SURETY BONDS

SURETY BONDS

Practice MCQ Practice MCQ

With respect to Surety Bonds, consider the Which among the following is/are the benefits of the
following statements: Surety Bonds proposed in India?
1. The Surety Bonds are issued by the insurance 1. Reduce the Burden on the Banks
companies as a form of guarantee on the 2. Ensure timely completion of projects
completion of infrastructure projects as per the 3. Promote Insurance Sector in India.
specifications.
2. Presently, issuance of Surety Bonds is prohibited Select the correct answer from using the code given
in India. below:
(a) 1 only
Which among the statements given above is/are (b) 1 and 2 only
correct? (c ) 3 only
(a) 1 only (d) 1, 2 and 3
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
 CREDIT DEFAULT SWAPS

Practice MCQ No. 209 Practice MCQ No. 210

With respect to Credit Default Swaps (CDS), consider the Which among the following is/are likely benefits of Credit
following statements: Default Swaps(CDS)?
1. The CDS can be issued only against Corporate Bonds. 1. The CDS can deepen Corporate Bond Market in India.
2. The CDS can be issued only by Insurance Companies 2. The CDS can encourage more retail participation in
in India. the Capital Market in India.
3. The CDS can encourage more Foreign Portfolio
Which among the statements given above is/are correct? Investments (FPIs)
(a) 1 only
(b) 2 only Select the correct answer using the code given below:
(c) Both 1 and 2 (a) 1only
(d) Neither 1 nor 2 (b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3
DEPOSITORY RECEIPTS: ADR/GDR/IDR
 DEPOSITORY RECEIPTS: ADR/GDR/IDR
Framework for ADRs/GDRs
Governed through • Earlier, Foreign Currency Convertible Bonds and Ordinary shares (Through depository
receipt mechanism) Scheme, 1993 was repealed on the recommendations of M.S. Sahoo
Committee.
• Depository Receipt Scheme, 2014- formulated on recommendations of Sahoo Committee
• SEBI Framework for Issuance of Depository Receipts
Who can issue Only listed Indian Companies.
ADRs/GDRs?
Who cannot buy Indian Residents
ADRs/GDRs?
In which countries • Member countries of Financial Action Task Force (FATF)
depositories can be • Countries whose Securities Market regulator is a member of International Organisation of
issued? Securities Commissions.
Can Depository holders • No. Voting rights would have to be exercised by Foreign Depository on behalf of investors.
exercise voting rights
directly?
Are ADRs/GDRs considered • Yes.
as FDI into India?
 DEPOSITORY RECEIPTS: ADR/GDR/IDR

Practice MCQ Practice MCQ

With reference to American Depository Receipts (ADRs),
consider the following statements:
1. The ADRs are the financial instruments through which
the Indian Companies can raise capital from the
equity market in USA.
2. An ADR is quoted in US dollars and one ADR
represents a certain number of equity shares in the
Indian company.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
With reference to Indian Depository Receipts (IDRs),
consider the following statements:
1. The Indian Depository receipts (IDRs) are the financial
instruments through which the Indian Companies can
raise capital from overseas market.
2. The IDRs are denominated in terms of Rupees and
listed on Indian Stock Exchanges.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c ) Both 1 and 2
(d) Neither 1 nor 2
DIRECT LISTING OF INDIAN COMPANIES IN FOREIGN STOCK EXCHANGES

Status prior to Companies Amendment Act, 2020

 Criteria Foreign Currency Convertible Bonds Foreign Currency Exchangeable Bonds
Issued by Indian Company Indian Company.
Denominated Foreign Currency Foreign Currency
Convertible into Yes Yes
Shares
Convertible into Yes. Convertible into shares of other company which
shares of same is part of same group.
company
Included as FDI Yes Yes.
DIRECT LISTING OF INDIAN COMPANIES IN FOREIGN STOCK EXCHANGES

Status post Companies Amendment Act, 2020

 DIRECT LISTING OF INDIAN COMPANIES IN FOREIGN STOCK EXCHANGES

Practice MCQ Practice MCQ

Which among the following best describes the concept of
“Direct listing of Indian Companies in Foreign Stock
Exchanges”?
(a) Unlisted Indian Companies can directly sell the shares
on the foreign stock exchanges without the need to
first list on Indian Stock exchanges.
(b) Listed Indian Companies can directly sell their shares
on the foreign stock exchanges without the need for
ADR/GDRs.
(c) Indian Companies can directly sell their ADRs/GDRs
on the foreign stock exchanges
(d) Both (a) and (b)
Consider the following statements:
1. Indian Companies can list their debt securities on the
foreign stock exchanges directly.
2. Presently, the Companies Act, 2013 bars the Indian
companies from directly listing their shares on
Foreign stock exchanges.
Which among the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
DIRECT LISTING OF INDIAN COMPANIES IN FOREIGN STOCK EXCHANGES

Practice MCQ
Consider the following statements related to Companies Amendment
Act, 2020:
1. The amendment enables foreign companies to directly list their
shares on Indian stock exchanges without the need to issue Indian
Depository Receipts (IDRs)
2. The amendment enables direct overseas listing by Indian
Companies.

Which among the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
SEBI’s Framework on Social Stock Exchanges
Importance for UPSC Prelims:
• SEBI’s Framework on Social Stock Exchanges
• Zero Coupon Zero Principal Bonds
• Alternate Investment Funds (AIFs)
 SEBI’s Framework on Social Stock Exchanges
Practice MCQ Practice MCQ
With respect to Social Stock Exchanges, consider the Which among the following entities are allowed to raise finances
following statements: through issuance of Zero Coupon Zero Principal Bonds in Social
1. The Social Stock exchanges would be set up as standalone Stock Exchanges?
exchanges on the lines of BSE and NSE. 1. NGOs
2. Unlike BSE and NSE, the Social Stock Exchanges would be 2. Trusts and Societies
regulated by RBI. 3. All the companies registered under Companies Act, 2013
3. The Social Stock exchanges would enable only the Not-
for-Profit entities to raise finances for social sector Select the correct answer using the code given below:
projects. (a) 1 only
(b) 1 and 2 only
Which among the statements given above is/are incorrect? (c) 2 and 3 only
(a) 1 and 2 only (d) 1, 2 and 3
(b) 2 only
(c) 2 and 3 only
(d) 1, 2 and 3
SEBI’s Framework on Social Stock Exchanges
Practice MCQ
With respect to Zero Coupon Zero Principal Bonds to be issued on Social Stock
Exchanges, consider the following statements:
1. These Bonds do not carry any interest and principal amount need not be
repaid.
2. These Bonds can be issued by both Not-for-Profit entities as well as For-
profit companies.

Which among the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
 Prelims Pointers on India International Bullion Exchange (IIBX)
Need for Gold Stock Fragmented market: There is no organised market for the trading of Gold in India.
Exchange Price taker rather than price setter: Even though India is one of the major importers, India is
unable to dictate prices of gold in the international market.
Poor infrastructure in terms of Quality storage and vault facilities.
Import of Gold: Currently, RBI is imported on a consignment model wherein RBI has
nominated Banks and agencies to import Gold and then supply to traders and jewellers.
Promoters CDSL, India INX, NSDL, NSE and MCX
Regulated by International Financial Services Centres Authority (IFSCA)
What it includes? Bullion Exchange, Bullion Clearing Corporation and Bullion Depository.
Eligible participants Buyers: Qualified Jewelers, NRIs, Companies, Resident Indians etc.
Sellers: Qualified Bullion Sellers- Global Banks, Gold Mining and Refining companies etc.
How does it work? Step 1: Member “X” can buy Gold from the qualified Bullion sellers through Banks located in
IFSC.
Step 2: The Banks deposit the Gold with the Bullion Depository.
Step 3: The Bullion Depository issues the Bullion Depository Receipt (BDR) to the member
“X”
Step 4: Member “X” can either sell the BDR in the IIBX or convert it into the physical Gold.
Tax Benefits No Customs duty on import of Gold; No Capita; Gains Tax
Currency of Transaction Dollar
 Prelims 2019
Which of the following is issued by registered foreign portfolio investors
to overseas investors who want to be part of the Indian stock market
without registering themselves directly?
(a) Certificate of Deposit
(b) Commercial Paper
(c) Promissory Note
(d) Participatory Note
National Monetization Pipeline

Involves Monetisation of underutilised Core Assets only.

Non-Core Assets ( Land, Buildings) not included.

Not privatisation as ownership continues to remain

with the Government

Form of PPP in which Private sector would be involved

in maintenance and development of Infrastructure.

Raise Rs 6 lakh crores during next 4 years (2022-25).

Global Examples:
Australia: Asset Recycling Initiative
Indonesia: Limited Concession Scheme (LCS)
National Monetization Pipeline
National Monetization Pipeline
 Toll-Operate-
Transfer Model
 Case Studies:
• Development of Delhi and Mumbai Airports
Operate-Maintain- • Leasing of 6 Airports- Ahmedabad, Jaipur,
Develop Model Lucknow, Guwahati, Thiruvananthapuram and
Mangalore

Owns Airports Leases to Private

Airports developers for 20-
which needs to
Authority of India 25 years
be upgraded

Transfer the
Airport back to Empowered to Responsibility to
AAI after the collect User upgrade and
concession Charges maintain Airports
period
 Prelims Pointers on REITs/InVITs
Eligibility to offer Total Value of assets of REIT/InVITs should be more than Rs 500 crores.
REIT/InVIT Units Minimum offer through the REIT/InVIT units should be more than Rs 250 crores.
Minimum subscription by Between Rs 10,000- Rs 15,000
Investors
Listing on Stock Exchanges mandatory REIT/InvIT Units to be listed on a recognized stock exchange

Obligations on REITs/InVITs • Minimum 80% of the pooled money of the InvITs should be invested in completed
revenue generating infrastructure projects while the balance 20% can be invested in
under construction projects, equity shares of infrastructure companies, G-Secs etc.
• 90% of the profits generated by InvITs should be distributed among the investors in the
form of dividend.
 DISINVESTMENT

Prelims 2011 Theme Disinvestment

Why is the Government of India disinvesting its Nature of Conceptual
equity in the Central Public Sector Enterprises Questions
(CPSEs)?
Relevance for this New Public Sector Enterprise Policy
1. The Government intends to use the revenue year Prelims Ambitious targets for Strategic
earned-from the disinvestment mainly to pay Disinvestment
back the external debt. Important Aspects • Rationale for undertaking
2. The Government no longer intends to retain the to Focus Disinvestment
management control of the CPSEs. • Evolution of Government’s
Disinvestment Policy
Which of the statements given above is/are correct? • Routes for Undertaking Disinvestment
(a) I only • Strategic Disinvestment- Mechanism
(b) 2 only • Institutional Mechanism for
(c) Both 1 and 2 Disinvestment
(d) Neither 1 nor 2
 REASON FOR DISINVESTMENT

Practice MCQ Rationale for Disinvestment of PSUs

Which among the following is/are not the likely 1. Reduce Losses from PSUs
reasons for the Government to undertake
Disinvestment of PSUs? 2. Attract more Private Sector Capital and
1. To encourage Public Ownership of PSUs. Expertise
2. To attract more private sector capital and 3. Reduce Government’s dominance and
expertise Monopoly in certain Sectors
3. To give up Government’s ownership in PSUs 4. Raise Finances for reducing Fiscal Deficit and
completely. meet capital requirements of profit-making PSUs.
Select the correct answer using the code given below: 5. To encourage more wider ownership of PSUs.
(a) 1 only
(b) 1 and 2 only
(c) 3 only
(d) 1 and 3 only
 Evolution of Disinvestment Policy
First Constitutional Amendment Act 1951: Strategic Public Sector Enterprise
Restriction on Article 19 (1) (g) Policy
Air Corporations Act, 1953: Nationalisation Strategic Sectors ( Min. presence of
of 9 Airlines in India PSUs)
Life Insurance Corporation Act 1956: • Atomic energy, Space and
Nationalisation of Insurance Companies Defence
into LIC • Power, Petroleum, Coal and
Banking Companies (Acquisition and Disinvestment other minerals
Transfer of Undertakings) Act, 1970: Policy of • Banking, Insurance and financial
Nationalisation of Banks in 1969 and 1980 Government services
Disinvestment Post 1991 Reforms: • Transportation and Telecom
First Phase: Sale of minority stake Non-Strategic Sectors ( No Presence
Second Phase: Separate Sale of each PSU of PSUs)
Third Phase Institutional Mechanism
• Strategic Disinvestment Nodal Agency: DIPAM
• Launch of ETFs In-Principal Approval: CCEA
• Buyback of Shares Decision on Modalities:
Alternative Mechanism headed by
Finance Minister
 Strategic Disinvestment
Vs
Privatization

Disinvestment Privatization
Sale of Government Shares Strategic Disinvestment
Reduction in
in PSUs. Government’s ownership 1. Reduction in Govt’s ownership to
Examples of Different Scenarios to below 51% below 51%
2. Transfer of Management Control
Govt. Remaining Examples of Different Scenarios
to Strategic Private Partner
Shareholding Shareholders Govt. Remaining
Shareholding Shareholders Examples of Different Scenarios
1 90% 10%
Govt. Shares Strategic
2 50% 50% 1 49% 51%
Shareholding with Public Partner
3 10% 90% 2 10% 90% 1 49% 0% 51%
4 0% 100% 3 0% 100% 2 49% 25% 26%
3 26% 25% 49%
4 26% 49% 25%
 Practice MCQ Practice MCQ
Which among the following sectors have been The Alternative mechanism which has been entrusted to take
categorised as "Strategic Sectors" in the newly unveiled decisions related to Strategic Disinvestment of PSUs is headed
new "Public Sector Enterprise" policy? by?
1. Banking and Insurance (a) Prime Minister
2. Transport and Telecommunications (b) Finance Minister
3. Petroleum and Coal. (c) Secretary, Department of Investment and Public Asset
Management (DIPAM)
Select the correct answer using the code given below: (d) CEO, NITI Aayog
(a) 1 only (b) 1 and 2 only
(c ) 2 and 3 only (d) 1, 2 and 3
Practice MCQ
Practice MCQ Which among the following can be considered as "Strategic
With reference to Strategic Disinvestment, consider the Disinvestment" of Public Sector Undertaking (PSU)?
following statements: (a) Sale of more than 51% of Government's ownership to
1. It involves transfer of Government’s shares to a Strategic private sector company along with management
Strategic partner along with management control. control.
2. The Strategic partner must compulsorily hold at least (b) Sale of more than 51% of Government's ownership to
51% of the ownership upon strategic disinvestment. Strategic public sector company along with management
control.
Which of the statements given above is/are correct? (c) Sale of more than 51% of Government's ownership to foreign
(a) 1 only (b) 2 only company
(c) Both 1 and 2 (d) Neither 1 nor 2) Neither 1 nor (d) Both (a) and (b)
 Working Mechanism of ETF

Decision to Disinvest
Comp No. of Share Amount
any Shares Value
SBI 25 Rs 10 Rs 250
Entire shares transferred to Converted into ETF Units
ONGC 20 Rs 10 Rs 200 Fund Manager 100 ETF Units of Rs 10 Each
NTPC 25 Rs 10 Rs 250 100 ETFs * Rs 10= Rs 1000
Coal 30 Rs 10 Rs 300
India
Total Amount Rs 1000
Investor ”A” buys 50 ETF Units
Total Amount Invested: 50 ETF * Rs 10 → Rs
500
ETFs can be traded on the Rs 500 Invested in shares of SBI, ONGC,
Stock Exchanges NTPC and Coal India
Share of ETF depends upon underlying
shares
 CPSE ETF Vs Bharat-22 ETF
CPSE ETF BHARAT-22 ETF
Year of Issuance 2014 2017
Number of Shares 12 22
Government’s shares in No Yes. Included.
Private Sector Example: Axis Bank, L&T,
companies Included ITC Ltd.
Diversification Lower Higher
Fund Manager Nippon India ICICI Prudential
 Sovereign Wealth Fund (SWF)
Features of Sovereign • Ownership: Government Owned.
Wealth Fund • Source of Funding: Surplus Forex Reserves, fiscal surplus, Privatization, Official foreign
currency operations, receipts from commodity exports etc.
• Investment: Mainly in physical and financial assets in other countries
Examples of Sovereign Norway Government Pension Fund Global- World’s largest Sovereign Wealth Fund. Funded
Wealth Funds through the surplus revenues of Norwegian Petroleum sector.
China Investment Corporation: Funded through surplus forex reserves of China.
Abu Dhabi Investment Authority: UAE’s Sovereign wealth fund.
International Forum of • Group of more than 30 Sovereign Wealth Funds.
Sovereign Wealth Funds • Founded in 2009 to promote voluntary cooperation among the countries.
(IFSWF) • India is a associate member (and not a full fledged member)
Santiago Principles International Forum of Sovereign Wealth Funds (IFSWF) has formulated Generally Accepted
Principles and Practices for sovereign wealth funds.
Example:
• Legal framework for the SWF should be sound and support its effective operation and the
achievement of its stated objective
• Policy purpose of the SWF should be clearly defined and publicly disclosed.
 Prelims 2017
With reference to 'National Investment and Infrastructure
Fund', which of the following statements is/are correct ?
1. It is an organ of NITI Aayog.
2. It has a corpus of Rs. 4,00,000 crore at present.

Select the correct answer using the code given below :

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
 Payment and Settlement System

Name of the Chapter Payment and Settlement System

Relative Importance Moderate
Previous Year • Prelims 2018- Linking of ATMs; MDR; BHIM App
Questions • Prelims 2017- NPCI; UPI;
What to study? • Payment Systems: RTGS; NEFT; IMPS; UPI; BHIM; Aadhaar Pay; Bharat QR Code; NUUP etc.
• Important concepts: MDR; Interchange fee; Types of ATMs
• New Development: Positive Pay System; UPI 123 PAY; SWIFT Network
 Payment Systems in India
Important Developments
• UPI for Feature phones.
• Increase in UPI limit for specified
transactions
• Framework for offline Digital Payments
• Scheme for MDR Payments
• Non-Banks to have access to RBI’s
Centralized Processing System (CPS)
Importance for Prelims
• Payment and Settlement Act, 2007
• Details about NPCI and its products- UPI, NUUP,
BHIM, AePS etc.
• Framework for offline Digital Payments
• White Label ATMs and Interchange fee
• Details about RBI’s Centralized Processing
System (CPS)
• Details about MDR and recent announcement.
• Digital Payments Index
 IFSC Code: 11 Digit
Alphanumeric Code for
Electronic Fund
Transfers

MICR Code: 9 Digit Code for faster Cheque Clearance

First 3 Digits: City Code
Next 3 Digits: Bank Code
Next 3 Digits: Branch Code
 Earlier Cheque Process Flow
Person B has an
account with ICICI
Bank 2
3 4

Cheque gets Cheque gets

Deposits the
transmitted to the transmitted to
Cheque in his
Clearing House Drawee Bank
Bank

5
1

Cheque is verified and

amount gets deposited in
the Bank account of person
“B”.

Person “A” having an

account with HDFC Bank
issues cheque in favor of
Person ”B”
 Cheque Truncation System (CTS)
Person B has an
account with ICICI
Bank 2 3 4

Deposits the Scanned Image of Image of Cheque

Cheque in his the Cheque gets gets transmitted to
Bank transmitted to Drawee Bank
Clearing House
5

1
Scans the Cheque
Cheque is verified and
amount gets deposited in
Benefits of Cheque Truncation System (CTS) the Bank account of person
“B”.
• Prevents physical movement of Cheques.
• Reduces the time for cheque clearance
• More Secure
Person “A” having an
account with HDFC Bank
issues cheque in favor of
Person ”B”
 Electronic Authentication through
Positive Pay System
Person B has an
account with ICICI
Bank 3 4 5

Deposits the Scanned Image of Image of Cheque

Cheque in his the Cheque gets gets transmitted to
Bank transmitted to Drawee Bank
Clearing House
6
Positive Pay System
1 • Introduced by RBI in Jan 2021
• Developed by NPCI Cheque is verified with the
Scans the Cheque details shared by the
• Enabled for cheques of above Rs 50,000
Customer
• Availed at the discretion of Customers
• Banks can made it mandatory if cheque
value is more than Rs 5 lakhs.

2
Share details of the cheque such as
Person “A” having an Name of the Beneficiary, Amount,
account with HDFC Bank Date of Cheque etc. through SMS,
issues cheque in favor of E-mail, Internet Banking etc.
Person ”B”
 Prelims Pointers on National Payment Corporation of India (NPCI)
Establishment • Incorporated as a “Not for Profit” Company Companies Act 1956 (Section 8 Company)
and ownership • Initiative of RBI and Indian Banks’ Association (IBA)
• In 2020, new entities such as Payment Service Operators, payment banks, Small Finance Banks, etc.
also became shareholders.
Operates under Payment and Settlement Act, 2007. Regulated by RBI.
Important • Unified Payment Interface (UPI): Application Programming Interface (API) to facilitate online
Initiatives payments.
• Aadhaar Enabled Payment System (AePS); Aadhaar Pay; Aadhaar Payments Bridge
• UPI 123PAY: Supports UPI Payments on feature phones.
• RuPay Card
• BHIM App: BHIM is a mobile app for Unified Payments Interface. The BHIM apps has 3 levels of
authentication.
• Bharat BillPay: One-stop ecosystem for payment of all bills
• Immediate Payment Service: Real time interbank payment system
• National Financial Switch: Network of ATMs in India.
• BharatQR: A common QR code built for ease of payments
• National USSD Platform: Enables banking related transactions on feature phones without internet
connection. Feature phone users can avail various services by dialling *99#.
• Positive Pay system: Used for clearance of cheques.
• National Automated clearing House (NACH): Facilitate interbank, high volume, electronic
transactions which are repetitive and periodic in nature.
 Prelims Pointers on Unified Payment Interface (UPI)
Year of launch 2016
Different channels for • Send/Collect through Virtual ID
Transferring Funds • Account Number + IFSC
• Aadhaar Number
Features • Built over the IMPS Infrastructure.
• Single mobile application for accessing different bank accounts.
• Transactions are carried out through mobile devices with 1-Click- 2 factor authentication
using device binding and a UPI PIN as security.
• Customer not required to enter the details such as Card no, account number, IFSC etc.
• Registration of Beneficiary is not required for transferring funds through UPI
• Earlier customer was allowed to link only bank accounts, now customer can link PPI
Wallets as well in UPI.
UPI Transaction limit The upper limit is Rs 1 lakh per transaction in most of the cases.
However, in certain specific cases such as investment in capital market through Initial public
offer (IPO), the upper limit is Rs 5 lakh per transaction. (Earlier Rs 2 lakh per transaction)
 Working Mechanism of Aadhaar Enabled Payment
System (AePS)

Business Correspondent

Carry out Banking Transactions:

• Withdrawal and Deposit of
Money
• Transfer of Funds
• Balance Enquiry
Inputs required:
Bank Name
Aadhaar ID Number
Biometric Authentication
Benefits
• No need to carry Debit Card
• Greater Security due to Biometric
Authentication
 Working Mechanism of Aadhaar Pay

Merchant

Make Payments to
Merchants from the
Bank Account

Inputs required:
Bank Name
Aadhaar ID Number
Biometric Authentication
 Framework for offline Digital Payments

New Announcement: Framework for carrying out retail digital payments in offline mode across the country. The new framework would
provide fillip to new technologies such as Near Field Communication (NFC) payments, interactive voice response-based payments systems
etc.

Highlights of new framework

•An offline payment means a transaction which does not require internet or telecom connectivity.
•Offline payments may be made using any channel or instrument like cards, wallets, mobile devices, etc.
•Offline payments shall be made in proximity (face to face) mode only.
•Offline payment transactions may be offered without Additional Factor of Authentication (AFA) such as OTP.
•Transactions are subject to a limit of Rs 200 per transaction.
UPI 123Pay
 UPI 123Pay
UPI payment through pre-defined IVR number
 UPI 123Pay
UPI payment through pre-defined IVR number
 UPI 123Pay
UPI payment through App embedded on Feature
Phones
 UPI 123Pay
UPI payment through Proximity based Technology