External Sector & Trade MCQs

Statement 2 is incorrect. An increase in REER means the currency has appreciated in real terms, making exports less competitive, not more.

Statement 1 is also correct since a higher NEER does indicate nominal appreciation against the trade-weighted basket.

Statement 2 is incorrect. A rising REER signals real appreciation, which generally hurts rather than helps trade competitiveness.

GDRs are indeed included, but they are not the only qualifying instrument.

NRE deposits are bank deposits and do not constitute FDI. They are part of NRI deposits under banking liabilities.

NRE deposits are not classified as FDI. They represent banking capital rather than direct investment.

Devaluation normally lowers the foreign-currency price of domestic goods rather than raising it.

Devaluation affects relative prices, not accounting treatment in the Balance of Payments.

Current account outcomes depend on many factors; devaluation does not automatically erase deficits.

While large forex reserves are helpful, the UPSC key identifies incomplete capital account convertibility as the decisive factor that provided immunity.

Small FDI is generally a weakness, not a source of immunity. FDI is stable by nature and its small size did not shield India.

Statements 2 and 3 were not considered the key factors providing immunity in this context.

The Gold Tranche is not about physical custody of gold by the IMF in the ordinary sense used here.

The IMF does not allocate gold mining rights. It is a monetary institution, not a mining authority.

Historically the concept was linked to reserve assets and quota subscription, but the operational meaning in IMF lending is the readily drawable reserve position.

External commercial borrowing creates a repayment obligation and is therefore a debt-creating inflow.

Sovereign bonds are debt instruments and add to external debt.

Trade credit is a debt obligation linked to imports or exports, so it is debt-creating.

TRIMS is not a fisheries-only agreement.

Capital adequacy rules belong to Basel banking norms, not TRIMS.

IMF quotas are part of IMF governance, not WTO TRIMS rules.

Incorrect. A significant portion of India's external debt is owed by private sector entities such as corporates through external commercial borrowings, not just the government.

Incorrect. India's external debt is denominated in multiple currencies including US dollars, Japanese yen, SDRs, and euros, not solely in dollars.

Both statements are factually incorrect based on India's external debt profile.

Curbing imports and promoting exports strengthens the current account and supports the rupee.

Masala bonds are rupee-denominated bonds issued overseas. They attract foreign capital without exchange rate risk to the issuer and support the rupee.

Easing ECB conditions encourages dollar inflows which can support the rupee in the short term.

Statement 3 is also correct. Remittances provide steady foreign currency inflows that reduce vulnerability.

Increasing government expenditure in itself does not directly earn foreign currency. It can even worsen the external position if it raises imports or aggregate demand.

Statement 2 is incorrect because higher government spending does not directly reduce currency crisis risk unless it specifically generates export capacity.

India does not have a BTIA negotiation track with China. India-China trade relations are governed by separate bilateral frameworks.

India and Japan concluded a separate CEPA (Comprehensive Economic Partnership Agreement), not the BTIA.

India and the USA have bilateral trade dialogues but the BTIA specifically refers to the EU negotiations.

The Fifth Schedule concerns governance of tribal areas and has no connection to domestic content requirements in trade.

Buffer stock norms relate to food security policy, not domestic content requirements in manufacturing or energy.

Media language requirements are a broadcasting regulation issue unrelated to trade policy domestic content rules.