IASbaba's Daily Static Quiz
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UPSC Static Quiz - 2020 : IASbaba's Daily Static Quiz - ECONOMY [Day 33]
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Question 1 of 10
1. Question
Consider the following statements:
- Export Promotion Capital Goods (EPCG) Scheme allows exporters to import capital goods for production at zero customs duty.
- Deemed Exports refers to those transactions in which the goods supplied do not leave the country.
Which of the statements given above is/are NOT correct?
Correct
Solution (d)
Export Promotion Capital Goods (EPCG) Scheme: This Scheme allows exporters to import capital goods (except certain specified items under the Scheme) for pre-production, production and post-production at zero customs duty.
In return, the exporters are required to fulfill the export obligation to the tune of six times the import duties, taxes and cess saved amount on capital goods, to be fulfilled in six years from date of issue of the Authorization.
Hence Statement 1 is correct.
Deemed Exports refers to those transactions in which the goods supplied do not leave the country and the payment for such supplies is received either in Indian rupees or in free foreign exchange.
Hence Statement 2 is correct.
Incorrect
Solution (d)
Export Promotion Capital Goods (EPCG) Scheme: This Scheme allows exporters to import capital goods (except certain specified items under the Scheme) for pre-production, production and post-production at zero customs duty.
In return, the exporters are required to fulfill the export obligation to the tune of six times the import duties, taxes and cess saved amount on capital goods, to be fulfilled in six years from date of issue of the Authorization.
Hence Statement 1 is correct.
Deemed Exports refers to those transactions in which the goods supplied do not leave the country and the payment for such supplies is received either in Indian rupees or in free foreign exchange.
Hence Statement 2 is correct.
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Question 2 of 10
2. Question
Consider the following statements:
- An increase in net remittances improves the BoP position.
- India is the top remittance recipient country in 2018.
Which of the statements given above is/are correct?
Correct
Solution (c)
An increase in net remittances improves the BoP position.
Hence Statement 1 is correct.
Further, as per the October 2019 report of World Bank, India remained the top remittance recipient country in 2018, followed by China, Mexico, the Philippines and Egypt.
Hence Statement 2 is correct.
Incorrect
Solution (c)
An increase in net remittances improves the BoP position.
Hence Statement 1 is correct.
Further, as per the October 2019 report of World Bank, India remained the top remittance recipient country in 2018, followed by China, Mexico, the Philippines and Egypt.
Hence Statement 2 is correct.
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Question 3 of 10
3. Question
Consider the following statements
- Foreign Portfolio Investment (FPI) is often referred to as hot money.
- Net International Investment Position (NIIP) measures the gap between a nation’s stock of foreign assets and foreigner’s stock of that nation’s assets at a specific point in time.
Which of the statements given above is/are correct?
Correct
Solution (c)
FPI is often referred to as “hot money” because of its tendency to flee at the first signs of trouble in an economy or improvement in investment attractiveness elsewhere in the world.
Hence Statement 1 is correct.
Net International Investment Position (NIIP) measures the gap between a nation’s stock of foreign assets and foreigner’s stock of that nation’s assets at a specific point in time.
Hence Statement 2 is correct.
Incorrect
Solution (c)
FPI is often referred to as “hot money” because of its tendency to flee at the first signs of trouble in an economy or improvement in investment attractiveness elsewhere in the world.
Hence Statement 1 is correct.
Net International Investment Position (NIIP) measures the gap between a nation’s stock of foreign assets and foreigner’s stock of that nation’s assets at a specific point in time.
Hence Statement 2 is correct.
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Question 4 of 10
4. Question
Consider the following statements:
- To facilitate faster clearances at the ports for imports Direct Port Entry (DPE) scheme is introduced.
- Generally, an increase in net External Commercial Borrowings (ECBs) improves the BoP position.
Which of the statements given above is/are NOT correct?
Correct
Solution (a)
Schemes like Direct Port Delivery (DPD) for imports and Direct Port Entry (DPE) for exports are facilitating faster clearances at the ports.
Hence Statement 1 is incorrect.
Generally, an increase in net External Commercial Borrowings (ECBs) improves the BoP position.
Hence Statement 2 is correct.
Incorrect
Solution (a)
Schemes like Direct Port Delivery (DPD) for imports and Direct Port Entry (DPE) for exports are facilitating faster clearances at the ports.
Hence Statement 1 is incorrect.
Generally, an increase in net External Commercial Borrowings (ECBs) improves the BoP position.
Hence Statement 2 is correct.
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Question 5 of 10
5. Question
Consider the following statements:
- An inverted duty structure will reduce the cost of intermediate inputs imported for manufacturing of exports thereby making the country’s exports more competitive.
- An increase in imports of raw materials and intermediate goods leads to an increase in exports of finished goods from India.
Which of the statements given above is/are correct?
Correct
Solution (b)
A corrected duty structure will reduce the cost of intermediate inputs imported for manufacturing of exports thereby making the country’s exports more competitive.
Hence Statement 1 is incorrect.
At an aggregate level, the import elasticity of exports is 1.1
1 per cent increase in imports of raw materials and intermediate goods leads to 1.1 per cent increase in exports of finished goods from India.
Hence Statement 2 is correct.
Incorrect
Solution (b)
A corrected duty structure will reduce the cost of intermediate inputs imported for manufacturing of exports thereby making the country’s exports more competitive.
Hence Statement 1 is incorrect.
At an aggregate level, the import elasticity of exports is 1.1
1 per cent increase in imports of raw materials and intermediate goods leads to 1.1 per cent increase in exports of finished goods from India.
Hence Statement 2 is correct.
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Question 6 of 10
6. Question
Consider the following statements with reference to the Current Account Deficit.
- It is a measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services it exports.
- If a current account deficit is financed through borrowing it is said to be more unsustainable.
- A current account deficit may imply that you are relying on consumer spending, and are becoming uncompetitive.
Which of the following statements is/are correct?
Correct
Solution (d)
Current Account Deficit is a measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services it exports.
Hence Statement 1 is correct
If a current account deficit is financed through borrowing it is said to be more unsustainable. This is because borrowing is unsustainable in the long term and countries will be burdened with high interest payments.
Hence Statement 2 is correct
A current account deficit may imply that you are relying on consumer spending, and are becoming uncompetitive.
Hence Statement 3 is correct
Incorrect
Solution (d)
Current Account Deficit is a measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services it exports.
Hence Statement 1 is correct
If a current account deficit is financed through borrowing it is said to be more unsustainable. This is because borrowing is unsustainable in the long term and countries will be burdened with high interest payments.
Hence Statement 2 is correct
A current account deficit may imply that you are relying on consumer spending, and are becoming uncompetitive.
Hence Statement 3 is correct
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Question 7 of 10
7. Question
Which of the following constitutes the FOREX reserve of India?
- Foreign currency assets
- Gold
- SDRs
- RBI’s Reserve position with IMF.
Select the correct answer from the code given below:
Correct
Solution (d)
The components of India’s FOREX Reserves include
- Foreign currency assets (FCAs),
- Gold Reserves,
- Special Drawing Rights (SDRs) and
- RBI’s Reserve position with International Monetary Fund (IMF).
FCAs constitute largest component of Indian Forex Reserves and are expressed in US dollar terms.
Incorrect
Solution (d)
The components of India’s FOREX Reserves include
- Foreign currency assets (FCAs),
- Gold Reserves,
- Special Drawing Rights (SDRs) and
- RBI’s Reserve position with International Monetary Fund (IMF).
FCAs constitute largest component of Indian Forex Reserves and are expressed in US dollar terms.
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Question 8 of 10
8. Question
Consider the following statements regarding FOREX reserves in India?
- FOREX reserves in India are managed by SEBI.
- Inflow of foreign currency and Gold in economy decreases the money supply.
- Many countries in world, which are smaller economies, don’t have any foreign exchange reserves.
Which of the above statements are NOT CORRECT?
Correct
Solution (d)
The forex are reserve assets held by a central bank in foreign currencies.
The reserves are managed by the Reserve Bank of India for the Indian government.
Hence Statement 1 is incorrect
With inflow of Gold and Foreign Currency in economy RBI has to print currency. This increases the money supply in the market.
Hence Statement 2 is incorrect
Almost all countries in world, regardless of size of their economy, hold significant foreign exchange reserves.
Hence Statement 3 is incorrect
Incorrect
Solution (d)
The forex are reserve assets held by a central bank in foreign currencies.
The reserves are managed by the Reserve Bank of India for the Indian government.
Hence Statement 1 is incorrect
With inflow of Gold and Foreign Currency in economy RBI has to print currency. This increases the money supply in the market.
Hence Statement 2 is incorrect
Almost all countries in world, regardless of size of their economy, hold significant foreign exchange reserves.
Hence Statement 3 is incorrect
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Question 9 of 10
9. Question
Consider the below statements with regard to Depreciation and Devaluation:
- Devaluation refers to a change in value of money that has its value set by the country’s government.
- Depreciation refers to a change in value of money that has its value determined by market forces generated in the open money market.
Which of the statements given above is/are correct?
Correct
Solution (c)
Devaluation: In the foreign exchange market when exchange rate of a domestic currency is cut down by its government against any foreign currency, it is called devaluation. It means official depreciation is devaluation.
Hence Statement 1 is correct
Depreciation: In foreign exchange market, it is a situation when domestic currency loses its value in front of a foreign currency if it is market-driven. It means depreciation in a currency can only take place if the economy follows the floating exchange rate system.
Hence Statement 2 is correct
Incorrect
Solution (c)
Devaluation: In the foreign exchange market when exchange rate of a domestic currency is cut down by its government against any foreign currency, it is called devaluation. It means official depreciation is devaluation.
Hence Statement 1 is correct
Depreciation: In foreign exchange market, it is a situation when domestic currency loses its value in front of a foreign currency if it is market-driven. It means depreciation in a currency can only take place if the economy follows the floating exchange rate system.
Hence Statement 2 is correct
-
Question 10 of 10
10. Question
consider the following statements about J-curve.
- A theory stating that a country’s trade deficit will worsen initially after the depreciation of its currency because higher prices on foreign imports will be greater than the reduced volume of imports.
- In private equity funds, the J-curve effect occurs when funds experience negative returns for the first several years.
Which of the statements given above is/are correct?
Correct
Solution (c)
A theory stating that a country’s trade deficit will worsen initially after the depreciation of its currency because higher prices on foreign imports will be greater than the reduced volume of imports.
Hence Statement 1 is correct
In private equity funds, the J-curve effect occurs when funds experience negative returns for the first several years.
Hence Statement 2 is correct
An example of the J-curve effect is seen in economics when a country’s trade balance initially worsens following a devaluation or depreciation of its currency. The higher exchange rate will at first correspond to more costly imports and less valuable exports, leading to a bigger initial deficit or a smaller surplus. Due to the competitive, relatively low-priced exports, however, a country’s exports will start to increase. Local consumers will also purchase less of the more expensive imports and focus on local goods. The trade balance eventually improves to better levels compared to before devaluation.
Incorrect
Solution (c)
A theory stating that a country’s trade deficit will worsen initially after the depreciation of its currency because higher prices on foreign imports will be greater than the reduced volume of imports.
Hence Statement 1 is correct
In private equity funds, the J-curve effect occurs when funds experience negative returns for the first several years.
Hence Statement 2 is correct
An example of the J-curve effect is seen in economics when a country’s trade balance initially worsens following a devaluation or depreciation of its currency. The higher exchange rate will at first correspond to more costly imports and less valuable exports, leading to a bigger initial deficit or a smaller surplus. Due to the competitive, relatively low-priced exports, however, a country’s exports will start to increase. Local consumers will also purchase less of the more expensive imports and focus on local goods. The trade balance eventually improves to better levels compared to before devaluation.
