IASbaba's Daily Static Quiz
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UPSC Static Quiz - 2020 : IASbaba's Daily Static Quiz - ECONOMY [Day 32]
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Question 1 of 10
1. Question
Consider the following statements:
- Any entity raising INR denominated External Commercial Borrowing (ECB) is permitted to convert the liability arising out of INR ECB into foreign currency liability.
- Transactions on account of External Commercial Borrowings (ECB) are governed by Reserve Bank of India Act, 1934.
Which of the statements given above is/are NOT correct?
Correct
Solution (c)
Any entity raising INR denominated ECB is not permitted to convert the liability arising out of INR ECB into foreign currency liability in any manner.
Hence Statement 1 is incorrect.
Transactions on account of External Commercial Borrowings (ECB) and Trade Credit (TC) are governed by clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act, 1999 (FEMA).
Hence Statement 2 is incorrect.
Incorrect
Solution (c)
Any entity raising INR denominated ECB is not permitted to convert the liability arising out of INR ECB into foreign currency liability in any manner.
Hence Statement 1 is incorrect.
Transactions on account of External Commercial Borrowings (ECB) and Trade Credit (TC) are governed by clause (d) of sub-section 3 of section 6 of the Foreign Exchange Management Act, 1999 (FEMA).
Hence Statement 2 is incorrect.
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Question 2 of 10
2. Question
Consider the following statements:
- Merchandise trade deficit is the largest component of India’s Current Account Deficit.
- Net terms of trade (NTT) of a country is the ratio of unit value index of export to that of import.
Which of the statements given above is/are correct?
Correct
Solution (c)
Merchandise trade deficit is the largest component of India’s Current Account Deficit significantly impacting the BoP position.
Hence Statement 1 is correct.
Net terms of trade (NTT) of a country is the ratio of unit value index of export to that of import.
Hence Statement 2 is correct.
Incorrect
Solution (c)
Merchandise trade deficit is the largest component of India’s Current Account Deficit significantly impacting the BoP position.
Hence Statement 1 is correct.
Net terms of trade (NTT) of a country is the ratio of unit value index of export to that of import.
Hence Statement 2 is correct.
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Question 3 of 10
3. Question
Consider the following statements
- In terms of total trade, China account for the highest trade with India in 2018-19.
- India has a trade surplus with USA in 2018-19.
Which of the statements given above is/are correct?
Correct
Solution (b)
In terms of total trade, USA account for the highest trade with India followed by China.
Hence Statement 1 is incorrect.
India has a trade surplus (total export value is greater than total import value) with USA and trade deficit with China in 2018-19.
Hence Statement 2 is correct.
Incorrect
Solution (b)
In terms of total trade, USA account for the highest trade with India followed by China.
Hence Statement 1 is incorrect.
India has a trade surplus (total export value is greater than total import value) with USA and trade deficit with China in 2018-19.
Hence Statement 2 is correct.
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Question 4 of 10
4. Question
Consider the following statements:
- The appreciation in Real Effective Exchange Rate may lead to increase in imports.
- Petroleum Products were the largest exported commodity from India during 2018-19, in terms of value.
Which of the statements given above is/are NOT correct?
Correct
Solution (d)
The appreciation in Real Effective Exchange Rate may lead to increase in imports.
An increase in REER implies that exports become more expensive and imports become cheaper.
Hence Statement 1 is correct.
Petroleum Products were the largest exported commodity from India during 2018-19, in terms of value.
Hence Statement 2 is correct.
Incorrect
Solution (d)
The appreciation in Real Effective Exchange Rate may lead to increase in imports.
An increase in REER implies that exports become more expensive and imports become cheaper.
Hence Statement 1 is correct.
Petroleum Products were the largest exported commodity from India during 2018-19, in terms of value.
Hence Statement 2 is correct.
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Question 5 of 10
5. Question
Consider the following statements:
- China is the largest exporter to India in 2018-19.
- Software services constitute the highest share of service exports by India.
Which of the statements given above is/are correct?
Correct
Solution (c)
China is the largest exporter to India in 2018-19 followed by USA.
Hence Statement 1 is correct.
Software services constitute the highest share (around 40-45%) of service exports by India, followed by business services at about 18-20 per cent, travel at 11-14 per cent and transportation at 9-11 per cent.
Hence Statement 2 is correct.
Incorrect
Solution (c)
China is the largest exporter to India in 2018-19 followed by USA.
Hence Statement 1 is correct.
Software services constitute the highest share (around 40-45%) of service exports by India, followed by business services at about 18-20 per cent, travel at 11-14 per cent and transportation at 9-11 per cent.
Hence Statement 2 is correct.
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Question 6 of 10
6. Question
Which of the following items is not a part of Current Account in a country’s Balance of Payment?
Correct
Solution (c)
The current account on the balance of payments measures the inflow and outflow of goods, services and investment incomes.
The main components of the current account are:
- Trade in goods (visible balance): includes both export and import.
- Trade in services (invisible balance) e.g. insurance and services
- Investment incomes e.g. dividends, interest and migrants remittances from abroad
- Net transfers – e.g. International aid
Incorrect
Solution (c)
The current account on the balance of payments measures the inflow and outflow of goods, services and investment incomes.
The main components of the current account are:
- Trade in goods (visible balance): includes both export and import.
- Trade in services (invisible balance) e.g. insurance and services
- Investment incomes e.g. dividends, interest and migrants remittances from abroad
- Net transfers – e.g. International aid
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Question 7 of 10
7. Question
Consider the following statements with reference to depreciation of a currency
- It is a fall in the value of domestic currency with respect to other currencies
- It is done by deliberate government intervention.
Which of the above statements is/are correct?
Correct
Solution (a)
Currency depreciation is the loss of value of a country’s currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system in which no official currency value is maintained.
In a floating exchange rate system, a currency’s value goes up (or down) if the demand for it goes up more (or less) than the supply does.
On the other hand, when the government lowers the exchange rate of its currency, it is called Devaluation, it is intentional and is done to promote the exports of the country.
Incorrect
Solution (a)
Currency depreciation is the loss of value of a country’s currency with respect to one or more foreign reference currencies, typically in a floating exchange rate system in which no official currency value is maintained.
In a floating exchange rate system, a currency’s value goes up (or down) if the demand for it goes up more (or less) than the supply does.
On the other hand, when the government lowers the exchange rate of its currency, it is called Devaluation, it is intentional and is done to promote the exports of the country.
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Question 8 of 10
8. Question
Consider the following statements with reference to Free Trade Agreement (FTA):
- In FTAs, tariffs on items covering substantial bilateral trade are eliminated between the partner countries.
- In an FTA there is a positive list on which duty can be increased.
Which of the above statements is/are INCORRECT?
Correct
Solution (b)
In FTAs, tariffs on items covering substantial bilateral trade are eliminated between the partner countries; however each maintains individual tariff structure for non-members. India Sri Lanka FTA is an example.
Hence Statement 1 is correct.
In a PTA there is a positive list of products on which duty is to be reduced; in an FTA there is a negative list on which duty is not reduced or eliminated.
Hence Statement 2 is incorrect.
Incorrect
Solution (b)
In FTAs, tariffs on items covering substantial bilateral trade are eliminated between the partner countries; however each maintains individual tariff structure for non-members. India Sri Lanka FTA is an example.
Hence Statement 1 is correct.
In a PTA there is a positive list of products on which duty is to be reduced; in an FTA there is a negative list on which duty is not reduced or eliminated.
Hence Statement 2 is incorrect.
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Question 9 of 10
9. Question
Consider the following statements regarding Purchasing Power Parity:
- It is a technique used to determine the relative value of different currencies.
- This concept works on the assumption that markets work on the law of one price.
- This is a popular method used by the IMF and World Bank in studying the living standards of people in different economies.
Which of the following is/are correct?
Correct
Solution (d)
Law of one price, i.e., identical goods and services (in quantity as well as quality) must have the same price in different markets when measured in a common currency.
Incorrect
Solution (d)
Law of one price, i.e., identical goods and services (in quantity as well as quality) must have the same price in different markets when measured in a common currency.
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Question 10 of 10
10. Question
Which of the following refers to Invisible balance in the context of BoP?
Correct
Solution (b)
The invisible balance or balance of trade on services is that part of the balance of trade that refers to services and other products that do not result in the transfer of physical objects. Examples include consulting services, shipping services, tourism, and patent license revenues. This figure is usually generated by tertiary industry. The term ‘invisible balance’ is especially common in the United Kingdom.
Incorrect
Solution (b)
The invisible balance or balance of trade on services is that part of the balance of trade that refers to services and other products that do not result in the transfer of physical objects. Examples include consulting services, shipping services, tourism, and patent license revenues. This figure is usually generated by tertiary industry. The term ‘invisible balance’ is especially common in the United Kingdom.
