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Q1Indian Economy·External Sector & TradePYQ 2022
Consider the following statements about NEER and REER:
1. An increase in NEER indicates that the rupee has appreciated against a trade-weighted basket of currencies.
2. An increase in REER indicates improvement in trade competitiveness.
3. Increasing domestic inflation relative to trading partners causes REER to diverge from NEER.
Which of the statements given above is/are correct?
- A1 and 2 only
- B2 and 3 only
- C1 and 3 onlyCorrect
- D1, 2 and 3
Explanation
Correct. NEER appreciation shows nominal strengthening. Higher domestic inflation causes REER to rise faster than NEER, reflecting real appreciation and reduced competitiveness.
Q2Indian Economy·External Sector & TradePYQ 2021
Which of the following can be included in the category of Foreign Direct Investment?
1. Foreign currency convertible bonds
2. Foreign institutional investor investment with certain conditions
3. Global depository receipts
4. Non-resident external deposits
- A1, 2 and 3Correct
- B3 only
- C2 and 4
- D1 and 4
Explanation
Correct. FCCBs, qualified FII investment above a threshold, and GDRs can all be counted as part of FDI under RBI guidelines, depending on the nature and extent of the investment.
Q3Indian Economy·External Sector & TradePYQ 2021
What is the most likely immediate effect of a currency devaluation on a country's exports, assuming demand conditions are favourable?
- AIts exports become less competitive because domestic goods become costlier in foreign currency terms
- BIts exports become more competitive because domestic goods become cheaper in foreign currency termsCorrect
- CIts exports stop being counted in the Balance of Payments
- DIts current account is automatically eliminated
Explanation
Correct. A devaluation makes domestic goods cheaper in foreign currency, which can improve export competitiveness if demand responds.
Q4Indian Economy·External Sector & TradePYQ 2020
Which of the following provided immunity to India against the 2008 global financial crisis?
1. India not having full capital account convertibility.
2. Large foreign exchange reserves of India.
3. Small amount of foreign direct investment in India.
- A1 onlyCorrect
- B1 and 2 only
- C3 only
- D1, 2 and 3
Explanation
Correct. India's restricted capital account prevented sudden massive outflows of the kind that devastated countries with fully open capital accounts.
Q5Indian Economy·External Sector & TradePYQ 2020
With reference to the IMF, the term "Gold Tranche" refers to:
- AGold physically deposited by a member country with the IMF
- BA quota of gold mining rights supervised by the IMF
- CThe share of a member country's contribution held in gold alone
- DThe amount a member can draw from the IMF almost automatically without negotiating a full-scale conditional loan programmeCorrect
Explanation
Correct. Gold Tranche or reserve tranche denotes the portion that a member can access with minimal conditionality because it represents its own reserve position in the IMF.
Q6Indian Economy·External Sector & TradePYQ 2020
Which one of the following is most likely to be classified as a non-debt creating capital inflow for India?
- AExternal Commercial Borrowing
- BSovereign bond issuance
- CForeign Direct InvestmentCorrect
- DShort-term trade credit
Explanation
Correct. FDI is treated as non-debt creating because it does not impose a fixed repayment obligation like a loan or bond.
Q7Indian Economy·External Sector & TradePYQ 2020
Under the WTO framework, TRIMS is concerned primarily with:
- ARegulation of fisheries subsidies alone
- BTrade-related investment measures such as local content requirements that may distort tradeCorrect
- CBank capital adequacy rules
- DAllocation of IMF quotas
Explanation
Correct. TRIMS addresses investment measures linked to trade, including certain local content and trade-balancing requirements inconsistent with WTO obligations.
Q8Indian Economy·External Sector & TradePYQ 2019
With reference to India's external debt, consider the following statements:
1. Most of India's external debt is owed by government entities.
2. All of India's external debt is denominated in US dollars.
Which of the statements given above is/are correct?
- A1 only
- B2 only
- CBoth 1 and 2
- DNeither 1 nor 2Correct
Explanation
Correct. Private sector borrowing forms a substantial share of external debt, and it is denominated in various currencies, not exclusively US dollars.
Q9Indian Economy·External Sector & TradePYQ 2019
Which of the following is NOT a likely measure to stop the slide of the Indian rupee?
- ACurbing non-essential imports and promoting exports
- BEncouraging the issuance of Masala bonds
- CEasing conditions for external commercial borrowings
- DFollowing an expansionary monetary policyCorrect
Explanation
Correct. Expansionary monetary policy involves lowering interest rates and increasing money supply, which typically weakens the currency rather than supporting it.
Q10Indian Economy·External Sector & TradePYQ 2019
Which of the following helps in reducing the risk of a currency crisis in India?
1. IT sector's foreign currency earnings
2. Increasing government expenditure
3. Remittances from Indians working abroad
- A1 only
- B1 and 3 onlyCorrect
- C2 only
- D1, 2 and 3
Explanation
Correct. IT export earnings and remittances bring in foreign exchange on a sustained basis, strengthening the current account and reducing the risk of a currency crisis.
Q11Indian Economy·External Sector & TradePYQ 2017
India was negotiating the Broad Based Trade and Investment Agreement (BTIA) with:
- AEuropean UnionCorrect
- BChina
- CJapan
- DUnited States of America
Explanation
Correct. BTIA is a comprehensive trade and investment agreement that India has been negotiating with the European Union since 2007.
Q12Indian Economy·External Sector & TradePYQ 2017
The term 'Domestic Content Requirement' is most closely associated with:
- ADeveloping solar power production in India through mandating local sourcing of componentsCorrect
- BProtection of indigenous tribal culture under the Fifth Schedule
- CSafeguarding domestic food resources through buffer stock norms
- DMandating all media to broadcast only in local languages
Explanation
Correct. Domestic Content Requirement in trade policy refers to mandating local sourcing, and it became prominent in India's solar energy programme under the National Solar Mission, which was challenged at the WTO.