UPSC Essentials | Daily subject-wise quiz | Economy (Week 40)Premium Story

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. Each day, we will cover one new subject. Attempt today’s subject quiz on Economy to check your progress. Come back tomorrow to solve the MCQs on International Relations. Don’t miss checking the answers and explanations at the end of the quiz.

With reference to the European Free Trade Association (EFTA), consider the following statements:

1. India’s top export destination in EFTA is Iceland.

2. EFTA countries are part of the European Union.

3. India’s exports to EFTA countries during 2022-23 increased as compared to the period of 2021-22.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(d) None

With reference to the Special Drawing Rights, consider the following statements:

1. It is an international reserve asset created by the IMF to supplement the official reserves of its member countries.

2. It is a form of currency.

3. It provides a country with liquidity.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(d) None

With reference to the short-sell transactions, consider the following statements:

1. Short selling transactions are defined as selling a stock which the seller does not own at the time of trade.

2. Short selling transactions aim to profit from a decline in the asset’s price by later buying the shares at a lower cost to cover the short position.

Which of the statement(s) given above is/are correct?

(a) 1 only

(b) 2 only

(d) Neither 1 nor 2

Consider the following:

1. Trade in goods

2. Trade in services

3. Transfer payments

How many of the above form the components of the current account?

(a) Only one

(b) Only two

(d) None

With reference to the forex reserves, consider the following statements:

1. The Reserve Bank of India (RBI) has the primary responsibility of collection, compilation and dissemination of data relating to foreign exchange reserves.

2. The data-gathering process for foreign exchange reserves is adversely affected if the country moves towards full capital account convertibility in the future.

3. It does not include gold held by RBI.

How many of the statements given above are correct?

(a) Only one

(b) Only two

(d) None

FYI:

— According to a report by think tank Global Trade Research Initiative (GTRI), Switzerland’s policy of allowing tariff-free entry for all industrial goods from all countries significantly limits India’s prospects of gains from India and the European Free Trade Association (EFTA) free trade agreement (FTA) that is currently being negotiated.

— Despite an FTA with EFTA, Switzerland is India’s top export destination in EFTA, and the elimination of import duties means that Indian products will face more competition in Switzerland. Hence, statement 1 is not correct.

— EFTA countries are not part of the European Union. Hence, statement 2 is not correct.

— EFTA is an intergovernmental organisation comprised of Iceland, Liechtenstein, Norway, and Switzerland that promotes and intensifies free trade.

— India’s exports to EFTA countries during 2022-23 stood at $1.92 billion as against $1.74 billion in 2021-22. Imports aggregated at $16.74 billion during the last fiscal as compared to $25.5 billion in 2021-22. Hence, statement 3 is correct.

— In FY2023, India’s imports from Switzerland stood at $15.79 billion, in stark contrast to its exports of $1.34 billion, leading to a substantial trade deficit of $14.45 billion. Gold, which accounts for 80% of India’s imports from Switzerland, is an important issue in the FTA.

Therefore, option (a) is the correct answer.

FYI:

— The SDR is an international reserve asset created by the IMF to supplement its member countries’ official reserves. Hence, statement 1 is correct.

— The SDR is not a currency. Hence, statement 2 is not correct.

— It is a prospective claim on IMF members’ freely useable currencies. As a result, SDRs can give liquidity to a government. Hence, statement 3 is correct.

— The SDR is defined as a basket of currencies, which includes the US dollar, the Euro, the Chinese Yuan, the Japanese Yen, and the British Pound.

— SDR holdings is one of the components of the FER of a country. IMF makes the general SDR allocation to its members in proportion to their existing quotas in the IMF.

Therefore, option (b) is the correct answer.

(Other Source: http://www.imf.org)

FYI:

— Market regulator Securities and Exchange Board of India (Sebi) told institutional investors to disclose all short-sell transactions upfront at the time of placing an order.

— Short-selling is the sale of a stock which a person does not own at the time of trade but has merely borrowed. Hence, statement 1 is correct.

— The aim is to profit from a decline in the asset’s price by later buying the shares at a lower cost to cover the short position. Hence, statement 2 is correct.

— The institutional investors shall disclose upfront at the time of placement of order whether the transaction is a short-sale,” Sebi said in its framework for short-selling.

— The market regulator directed brokers to collect information on scrip-specific short-sell positions, compile it, and submit it to stock exchanges before the start of trading on the following trading day.

Therefore, option (c) is the correct answer.

FYI:

— According to RBI data, India’s current account deficit fell drastically to 1% of GDP or USD 8.3 billion in the second quarter of this fiscal year, owing mostly to a decreased product trade deficit and increased service exports.

— The current account deficit (CAD) was 3.8 per cent of GDP or USD 30.9 billion in July-September quarter in 2022-23.

— CAD was USD 9.2 billion or 1.1 per cent of GDP in the first quarter (April-June) of the current financial year 2023-24.

— Current Account is the trade record in goods and services and transfer payments.

— Trade in goods: It includes exports and imports of goods.

— Trade in services: It includes factor income and non-factor income transactions.

— Transfer payments: These are the receipts that the residents of a country get for ‘free’, without having to provide any goods or services in return. They consist of gifts, remittances and grants. They could be given by the government or by private citizens living abroad.

Therefore, option (c) is the correct answer.

(Other Source: ncert.nic.in)

FYI:

— The Reserve Bank of India said that India’s currency reserves increased by USD 2.759 billion to USD 623.2 billion in the week ending December 29.

— India’s gross foreign exchange reserves comprise foreign currency assets of the Reserve Bank, gold held by RBI and Special Drawing Rights (SDRs) of the Government of India. Hence, statement 3 is not correct.

— The RBI has the primary responsibility of collection, compilation and dissemination of data relating to foreign exchange reserves. Hence, statement 1 is correct.

— The data-gathering process for foreign exchange reserves would not be adversely affected even if the country moves towards full capital account convertibility in the future. Hence, statement 2 is not correct.

— The procedure of gathering, compiling, and disseminating statistics on foreign exchange reserves is thorough and comparable to international norms.

Therefore, option (a) is the correct answer.

(Other Source: mospi.gov.in)

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