UPSC Essentials brings to you its initiative of subject-wise quizzes. These quizzes are designed to help you revise some of the most important topics from the static part of the syllabus. Attempt today’s subject quiz on Economy to check your progress. Come back tomorrow to solve the International Relations Quiz.

With reference to the Fully Accessible Route (FAR), consider the following statements:

1. It was introduced by the SEBI to enable non-residents to invest in specified Government of India dated securities.

2. Eligible investors can invest in specified Government securities subject to a particular investment ceiling.

3. Investments by eligible investors under the route shall be governed by the provisions of the Foreign Exchange Management Act, 1999.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

Explanation

— The Reserve Bank, in consultation with the Government of India, introduced a separate channel, called the ‘Fully Accessible Route’ (FAR), for non-resident investment in Government of India dated securities with effect from April 1, 2020. Hence, statement 1 is not correct.

— This plan will run alongside the two existing pathways, the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR).

— Eligible investors may invest in specific government securities without regard to investment limits. Hence, statement 2 is not correct.

— There will be no quantitative restrictions on eligible investors’ investing in the specified securities.

— FPIs, Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and other entities entitled to engage in Government Securities under the Debt Regulations can continue to do so through this route as they have previously.

— The investments made by eligible investors utilising the route are subject to the other conditions of the Foreign Exchange Management Act of 1999. Hence, statement 3 is correct.

Therefore, option (a) is the correct answer.

(Source: http://www.rbi.org.in)

With reference to the India-ASEAN trade, consider the following statements:

1. The India-ASEAN trade deal was signed in 2019.

2. ASEAN countries account for about 11 per cent of India’s global trade.

3. The value of India’s exports to ASEAN countries in 2023-24 was more than the imports for the same period.

Which of the statements given above is/are correct?

(a) 1 and 3 only

(b) 2 only

(c) 3 only

(d) 1, 2 and 3

Explanation

— Amid a widening trade deficit with the Association of Southeast Asian Nations (ASEAN), a senior government official said that India is facing tariff asymmetry in the ASEAN agreement and is aiming to complete the review by next year.

— During the ongoing 21st ASEAN-India Summit, Prime Minister Narendra Modi highlighted reviewing the India-ASEAN trade agreement as part of his 10-point agenda to strengthen cooperation between the two areas.

— The India-ASEAN trade agreement was signed in 2009, and it has become a significant supplier of input materials for Indian industry. While palm oil and natural gas are sourced in Indonesia and Malaysia, natural rubber comes from Thailand. Hence, statement 1 is not correct.

— ASEAN remains an important trading partner for India, accounting for around 11% of India’s global commerce. Hence, statement 2 is correct.

— India’s exports to ASEAN was $41.2 billion in 2023-24, while imports were $80 billion. Hence, statement 3 is not correct.

— ASEAN countries include Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.

Therefore, option (b) is the correct answer.

The term “carry trade” refers to:

(a) to borrow money in a country where the interest rates are low and invest that money in a country where the interest rates are much higher.

(b) trade transactions which are completed within an overall period of nine months

(c) to borrow a currency with a high interest rate and invest it in a currency with a lower interest rate.

(d) trade which is permitted for exports/imports under India’s prevailing Foreign Trade Policy (FTP).

Explanation

— Global investors are always looking for opportunities to make money. One way to do this is to borrow money in a country where the interest rates are low and invest that money (after converting the currency) in a country where the interest rates are much higher. Simply put, this is called a carry trade.

— Such possibilities can arise because central banks in many nations strive to keep interest rates at a level that is appropriate for their own economic conditions. An example is Japan, where the central bank (the Bank of Japan) kept interest rates at zero per cent between 2011 and 2016 and has actually lowered them even lower (-0.10%) since 2016. The goal behind low interest rates is to boost economic activity.

— A “cheap money” monetary policy has international implications. For example, low interest rates encourage investors to borrow cheaply in yen and invest in other nations (such as Brazil, Mexico, India, and even the United States) in the hope of earning higher profits. Such carry trades are known as yen carry trades.

Therefore, option (a) is the correct answer.

With reference to the Consumer Price Indices (CPI), consider the following statements:

1. It measures changes over time in the prices of goods and services that households acquire for consumption.

2. It is widely used as a macroeconomic indicator of inflation.

3. It is used for indexing dearness allowance to employees for the increase in prices.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(c) All three

(d) None

Explanation

— Retail inflation increased to 5.49 per cent in September from 3.65 per cent the previous month, primarily owing to increasing food prices. The consumer price index-based inflation rate was 5.02 per cent in September 2023.

— Consumer Price Indices (CPIs) track changes in the cost of products and services that households buy for consumption. Hence, statement 1 is correct.

— The CPI is extensively used as a macroeconomic inflation indicator, a tool for governments and central banks to manage inflation and monitor price stability, and a deflator in national accounts. Hence, statement 2 is correct.

— CPI is often used to index employees’ dearness allowances in response to price increases. Hence, statement 3 is correct.

— The base year for India’s Consumer Price Index (CPI) is being revised from 2012 to 2024. The new base year is expected to take effect in January 2026.

Therefore, option (c) is the correct answer.

(Other Source: cpi.mospi.gov.in)

Note: This question has been changed, please take a look.

Consider the following statements:

Statement 1: Global trade has faced setbacks from the attacks by Iran-backed Houthi rebels in the Red Sea.

Statement 2: The big shipping firms have diverted their vessels from the Red Sea route to the Cape Horn, adding around 10 days to the average journey from Asia to Europe.

Which one of the following is correct in respect of the above statements?

(a) Both Statement 1 and Statement 2 are correct and Statement 2 is the correct explanation for Statement 1.

(b) Both Statement 1 and Statement 2 are correct and Statement 2 is not the correct explanation for Statement 1.

(c) Statement 1 is correct but Statement 2 is incorrect.

(d) Statement 1 is incorrect but Statement 2 is correct.

Explanation

— According to the United Nations Conference on Trade and Development (UNCTAD), about a third of global maritime trade passes through the 3.5 million square kilometer (1.4 million square mile) seaway annually.

— Since late last year, global trade has been hurt by attacks by Iran-backed Houthi rebels in the Red Sea off Yemen. The Houthis ordered drone and missile strikes on commercial shipping in response to Israel’s offensive against Hamas militants in Gaza. Hence, statement 1 is correct.

— The big shipping firms have diverted their vessels from the Red Sea route, which includes the Suez Canal. Instead, cargo ships traverse the Cape of Good Hope in southern Africa, adding around 10 days to the average journey from Asia to Europe. Hence, statement 2 is not correct.

— Cape Horn is the southernmost point in Southern America, located in southern Chili.

— The move has spiked shipping costs due to higher insurance and diesel prices, which caused delays at container ports in Europe and Asia.

Therefore, option (c) is the correct answer.

Daily subject-wise quiz — Polity and Governance (Week 80)

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Daily subject-wise quiz — Environment, Geography, Science and Technology (Week 80)

Daily subject-wise quiz — Economy (Week 79)

Daily subject-wise quiz – International Relations (Week 79)

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