2 is
correct.
Current account convertibility is the ability or freedom to convert domestic currency for current account
transactions, while capital account convertibility is the ability or freedom to convert domestic currency
for capital account transactions. Tarapore Committee (2006) defined capital account convertibility as the
freedom to convert local financial assets into foreign financial assets and vice versa.
Current account convertibility refers to the freedom to convert your rupees into other internationally
accepted currencies and vice versa without any restrictions whenever you make payments.
Similarly, capital account convertibility means the freedom to conduct investment transactions without
any constraints. Typically, it would mean no restrictions on the amount of rupees you can convert into
foreign currency to enable you, an Indian resident, to acquire any foreign asset. Similarly, there should
be no restraints on your NRI cousin bringing in any amount of dollars or dirhams to acquire an asset in
India.
India has come a long way in liberating capital account transactions in the last three decades and
currently has partial capital account convertibility. India's rupee is a partially convertible currency rupee
can be exchanged at market rates in certain cases, but approval is required for larger amounts.
17. Consider the following statements about the World Bank and International Monetary Fund :
1. Both the institution's headquarters are located in Washington, DC., USA.
2. A country can become a World Bank member only after becoming a member of the International
Monetary Fund.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
World Bank Reconstruction of war-affected countries (achieved); To promote development to raise the
standard of living in developing countries (& LDC also); To eliminate poverty; To promote investment in
developing countries by providing finance, technical assistance (related to development programs,
environment and infrastructure) and guarantees.
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IMF To promote international monetary cooperation (facilitate payments transactions); To assist member
countries in overcoming Balance of Payment problems; To ensure exchange rate stability; To ensure
balanced international trade; To minimize restrictions on the convertibility of currencies; Surveillance (it
reviews economic policies of member countries and assess risks, especially financial risks; Provides
technical assistance like training to officials, related to banking, finance, BoP; Policy advice to
governments and Central Banks based on analysis of economic trends and cross-country experiences.
Both organizations are Headquartered in Washington DC, with 189 members. So, Statement 1 is
correct.
Various reports published by:
WORLD BANK IMF
⮚ World development report ⮚ World Economic Outlook
⮚ International Debt Statistics ⮚ Global financial stability report
⮚ Ease of doing business report ⮚ Fiscal Monitor
⮚ Global Economic Prospects
The IMF not only works with its 187 members, it also collaborates with the World Bank, World Trade
Organization and agencies of the United Nations. To become a member of the IMF, countries must apply
and be accepted by the other members. Countries must first join the IMF to be eligible to join the World
Bank Group. These members govern the World Bank through a Board of Governors. Apart from working
with developing countries on individual projects, the World Bank works with various international
institutions and professional and academic bodies. So, Statement 2 is correct.
18. Consider the following statements about sterilization by the Central Bank :
1. It refers to the action by the Central Bank of a country to offset or cancel the impact of its foreign
exchange market intervention on the money supply through the open market operation.
2. In case of a current account deficit, the central bank buys government securities through open
market operation as a part of sterilization.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
Sterilization provides a way out of the problem of a clash between the goals of external balance and
internal balance. Sterilization refers to the action by the Central Bank of a country to offset or cancel the
impact of its foreign exchange market intervention on the money supply through open market operations.
The sterilization measures can be used both to offset the reduction in money supply when in case of
current account deficit, the Central Bank of the country sells foreign exchange in the market and also
when the Central Bank offsets the effect of an increase in money supply when it buys foreign exchange
from the market in case of surplus in the balance of payments or when large capital inflows are coming
into the economy. So, Statement 1 is correct.
Sterilization operation by the Central Bank in case of a deficit in the current account of the balance of
payments. The Central Bank sells foreign exchange from its reserves to prevent domestic currency
depreciation (that is, to maintain the exchange rate constant). The sale of foreign exchange in the foreign
exchange market by the central bank causes the money supply in the economy to decrease, which has
a deflationary effect on the economy. The Central Bank buys government securities bonds through open
market operations to avoid this adverse effect. When it does so, the Central Bank prints domestic
currency to pay for the bonds it purchases. In this way money supply in the economy increases, which
offsets the decrease in money supply brought about by the Central Bank when it sells foreign exchange
to prevent the depreciation of the domestic currency. So, Statement 2 is correct.
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19. Consider the following statements about the Swiss formula with respect to World Trade
Organization(WTO) :
1. It is a suggested method for reducing the tariff on non-agricultural goods by both developed and
developing countries.
2. It is a non-linear formula.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
The Swiss formula is a tariff cut formula that is either linear or non-linear. In a linear formula, tariffs
are reduced by the same percentage, irrespective of how high the initial tariff is. As opposed to a linear
formula, in a non-linear formula, tariff cuts are directly or inversely proportional to the initial tariff rate.
India wants the reduction coefficient for developing countries to be much higher than the coefficient for
developed countries. The difference should be enough to negate the effect of the original Swiss formula,
which weighs in favor of developed countries with lower initial tariffs. It has been proposed that the
difference between the coefficients should be at least 25 points to ensure that the reduction burden on
developing countries is not higher than that on developed countries. So, Statement 1 is correct.
The World Trade Organization has decided by all 149 participating countries to use the Swiss formula
for reducing import tariffs on industrial goods. The Swiss formula is a non-linear formula. In the Swiss
Formula, tariff cuts are proportionally higher for tariffs that are initially higher. For instance, a country
that has an initial tariff of 30% on a product will have to undertake proportionally higher cuts than a
country that has an initial tariff of 20% on the same product. So, Statement 2 is correct.
20. Consider the following statements about the Free Trade Agreements (FTAs) :
1. It is an arrangement between two or more countries or trading blocs that primarily agree to reduce
or eliminate tariff and non-tariff barriers on substantial trade between them.
2. It can also cover areas such as intellectual property rights, competition policy etc.
Which of the above statements is/are correct ?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or
eliminate customs tariffs and non-tariff barriers on substantial trade between them. FTAs, normally
cover trade in goods (such as agricultural or industrial products) or trade in services (such as banking,
construction, trading etc.). Countries negotiate Free trade Agreements for a number of reasons for
eliminating tariffs and some non-tariff barriers. FTA partners get easier market access to one another's
markets. And Exporters prefer FTAs to multilateral trade liberalization because they get preferential
treatment over non-FTA member country competitors. So, Statement 1 is correct.
FTAs can also cover other areas such as Intellectual Property Rights (IPRs), investment, government
procurement and competition policy, etc. In India, the IPRs come under Department for Promotion of
Industry and Internal Trade, Ministry of Commerce & Industry. The following are various intellectual
property rights. So, Statement 2 is correct.
⮚ Preferential Trade Agreement (PTA): In a PTA, two or more partners agree to reduce tariffs on the
agreed number of tariff lines. The list of products on which the partners agree to reduce duty is
called a positive list.
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⮚ Custom Union: In a Customs union, partner countries may decide to trade at zero duty among
themselves. However, they maintain common tariffs against the rest of the world. An example is
the Southern African Customs Union (SACU) amongst South Africa, Lesotho, Namibia, Botswana
and Swaziland. European Union is also an outstanding example.
⮚ Common Market: Integration provided by a Common market is one step deeper than that by a
Customs Union. A common market is a Customs Union with provisions to facilitate free
movements of labour and capital, harmonize technical standards across members etc. European
Common Market is an example.
⮚ Economic Union: Economic Union is a Common Market extended through further harmonization
of fiscal/monetary policies and shared executive, judicial & legislative institutions. European
Union (EU) is an example
21. Consider the following statements about various types of economic integrations :
1. Unlike the Preferential Trade Agreement (PTA), Free Trade Agreements (FTA) are more ambitious in
covering tariff lines on which duty is to be reduced.
2. In a Customs Union type integration, partner countries may decide to trade at zero duty among
themselves but maintain common tariffs against the rest of the world.
Which of the above statement is/are not correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
Preferential Trade Agreement (PTA): In a PTA, two or more partners agree to reduce tariffs on the agreed
number of tariff lines. The list of products on which the partners agree to reduce duty is called a positive
list. India MERCOSUR PTA is such an example. However, in general, PTAs do not cover all trade
substantially. In FTAs, tariffs on items covering substantial bilateral trade are eliminated between the
partner countries; however, each maintains an individual tariff structure for non-members. India-Sri
Lanka FTA is an example. The key difference between an FTA and a PTA is that while in a PTA, there is
a positive list of products on which duty is to be reduced; in an FTA, there is a negative list on which
duty is not reduced or eliminated. Thus, compared to a PTA, FTAs are generally more ambitious in
coverage of tariff lines (products) on which duty is to be reduced. So, Statement 1 is correct.
Custom Union: In a Customs union, partner countries may decide to trade at zero duty
among themselves; however, they maintain common tariffs against the rest of the world. An example is
the Southern African Customs Union (SACU) amongst South Africa, Lesotho, Namibia, Botswana and
Swaziland. European Union is also an outstanding example. So, Statement 2 is correct.
22. Consider the following statements about the World Trade Organization (WTO) :
1. The signing of the Final Act of the Uruguay Round in 1994 paved the way for the setting up of the
World Trade Organization (WTO).
2. It is the only global international organization dealing with the rules of trade between nations.
3. All decisions are taken through consensus, and any member can exercise a veto.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
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EXPLANATION:
The World Trade Organization is the only international organization that deals with the rules of trade
between countries. Founded in 1995, the WTO is run by its 164 members, and according to its rules, all
decisions are taken through consensus, and any member can exercise a veto. Its aim is to promote free
trade, which is done through trade agreements that are discussed and signed by the member states. The
WTO also provides a forum for countries to negotiate trade rules and settle economic disputes between
them.
The WTO replaced GATT as an international organization, but the General Agreement still exists as the
WTO's umbrella treaty for trade in goods, updated as a result of the Uruguay Round negotiations.
The World Trade Organization (WTO) is the only international organization dealing with the global rules
of trade. Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.
The Ministerial Conference is the WTO's top decision-making body and usually meets every two years.
All members of the WTO are involved in the MC, and they can take decisions on all matters covered
under any multilateral trade agreements. The WTO's 12th Ministerial Conference was held in Geneva
from 12-17 June. It was supposed to end on June 15, but with intensifying negotiations, the conference
was extended by two days. All decisions are taken through consensus, and any member can exercise a
veto. So, Statement 3 is correct.
23. Consider the following statements about Currency Board Arrangements :

1. It is a monetary regime based on an explicit legislative commitment to exchange domestic currency
for a specific foreign currency at a fixed exchange.
2. It requires 100 percent international reserve backing of the nation's money supply.
3. Under this, the Central Bank abdicates its function of conducting an independent monetary policy.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 only
(d) 1, 2 and 3
EXPLANATION:
A currency board is an exchange rate regime based on the full convertibility of a local currency into a
reserve one by a fixed exchange rate and 100 percent coverage of the monetary supply backed up with
foreign currency reserves. Therefore, in the currency board system, there can be no fiduciary issuing of
money. As defined by the IMF, a currency board agreement is "a monetary regime based on an explicit
legislative commitment to exchange domestic currency for a specific foreign currency at a fixed exchange
rate, combined with restrictions on the issuing authority". So, Statement 1 is correct.
Under CBAs, the nation rigidly fixes (often by law) the exchange rate of its currency to a foreign currency,
SDR, or composite, and its central bank ceases to operate as such. CBAs are similar to the gold standard
in that they require 100 percent international-reserve backing of the nation's money supply.
The assets of a currency board's anchor-currency reserves – which correspond, at minimum, to 100% of
all local notes and coins in circulation – are typically either low-interest-bearing bonds and/or other
types of securities. Thus, the money base in a currency-board system (M0) is 100%-backed by foreign
reserves. A currency board will usually hold a little more than 100% of foreign reserves to cover all of its
liabilities (issued notes and coins). So, Statement 2 is correct.
Currency board arrangements (CBAs) are the most extreme form of exchange rate peg (fixed exchange
rate system), short of adopting a common currency or dollarizing (i.e., adopting the dollar as the nation's
currency). Thus, the Ration gives up control over its money supply, and its central bank abdicates its
function of conducting an independent monetary policy. With a CBA, the nation's money supply
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increases or decreases, respectively, only in response to a balance-of-payments surplus and inflow of
international reserves or to a balance-of-payment deficit and outflow of the international reserve.
24. Consider the following statement about the Foreign Exchange Management Act (FEMA) :
1. The act aimed to facilitate foreign trade and encourage systematic development and maintenance of
the forex market in the country.
2. It classified foreign exchange transactions into two categories: capital account and current account
transactions.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
EXPLANATION:
The Foreign Exchange Management Act 1999, also known as FEMA, deals primarily with the provisions
relating to cross-border trade and payments. It defines the procedures, formalities, and dealings of all
foreign exchange transactions in India. FEMA has been introduced as a replacement for the earlier
Foreign Exchange Regulation Act (FERA) because it didn't fit in with post-liberalization policies.
The main objective of the act is to facilitate foreign trade and to encourage systematic development and
maintenance of the forex market in the country. So, Statement 1 is correct.
It is consistent with full current account convertibility and contains provisions for progressive
liberalization of capital account transactions. It is more transparent in its application as it lays down the
areas requiring specific permissions of the Reserve Bank/Government of India on the acquisition/holding
of foreign exchange.
It classified foreign exchange transactions into two categories: capital account and current account
transactions. It provides power to the Reserve Bank to specify, in consultation with the central
Government, the classes of capital account transactions and limits to which exchange is admissible for
such transactions. FEMA does not apply to Indian citizens resident outside India. So, Statement 2 is
correct.
25. Which of the following is considered Intellectual Property (IP) ?

1. Literary works
2. Artistic works
3. Names and images
4. Designs
(a) 2, 3 and 4
(b) 1, 3 and 4
(c) 1, 2 and 4
(d) All the Above
EXPLANATION:
IP is protected in law by, for example, patents, copyright and trademarks, which enable people to earn
recognition or financial benefit from what they invent or create. By striking the right balance between
the interests of innovators and the wider public interest, the IP system aims to foster an environment in
which creativity and innovation can flourish. Intellectual property (IP) refers to creations of the mind,
such as inventions; literary and artistic works; designs; symbols, names and images used in commerce.
Types of intellectual property
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⮚ Copyright
Copyright (or author's right) is a legal term used to describe the rights that creators have over
their literary and artistic works. Works covered by copyright range from books, music, paintings,
sculpture, and films, to computer programs, databases, advertisements, maps, and technical
drawings.
⮚ Patents
A patent is an exclusive right granted for an invention. Generally speaking, a patent gives the
owner the right to decide how - or whether - others can use the invention. In exchange for this
right, the patent owner makes technical information about the invention publicly available in the
published patent document.
⮚ Trademarks
A trademark is a sign capable of distinguishing the goods or services of one enterprise from those
of other enterprises. Trademarks date back to ancient times when artisans used to put their
signature or "mark" on their products.
⮚ Industrial designs
An industrial design constitutes the ornamental or aesthetic aspect of an article. A design may
consist of three-dimensional features, such as the shape or surface of an article, or of two-
dimensional features, such as patterns, lines or color.
⮚ Geographical indications
Geographical indications and appellations of origin are signs used on goods that have a specific
geographical origin and possess qualities, a reputation or characteristics that are essentially
attributable to that place of origin. Most commonly, a geographical indication includes the name
of the place of origin of the goods.
⮚ Trade secrets
Trade secrets are IP rights on confidential information which may be sold or licensed. The
unauthorized acquisition, use or disclosure of such secret information in a manner contrary to
honest commercial practices by others is regarded as an unfair practice and a violation of trade
secret protection.
26. Consider the following statements about the outcomes of WTO's 12 th Ministerial Conference :
1. A multilateral agreement was passed to provide subsidies for the fishing industry.
2. Members agreed to exempt food purchases by the UN's World Food Program from any export
restrictions.
3. Agreed to temporarily waive intellectual property patents on COVID-19 vaccines without the patent
holder's consent for 5 years.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
EXPLANATION:
The Ministerial Conference is the WTO's top decision-making body and usually meets every two years.
All members of the WTO are involved in the MC, and they can take decisions on all matters covered
under any multilateral trade agreements.
The 12th Ministerial Conference of the World Trade Organization on June 17 recently agreed to a series
of deals relating to the temporary waivers on Covid-19 vaccines, a moratorium on e-commerce trade,
food security and setting limits on harmful fishing subsidies.
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The WTO passed a multilateral agreement that would curb 'harmful' subsidies on illegal, unreported and
unregulated fishing for the next four years to better protect global fish stocks. Since 2001, member states
have been negotiating to ban subsidies that promote overfishing. So, statement 1 is not correct.
Members agreed to a binding decision to exempt food purchased by the UN's World Food Programme
(WFP) for humanitarian purposes from any export restrictions. In light of the global food shortages and
rising prices caused by the war between Ukraine and Russia, the group's members issued a declaration
on the importance of trade in global food security and that they would avoid bans on food exports.
However, countries would be allowed to restrict food supplies to ensure domestic food security needs.
India's key demand to allow it to export food from its public stockholdings to other countries will
reportedly be discussed in the next Ministerial Conference in 2023. So, Statement 2 is correct.
WTO members agreed to temporarily waive intellectual property patents on Covid-19 vaccines without
the consent of the patent holder for 5 years so that they can more easily manufacture them domestically.
This will contribute to ongoing efforts to concentrate and diversify vaccine manufacturing capacity so
that a crisis in one region does not leave others cut off. So, Statement 3 is correct.
27. Consider the following statements about the Peace Clause with respect to World Trade Organization
(WTO):
1. Accordingly, no country would be legally barred from food security programs even if the subsidy
breached the limits specified in the WTO agreement on agriculture.
2. This clause is temporary in nature, within which the protagonists hoped to find a permanent solution
to the problem.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
The 'peace clause' said that no country would be legally barred from food security programs even if the
subsidy breached the limits specified in the WTO agreement on agriculture. The peace clause refers to
article 13 of the Agreement on Agriculture of the World Trade Organization. According to this clause,
export subsidies and support measures given by a WTO member to its producers that are considered
legal under the Agreement on Agriculture cannot be challenged as being illegal under other WTO
agreements. The original peace clause expired in 2004. In the 2013 Bali Conference, another temporary
clause of this kind was put in place. Recently, India and China voiced concerns over special safeguard
measures under agriculture at the WTO. So, Statement 1 is correct.
This' peace clause' was expected to be in force for four years until 2017, by which time the protagonists
hoped to find a permanent solution to the problem. So, Statement 2 is correct.
28. Consider the following statements about the Trade Related Intellectual Property Rights (TRIPS)
Agreement :
1. The TRIPS agreement introduced intellectual property law into the multilateral trading system for
the first time.
2. TRIPS was negotiated at the end of the Uruguay Round of GATT and is administrated by the WTO.
3. TRIPS specifies enforcement procedures, remedies and dispute resolution procedures.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
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EXPLANATION:
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an international legal
agreement between all the World Trade Organization member nations (WTO). It sets down minimum
standards for the regulation by national governments of many forms of intellectual property (IP) as
applied to nationals of other
WTO member nations. TRIPS was negotiated at the end of the Uruguay Round of the General Agreement
on Tariffs and Trade (GATF) between 1989 and 1990 and is administered by the WTO. The TRIPS
agreement introduced intellectual property law into the multilateral trading system for the first time and
has remained the most comprehensive multilateral agreement on intellectual property. So, Statement
1 is correct.
The WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), negotiated during
the 1986-94 Uruguay Round, introduced intellectual property rules into the multilateral trading system
for the first time. Negotiated during the Uruguay round, TRIPS came into effect on January 1, 1995, and
the deadline for complying with TRIPS obligations for India (a developing country) was January 1, 2005.
TRIPS also specifies enforcement procedures, remedies, and dispute resolution procedures. Protection
and enforcement of all intellectual property rights shall meet the objectives to contribute to the promotion
of technological innovation and to the transfer and dissemination of technology to the mutual advantage
of producers and users of technological knowledge and in a manner conducive to social and economic
welfare, and to a balance of rights and obligations. So, Statement 3 is correct.
29. It refers to a legal term used to describe the rights that creators have over their literary and artistic
works. Works covered under this type of intellectual property range from books, music, paintings,
sculpture and films to computer programs, databases, advertisements, maps and technical drawings.
Which of the following type of intellectual property is referred to in the above passage ?
(a) Copyrights
(b) Patents
(c) Trademarks
(d) Trade Secrets
EXPLANATION:
Copyright (or author's right) is a legal term used to describe the rights that creators have over their
literary and artistic works. Works covered by copyright range from books, music, paintings, sculpture,
and films, to computer programs, databases, advertisements, maps, and technical drawings.
The commonly protected by copyright throughout the world include:
⮚ literary works such as novels, poems, plays, reference works, and newspaper articles;
⮚ computer programs, databases
⮚ films, musical compositions, and choreography
⮚ artistic works such as paintings, drawings, photographs, and sculptures;
⮚ architecture
⮚ advertisements, maps, and technical drawings.
So, option (a) is correct.
⮚ PATENTS
A patent is an exclusive right granted for an invention. Generally speaking, a patent provides the
patent owner with the right to decide how - or whether - the invention can be used by others. In
exchange for this right, the patent owner makes technical information about the invention
publicly available in the published patent document.
⮚ TRADEMARKS
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A trademark is a sign capable of distinguishing the goods or services of one enterprise from those
of other enterprises. Trademarks date back to ancient times when artisans used to put their
signature or "mark" on their products.
⮚ TRADE SECRETS
Trade secrets are IP rights on confidential information which may be sold or licensed. The
unauthorized acquisition, use or disclosure of such secret information in a manner contrary to
honest commercial practices by others is regarded as an unfair practice and a violation of trade
secret protection.
30. It is a bond expressed in foreign currency, the principal and interest in respect of which is payable in
foreign currency, issued by an Issuing Company and subscribed to by a person who is resident outside
India, in foreign currency and exchangeable into equity share of an Offered Company in any manner,
either wholly or partly or based on any equity related warrants attached to debt instruments.
Which of the following is referred to in the above passage ?
(a) Foreign Currency Exchangeable Bond
(b) Foreign Currency Convertible Bonds
(c) External Commercial Borrowings
(d) Global Depository Funds
EXPLANATION:
Foreign Currency Exchangeable Bond (FCEB) means a bond expressed in foreign currency, the principal
and interest in respect of which is payable in foreign currency, issued by an Issuing Company and
subscribed to by a person who is a resident outside India in foreign currency and exchangeable into
equity share of another company. Foreign Currency Exchangeable Bond is required to be denominated
in freely convertible foreign currency. The accruing interest and payment of the principal sum should
also be in freely convertible foreign currency.
⮚ The Issuing Company should be an Indian Company and should also be eligible to issue FCEB.
The words "eligible to issue" used in the definition connotes that the Issuing Company satisfies
certain conditions, and from a perusal of the Scheme, the conditions can be inferred to refer to
the following:
⮚ Further, the Foreign Currency Exchangeable Bond should be subscribed by a person resident
outside India and also fulfill the conditions of an eligible subscriber under the Regulations.
Although the word a person resident outside India' is not specifically defined in the Regulations,
the same could be interpreted within the scope of the Foreign Exchange Management Act (FEMA)
to mean a person who is not resident in India and would include any person or body
So, option (a) is correct.
31. Consider the following statements about Foreign Currency Convertible Bonds (FCCBs):
1. It is a bond issued by an Indian company expressed in foreign currency, and the principal and
interest are payable in foreign currency.
2. The bonds are required to be subscribed by a non-resident in foreign currency.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
Foreign Currency Convertible Bonds (FCCBs) mean a bond issued by an Indian company expressed in
foreign currency and the principal and interest in respect of which is payable in foreign currency.
Further, the bonds are required to be issued in accordance with the Scheme viz., "Issue of Foreign
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Currency Convertible Bonds and Ordinary Shares (through Depositary Receipt Mechanism) Scheme,
1993", and subscribed by a non-resident in foreign currency and convertible into ordinary shares of the
issuing company in any manner, either in whole or in part, on the basis of any equity related warrants
attached to debt instruments. So, Statements 1 and 2 are correct.
32. Consider the following statements about the Aggregate Measurement of Support (AMS) :
1. Aggregate Measurement of Support (AMS) can be given up to 10% of the country's agricultural GDP
in the case of a developing country's agricultural GDP and 5% for a developed economy.
2. It consists of two parts – product-specific subsidies and non product specific subsidies.
3. As per WTO provision, AMS is not a trade-distorting subsidy.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
EXPLANATION:
WTO's Agreement on Agriculture (AoA) classifies domestic support or subsidies given by the Government
to farmers into different categories. Aggregate Measurement of Support (AMS) is an important type of
subsidy or support. The AMS represents trade-distorting domestic support and is referred to as the
"amber box."
As per the WTO norms, the AMS can be given up to 10 % of a country's agricultural GDP in the case of
developing countries. On the other hand, the limit is 5% for a developed economy. This limit is called the
de minimus level of support. So, Statement 1 is correct.
The Aggregate Measurement of Support consists of two parts product-specific subsidies and non-
product-specific subsidies. Product specific subsidy refers to the total level of support provided for each
individual agricultural commodity. For example, wheat AMS is the subsidy given specifically to wheat. A
non product specific subsidy, on the other hand, refers to the total level of support given to the
agricultural sector as a whole, i.e., subsidies on inputs such as fertilizers, electricity, irrigation, seeds,
credit etc. Usually, these non-product subsidies are given to all crops. So, Statement 2 is correct.
As per the WTO provision, AMS is a trade-distorting subsidy. Since it distorts trade by directly influencing
production and price in an economy, the AMS is categorized as a 'reducible,' 'non-permissible,' or 'non-
exempted' subsidy. So, Statement 3 is not correct.
33. Consider the following statements about the FDI entry routes for investments in India :
1. Under Automatic Route, the foreign investor or the Indian company does not require any approval
from RBI or the Government of India.
2. Under the Government Route, prior approval of the Government of India, Ministry of Commerce, and
Foreign Investment Promotion Board (FIPB) is required.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
Foreign Investment in India is governed by the FDI policy announced by the Government of India and
the provisions of the Foreign Exchange Management Act (FEMA) 1999. Foreign Direct Investment (FDI)
is a key driver of economic growth and has been a significant non-debt financial resource for India's
economic development.
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Foreign investment is freely permitted in almost all sectors. Foreign Direct Investments (FDI) can be
made under Automatic and Government Route.
Under the Automatic Route, the foreign investor or the Indian company does not require any approval
from RBI or the Government of India for the investment—Automatic Route under delegated powers
exercised by the Reserve Bank of India (RBI). So, Statement 1 is correct.
Government Route' means the entry route through which investment by a person resident outside India
requires prior approval of the Government of India, and the Ministry of Finance and foreign investment
received under this Route shall be in accordance with the conditions stipulated by the Government in
its approval.
Foreign investment in any form is prohibited in a company or a partnership firm or a proprietary concern,
or any entity, whether incorporated or not (such as Trusts), which is engaged or proposes to engage in
the following activities:
⮚ Business of chit fund
⮚ Nidhi Company
⮚ Agricultural or plantation activities
⮚ Real estate business or construction of farm houses
⮚ Trading in Transferable Development Rights (TDRs)
The Foreign Investment Promotion Board (FIPB), housed in the Department of Economic Affairs, Ministry
of Finance, is an inter-ministerial body responsible for processing FDI proposals and making
recommendations for Government approval.
Foreign Investment Promotion Board (FIPB) was abolished in June 2017. So, Statement 2 is not
correct.
34. Consider the following statement about the Special Drawing Rights (SDR) with reference to the
International Monetary Fund :
1. It is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other
reserve assets of member countries.
2. The value of an SDR is based on a basket of the world's five leading currencies.
3. It serves as the unit of account of the IMF and some other international organizations, and financial
obligations may also be denominated in SDR.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
EXPLANATION:
The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in
1969 to supplement other reserve assets of member countries.
⮚ The SDR is based on a basket of international currencies comprising the US dollar, Japanese
yen, euro, pound sterling and Chinese Renminbi.
⮚ It is not a currency nor a claim on the IMF but is potentially a claim on freely usable currencies
of IMF members.
⮚ The value of the SDR is set daily by the IMF on the basis of fixed currency amounts of the
currencies included in the SDR basket and the daily market exchange rates between the
currencies included in the SDR basket. So, Statements 1 and 2 are correct.
SDRs can be held and used by member countries, the IMF, and certain designated official entities called
"prescribed holders," but they cannot be held, for example, by private entities or individuals. Its status
as a reserve asset derives from the commitments of members to hold and exchange SDRs and accept the
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value of SDRs as determined by the Fund. The SDR also serves as the unit of account of the IMF and
some other international organizations, and financial obligations may also be denominated in SDR. So,
Statement 3 is correct.
35. Which of the following are included in the foreign exchange reserves of India ?
1. Gold
2. Special Drawing Rights (SDR)
3. Reserve Tranche
4. Foreign Currency Assets
Select the correct option using the code given below :
(a) 1, 2 and 3
(b) 1, 2 and 4
(c) 2, 3 and 4
(d) 1, 2, 3 and 4
EXPLANATION:
The RBI, as the custodian of the country's foreign exchange reserves, is responsible for managing their
investment. The legal provisions governing the management of foreign exchange reserves are laid down
in the RBI Act 1934. The RBI Act permits the RBI to invest these reserves in the following types of
instruments:
⮚ Deposits with Bank for International Settlement and other central banks
⮚ Deposits with foreign commercial banks
⮚ Debt instruments representing sovereign or sovereign guaranteed liability
⮚ Other instruments as approved by the Central Board of the RBI
Foreign Exchange Reserve of a Country = Foreign Currency Assets + Gold + SDR + Reserve Tranche
Position (RTP).
⮚ A reserve tranche position implies a portion of the required quota of currency each member
country must provide to the International Monetary Fund (IMF) that can be utilized for its own
purposes.
⮚ The SDR is an international reserve asset created by the IMF in 1969 to supplement its member
countries' official reserves.
⮚ FCAs are assets valued based on a currency other than the country's own currency.
⮚ FCA is the largest component of the forex reserve. It is expressed in dollar terms.
So, option (d) is correct
36. Consider the following statements about the Debt Service Ratio :
1. It indicates the claim that servicing of external debt makes on current receipts and is, therefore, a
measure of strain on BOP due to servicing of debt service obligations.
2. India's Debt Service Ratio has increased gradually since 2015.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2
EXPLANATION:
The Debt Service ratio is the ratio of its debt service payments (principal + interest) to its export earnings.
A country's international finances are healthier when this ratio is low. For most countries, the ratio is
between 0 and 20%.
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It indicates the claim that external debt servicing makes on current receipts and is a measure of strain
on BOP due to servicing of debt service obligations. So, Statement 1 is correct.
India's Debt Service Ratio has seen fluctuation since 2015.
Financial Year Debt service ratio
FY2022* 4.9%
FY2021 8.2%
FY2020 6.5%
FY2019 6.4%
FY2018 7.5%
FY2017 8.3%
FY2016 8.8%
FY2015 7.6%
So, Statement 2 is not correct
37. Consider the following statements about the Export Preparedness Index :
1. The NITI Aayog, in partnership with the Institute of Competitiveness, releases this index.
2. The index can be used by states and union territories (UTs) to benchmark their performance against
their peers.
3. The EPI ranks states and UTs on 4 main pillars and 11 sub-pillars.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
EXPLANATION:
NITI Aayog, in partnership with the Institute of Competitiveness, released the Export Preparedness Index
(EPI) 2021.
⮚ The report is a comprehensive analysis of India's export achievements. The index can be used by
states and union territories (UTs) to benchmark their performance against their peers and analyze
potential challenges to develop better policy mechanisms to foster export-led growth at the sub-
national level.
⮚ The Export Preparedness Index is a data-driven endeavor to identify the fundamental areas
critical for subnational export promotion.
⮚ The EPI ranks states and UTs on 4 main pillars—Policy; Business Ecosystem; Export Ecosystem;
Export Performance—and 11 sub-pillars—Export Promotion Policy; Institutional Framework;
Business Environment; Infrastructure; Transport Connectivity; Access to Finance; Export
Infrastructure; Trade Support; R&D Infrastructure; Export Diversification; and Growth
Orientation.
⮚ EPI 2021 brings out three major challenges to India's export promotion. These are intra- and
inter-regional differences in export infrastructure, weak trade support and growth orientation
across states, and a lack of R&D infrastructure to promote complex and unique exports.
38. With which of the following country does India not have a Free Trade Agreement (FTA) ?
(a) UAE
(b) Australia
(c) Mauritius
(d) USA
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EXPLANATION:
A Free Trade Agreement is a pact between two or more nations to reduce barriers to imports and exports
among them. India has signed 13 Free Trade Agreements (FTAs) with its trading partners, including the
3 agreements, namely India-Mauritius Comprehensive Economic Cooperation and Partnership
Agreement (CECPA), India-UAE Comprehensive Partnership Agreement (CEPA) and India-Australia
Economic Cooperation and Trade Agreement (IndAus ECTA) signed during the last five years. The list of
FTAs signed by India is as under:
SN Name of the Agreement
1 India-Sri Lanka Free Trade Agreement (FTA)
2 Agreement on South Asian Free Trade Area (SAFTA)

(India, Pakistan, Nepal, Sri Lanka, Bangladesh, Bhutan, the Maldives and
Afghanistan)
3 India-Nepal Treaty of Trade
4 India-Bhutan Agreement on Trade, Commerce and Transit
5 India-Thailand FTA - Early Harvest Scheme (EHS)
6 India-Singapore Comprehensive Economic Cooperation Agreement (CECA)
7 India-ASEAN CECA - Trade in Goods, Services and Investment Agreement

(Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines,
Singapore, Thailand and Vietnam)
8 India-South Korea Comprehensive Economic Partnership Agreement (CEPA)
9 India-Japan CEPA
10 India-Malaysia CECA
11 India-Mauritius Comprehensive Economic Cooperation and Partnership

Agreement (CECPA)
12 India-UAE CEPA (*)
13 India-Australia Economic Cooperation and Trade Agreement (ECTA) (*)
(*) Signed, but yet to be implemented.

39. It refers to an investment strategy whereby an investor borrows in a currency with a low-interest rate
and invests in assets in another economy where the rate of return is higher. In most cases, a large and
persistent interest differential seems to determine this specific investment strategy.
Which of the following concept is referred to in the above passage ?
(a) Speculation
(b) Forex Scalping
(27-F)
SIA-F-GS I
(c) Carry Trade
(d) Dollarization
EXPLANATION:
Carry trade is an investment strategy whereby an investor borrows in a currency with a low interest rate
and invests in assets in another economy with higher return rates.
In most cases, a large and persistent interest differential seems to determine to carry trade flows, though
conceivably other aspects of returns (expectations of exchange rate appreciation, differing growth and
profit outlook) may also play a part.
Initially, it was used to describe how leveraged investors in Japan behaved (borrowing in yen cheaply to
invest in high-yielding assets, mainly in Asia and the Pacific) but has now also come to describe investor
behavior in the eurozone and Switzerland in the run-up to the crisis, and potentially from the US to
faster growing emerging markets in the post-crisis period. So, option (c) is correct.
40. Consider the following statements about the General Agreement on Tariffs and Trade (GATT) :
1. It was signed by 23 countries in 1947.
2. India was one of the founding members of GATT.
3. The GATT covers international trade in goods and services.
(a) 1 and 2 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3
EXPLANATION:
GATT was signed by 23 countries in 1947. India was one of the founding members of GATT. Over the
years, the membership of GATT swelled, and in 1994 touched 118 countries. GATT was all along
concerned with the promotion of international trade through tariff reduction, doing away with non-
discriminatory practices among trading partners, and evolving rules to counter-protectionism. The
guiding principle of GATT was what is known as the MFN (most favored nation) clause. This clause says
that "any advantage, favor, privilege or immunity granted by a contracting party to any product originating
in or destined for any country shall be accorded immediately and unconditionally to the like product
originating in or destined for the territories of all contracting parties." The purpose of this clause was to
discourage bilateralism and encourage multilateralism so that world trade could expand in an orderly
manner; however, the formation of a customs union or free trade area was allowed by GATT, provided this
encouraged flow of trade between the constituent territories. So, Statements 1 and 2 are correct.
The General Agreement on Tariffs and Trade (GATT) covers international trade in goods. The workings of
the GATT agreement are the responsibility of the Council for Trade in Goods (Goods Council), which is
made up of representatives from all WTO member countries, as It does not cover services.
The Goods Council has 10 committees dealing with specific subjects (such as agriculture, market access,
subsidies, anti-dumping measures and so on). Again, these committees consist of all member countries.
Also reporting to the Goods Council are a working party on state trading enterprises and the Information
Technology Agreement (ITA) Committee. So, Statement 3 is not correct.
41. Which of the following are among the committed expenditure by Centre and State Governments?
1. Expenditure on pensions
2. Expenditure on salary & Wages
3. Interest payments
4. Servicing of debts
(28-F)
SIA-F-GS I
Select the correct answer code.
(a) 1 and 4 only
(b) 2 and 3 only
(c) 2 and 4 only
(d) 1, 2, 3 and 4
EXPLANATION:
Committed expenditure of Government refers to the spending that a government has already committed
to, typically through legal obligations or contractual agreements. This type of expenditure is usually
mandatory and cannot be easily reduced or eliminated without significant consequences. The
Government has less freedom to choose the reason for which revenue expenditure is to be expended if
the committed expenditure is bigger.
Expenditure on interest payments, pension, subsidies, salary, wages and servicing of debts make up the
Government's committed expenditure on revenue accounts.
As per CAG data, the Centre's total Committed Expenditure was Rs 9.78 lakh crore during 2019-20. This
accounts for 37% of its total revenue expenditure. During 2019-20, the total Committed Expenditure of
all states stood at Rs 12.38 lakh crore, which was almost half (45%) of their combined revenue
expenditure of Rs 27.41 lakh crore.
42. What is 'Equuleus', recently in the news ?

(a) Space observatory launched by Russia
(b) Solar powered Electric plane tested by China
(c) Steam powered spacecraft launched by Japan
(d) A mini satellite launched by ISRO
EXPLANATION:
NASA successfully recently conducted the inaugural test flight of the Artemis 1 lunar mission. The rocket
launched by the US space agency carries an uncrewed Orion spacecraft that is expected to orbit the
Moon for several days before returning to the Earth.
Apart from the Orion spacecraft, the US rocket also carried some other probes and satellites developed
by different space agencies around the world. Japan Aerospace Exploration Agency (JAXA) 's
OMOTENASHI CubeSat (a miniaturized satellite), the world's smallest moon lander and EQUULEUS -
EQUilibriUm Lunar-Earth point 6U Spacecraft, which will carry a nanosatellite that will study the far
side of the Moon. The spacecraft is expected to reach Lagrange Point 2, which is an Earth-Moon orbit
position. So, Option (c) is correct.
43. Consider the following pairs

Festivals Significance
1. Mahaparinirvan diwas Death of Buddha
2. Parakram diwas Birth of Nethaji S.C Bose
3. Shaheed diwas Death anniversary of Gandhiji
4. Ekta Diwas National Unity day.
How many of the following pairs are correct?
(a) One pair only
(b) Two pair only
(c) Three pair only
(d) All the four pair
EXPLANATION:
The death anniversary of the father of the Indian Constitution, B.R Ambedkar Parinirvan, is observed as
Mahaparinirvana diwas. He had a great contribution to shaping India's progressive outlook. He fought
(29-F)
SIA-F-GS I
against social discrimination. Parinirvana can be translated as Nirvana after death or freedom from the
cycles of life and death.
On the full moon day of Vaishakha, the supreme light of realization dawned on Buddha, and he attained
Enlightenment(Nirvan) beneath the Bodhi tree at Bodha Gaya. Buddha passed into eternity (Maha
Parinirvana) in his 80s on the full moon day of Vaishakha. The death of Buddha is celebrated as Buddha
Purnima or Buddha Jayanti, or Vesākha in the month of April. So, Pair 1 is not correct.
Subhas Chandra Bose, an Indian revolutionary mentored by CR Das. He was sent by Mohandas K.
Gandhi to organize in Bengal. He was elected congress president in 1928 and 1929. With INA in 1944,
he invaded India from Burma (Myanmar) with a small army of Indian nationals and Japanese, but his
army was soon forced to retreat. The central Government has decided to observe Subhas Chandra Bose
Jayanti as 'Parakram Diwas' to be celebrated on January 23. So, Pair 2 is Correct.
On January 30, Martyr's Day, or Shaheed Diwas, is celebrated in memory of Mahatma Gandhi, the
nation's father, who was assassinated at Gandhi Smriti in the Birla House. March 23 (Martyr's Day or
Shaheed Diwas) is observed to pay tribute to three revolutionaries of India who were hanged to death by
the British, namely Bhagat Singh, Shivaram Rajguru, and Sukhdev Thapar. So, Pair 3 is correct.
Patron Saint of India's Civil Servants, Sardar Patel, is known for playing an important role in the
unification and integration of Indian princely states into the Indian federation. Rashtriya Ekta Diwas, or
National Unity Day, is on October 31 every year to mark the birth anniversary of Sardar Vallabhbhai
Patel, known as the Iron Man of India. So, Pair 4 is correct.
44. With reference to Food and Agricultural Organisation, consider the following statements :
1. Food and Agriculture Organization is the specialized agency of the United Nations which leads
international efforts to defeat Hunger.
2. Global status of Black soil is a report published by FAO which informs that half of the black soil is
under threat.
Select the correct answer code.
(a) 1only
(b) 2only
(c) Both 1 and 2
(d) Neither 1 nor 2
EXPLANATION:
The Food and Agriculture Organization (FAO) was established in 1945, it is a specialized agency of the
United Nations that leads international efforts to defeat Hunger. With 195 members - 194 countries and
the European Union, FAO works in over 130 countries worldwide.FAO publishes a wide range of reports
on various topics related to food and agriculture. Some of the recent reports published by FAO include
State of Food Security and Nutrition in the World, State of the World Fisheries and Aquaculture, State of
Agricultural Commodity Markets, and State of the World's Forests report. So, Statement 1 is correct.
Black soils are carbon-rich and highly fertile soils known as the world's food baskets due to the variability
of crops they sustain. For decades, these fertile soils have been widely cultivated and have played a key
role in the global agricultural production of cereals, tuber crops, oilseed, pastures, and forage systems. In
addition, black soils play an important role on climate change mitigation and adaptation. FAO and its
Global Soil Partnership are committed to the conservation and sustainable management of black soils and
established the International Network of Black Soils. The global status of Black soil is a report published
by FAO which informs that half of the black soil is under threat. One of the main recommendations of this
report is the establishment of a global agreement for the sustainable management (for conservation,
protection and production) of black soils. So, Statement 2 is correct.
(30-F)
SIA-F-GS I
45. Consider the following statements with respect to Intergovernmental Negotiations Committee :
1. INC was tasked with developing an international legally binding instrument to end plastic pollution
2. The first session of INC recently concluded in Brazil endorsed that plastic pollution is rooted in the
materials lifecycle
3. INC-1 was convened and managed by UNEP
(a) 1 only
(b) 1 and 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
EXPLANATION:
The UNEA resolution 5/14 calls for the international legally binding instrument to promote a
comprehensive lifecycle approach to chemicals and waste through sustainable production and
consumption of plastics by adopting sound product design and environment-friendly waste
management. In the first session of the Intergovernmental Negotiating Committee (INC-1), tasked with
developing an international legally binding instrument to end plastic pollution. So, Statement 1 is
correct.
On December 2, 2022, Uruguay's Punta Del Este hosted the first session of the International Negotiating
Committee (INC-1). It implicitly endorsed the Centre for Science and Environment (CSE) 's position that
plastic pollution is rooted in the material's lifecycle. CSE released a report titled The Plastic Lifecycle
on November 2022 at the India Habitat Centre, New Delhi. So, Statement 2 is not correct.
Intergovernmental Negotiating Committee (INC-1) was convened and managed by the United Nations
Environment Programme. UNEP was established by the United Nations General Assembly in 1972 and
is headquartered in Nairobi, Kenya. So, Statement 3 is correct.
46. Consider the following :

1. Wanna cry
2. Petya
3. Dharma
4. Pegasus
Which of the following above is/are ransomware ?
(a) 1,2 and 3 only
(b) 2,3 and 4 only
(c) 1 and 2 only
(d) 1, 2, 3 and 4
EXPLANATION:
Ransomware is a type of malicious software (malware) that encrypts a victim's files or locks their
computer, preventing access to their data or system. The attacker demands payment, usually in a
cryptocurrency, in exchange for a decryption key or to unlock the computer.
It is important to regularly back up important data, use strong passwords, and keep software up to date
to protect against ransomware attacks. Additionally, it is essential to be cautious when opening email
attachments or clicking on links from unknown sources.
Some of the ransomware in the news in recent times include Ryuk, CryptoLocker, Locky, Dharma
Ransomware-as-a-Service (RaaS), Petya/NotPetya, and WannaCry. At the same time, Pegasus is not
ransomware but a type of malicious software or malware classified as spyware. It is designed to gain
access to devices without the knowledge of users. It is developed by the Israeli firm NSO Group. So,
option (a) is correct.
(31-F)
SIA-F-GS I
47. A Floating Marshy grassland in the Southern part of a state in India is the natural habitat of an animal
species endemic to India. It faces two-pronged dangers to its life in its Natural habitat- Steadily degrading
habitat due to inundation by an artificial reservoir and slaying by poachers, which is considered as an
unpardonable sin by the local Meitei society. Which of the following could be that animal?
(a) Gir lion
(b) Sangai deer
(c) Nilgiri Tahr
(d) Lion Tailed Macaque
EXPLANATION:
The endangered Sangai deer is a rare and endangered subspecies found only in Manipur. It lives in the
swampy wetland of the Keibul Lamjao floating park at the southern end of Loktak Lake. This is the
largest freshwater lake in Eastern India, one of seven Ramsar sites of international importance.
The deer is threatened by poaching, fishing activities, reduction in food, inbreeding and disease,
flooding of habitat and drowning.
Sangai deer was held sacred in early Meitei belief and discharged the cultural and religious symbolism
similar to those of Kanglasa/dragon in importance and privileges. Sangai is called the dancing deer.
➢ Sangai is the state animal of Manipur and has been listed as an endangered species by the
IUCN.
➢ The animal is a medium-sized deer, with uniquely distinctive antlers, measuring 100 -110 cm
in length with extremely long brow tine, which form the main beam.
➢ They have a reddish brown to gray colored coat, dark brownish black nose, lips and mouth.
➢ The Sangai was believed to be almost extinct by 1950, but it was re-discovered in the Keibul
Lamjao Park area by the environmentalist and photographer E P Gee.
➢ The maximum lifespan of Sangai in the wild is of around 10 years.
So, option (b) is correct.
48. Which of the following issues the Social Hostilities Index ?

(a) World Economic Forum
(b) Pew Research Centre
(c) UN Human Rights council
(d) International Labour Organization
EXPLANATION:
The Pew Forum's Social Hostilities Index is a measure of concrete, hostile actions that effectively hinder
the religious activities of the targeted individuals or groups. An absence of social hostilities does not
necessarily mean, however, that there is no religious tension or intolerance in society.
(32-F)
SIA-F-GS I
So, option (b) is correct.
49. With reference to elections, consider the following statements :

1. An opinion poll asks the voters which political party they are supporting after they have cast their
votes in the election.
2. No person shall conduct an opinion poll and publish or publicize its results through the print or
electronic media during such period as the ECI may notify in this regard.
Which of the following statements is/ are correct ?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
EXPLANATION:
Periodic elections are conducted in India by the Election Commission of India for Parliamentary houses
and State legislature; in case of local bodies, the State Election Commission conducts the urban and
rural local bodies elections.
Opinion polls are conducted before an election to gather voters' views on a range of election-related
issues. On the other hand, an exit poll is conducted immediately after people have voted and assesses
the support for political parties and their candidates. So, Statement 1 is not correct.
Section 126A of the R.P. Act 1951 prohibits the conduct of an Exit poll (opinion poll is not prohibited)
and dissemination of its results during the period mentioned therein, i.e., the hour fixed for the
commencement of poll and half an hour after the time fixed for the close of poll in both the States.
(33-F)
SIA-F-GS I
Section 126 of RPA 1951: Prohibition of public meetings during a period of forty-eight hours ending with
an hour fixed for the conclusion of the poll-
1. No person shall display to the public any election matter by means of cinematograph, television
or other similar apparatus; In any polling area during the period of forty-eight hours ending with
the hour fixed for the conclusion of the poll for any election in the polling area.
2. Any person who contravenes the provisions of sub-section (1) shall be punishable with
imprisonment for a term which may extend to two years, or with a fine, or with both.
3. In this Section, the expression "election matter" means any. Matter intended or calculated to
influence or affect the result of an election).
50. A 12-foot statue of Adi Shankaracharya has been unveiled in Kedarnath where the Acharya attained
samadhi. Which one of the following statements correctly represents the teachings of Shankaracharya ?
(a) The best means of salvation was devotion.
(b) Salvation has to be obtained through meditation.
(c) Supreme soul is real and knowledge is the true means of salvation.
(d) Logical arguments were essential means for the highest bliss.
EXPLANATION:
Adi Shankara was an Indian philosopher and theologian who expounded the doctrine of Advaita Vedanta.
He renounced worldly pleasures at a very young age. Shankaracharya amalgamated the ideologies of
ancient 'Advaita Vedanta' and also explained the basic ideas of the Upanishads. He condemned the
'Mimamsa school of Hinduism', which was purely based on ritual practices.
In his commentary on the Brahma Sutras, he explains the concept of Maya, which is the illusion of the
phenomenal world, and the importance of discrimination between the real and the unreal.
He advocated the oldest concept of Hinduism, which explains the unification of the soul (atman) with
the Supreme Soul (Nirguna Brahman. He emphasized the importance of knowledge (jnana) and the
attainment of liberation (moksha) through self-realization and the realization of Brahman (Supreme
Soul). So, option (c) is correct.
(34-F)
SIA-F-GS I

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PRELIMS FITNESS – 2023

1. Consider the following statements about the exchange rate :

3. Consider the following statement about the Balance on Invisibles :

4. Consider the following statements about the exchange rates :

10. Consider the following statements about different types of dumping :

13. Consider the following statements about Gold Standard :

14. Which of the following is not a non-tariff barrier?

16. Consider the following statements about currency convertibility :

23. Consider the following statements about Currency Board Arrangements :

25. Which of the following is considered Intellectual Property (IP) ?

SN Name of the Agreement

1 India-Sri Lanka Free Trade Agreement (FTA)

2 Agreement on South Asian Free Trade Area (SAFTA)

3 India-Nepal Treaty of Trade

4 India-Bhutan Agreement on Trade, Commerce and Transit

5 India-Thailand FTA - Early Harvest Scheme (EHS)

6 India-Singapore Comprehensive Economic Cooperation Agreement (CECA)

7 India-ASEAN CECA - Trade in Goods, Services and Investment Agreement

8 India-South Korea Comprehensive Economic Partnership Agreement (CEPA)

11 India-Mauritius Comprehensive Economic Cooperation and Partnership

12 India-UAE CEPA (*)

13 India-Australia Economic Cooperation and Trade Agreement (ECTA) (*)

(*) Signed, but yet to be implemented.

42. What is 'Equuleus', recently in the news ?

43. Consider the following pairs

46. Consider the following :

48. Which of the following issues the Social Hostilities Index ?

49. With reference to elections, consider the following statements :

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