IASbaba's Daily Static Quiz
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DAILY STATIC QUIZ will cover all the topics of Static/Core subjects – Polity, History, Geography, Economics, Environment and Science and technology.
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UPSC Static Quiz - 2020 : IASbaba's Daily Static Quiz - ECONOMY [Day 31]
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Question 1 of 10
1. Question
Consider the following statements:
- Inflation Indexed Bonds (IIBs) are bonds, the principal of which is linked to an accepted index of inflation with a view to protecting the Principal amount of the investors from inflation.
- Capital Indexed Bonds are bonds wherein both coupon flows and Principal amounts are protected against inflation
Which of the statements given above is/are NOT correct?
Correct
Solution (c)
Capital Indexed Bonds are bonds, the principal of which is linked to an accepted index of inflation with a view to protecting the Principal amount of the investors from inflation.
Hence Statement 1 is incorrect.
Inflation Indexed Bonds (IIBs) are bonds wherein both coupon flows and Principal amounts are protected against inflation
Hence Statement 2 is incorrect.
Incorrect
Solution (c)
Capital Indexed Bonds are bonds, the principal of which is linked to an accepted index of inflation with a view to protecting the Principal amount of the investors from inflation.
Hence Statement 1 is incorrect.
Inflation Indexed Bonds (IIBs) are bonds wherein both coupon flows and Principal amounts are protected against inflation
Hence Statement 2 is incorrect.
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Question 2 of 10
2. Question
Consider the following statements:
- An Indian Depository Receipt (IDR) is an instrument denominated in Indian Rupees.
- The IDRs are required to be listed in at least one stock exchange in India having nationwide terminals.
Which of the statements given above is/are correct?
Correct
Solution (c)
An IDR is an instrument denominated in Indian Rupees in the form of a depository receipt created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity shares of issuing company to enable foreign companies to raise funds from the Indian securities Markets.
Hence Statement 1 is correct.
The IDRs are required to be listed in at least one stock exchange in India having nationwide terminals.
Hence Statement 2 is correct.
Incorrect
Solution (c)
An IDR is an instrument denominated in Indian Rupees in the form of a depository receipt created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity shares of issuing company to enable foreign companies to raise funds from the Indian securities Markets.
Hence Statement 1 is correct.
The IDRs are required to be listed in at least one stock exchange in India having nationwide terminals.
Hence Statement 2 is correct.
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Question 3 of 10
3. Question
Consider the following statements
- Derivatives have no independent value.
- Options Contract means a legally binding agreement to buy or sell the underlying security on a future date.
Which of the statements given above is/are correct?
Correct
Solution (a)
The term ‘Derivative’ indicates that it has no independent value, i.e. its value is entirely ‘derived’ from the value of the underlying asset.
Hence Statement 1 is correct.
Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date.
Hence Statement 2 is incorrect.
Incorrect
Solution (a)
The term ‘Derivative’ indicates that it has no independent value, i.e. its value is entirely ‘derived’ from the value of the underlying asset.
Hence Statement 1 is correct.
Futures Contract means a legally binding agreement to buy or sell the underlying security on a future date.
Hence Statement 2 is incorrect.
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Question 4 of 10
4. Question
Consider the following statements regarding various membership categories in the equity derivatives market:
- Self-Clearing Members (SCM) are permitted to settle their own trades as well as the trades of the other non-clearing members.
- A Trading Member is a member of the derivatives exchange and can trade on his own behalf, but cannot trade on behalf of others.
Which of the statements given above is/are NOT correct?
Correct
Solution (c)
Clearing Member (CM): These members are permitted to settle their own trades as well as the trades of the other non-clearing members known as Trading Members who have agreed to settle the trades through them.
Self-clearing Member (SCM) – A SCM are those clearing members who can clear and settle their own trades only.
Hence Statement 1 is incorrect.
A Trading Member is a member of the derivatives exchange and can trade on his own behalf and on behalf of his clients
Hence Statement 2 is incorrect.
Incorrect
Solution (c)
Clearing Member (CM): These members are permitted to settle their own trades as well as the trades of the other non-clearing members known as Trading Members who have agreed to settle the trades through them.
Self-clearing Member (SCM) – A SCM are those clearing members who can clear and settle their own trades only.
Hence Statement 1 is incorrect.
A Trading Member is a member of the derivatives exchange and can trade on his own behalf and on behalf of his clients
Hence Statement 2 is incorrect.
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Question 5 of 10
5. Question
Consider the following statements:
- Qualified Foreign Investors (QFIs) do not include Foreign Institutional Investors (FIIs)
- Currency future contracts allow investors to hedge against foreign exchange risk.
Which of the statements given above is/are correct?
Correct
Solution (c)
QFIs do not include FIIs/Sub accounts/ Foreign Venture Capital Investor.
Hence Statement 1 is correct.
Currency futures are contracts to buy or sell a specific underlying currency at a specific time in the future, for a specific price.
Currency future contracts allow investors to hedge against foreign exchange risk.
Hence Statement 2 is correct.
Incorrect
Solution (c)
QFIs do not include FIIs/Sub accounts/ Foreign Venture Capital Investor.
Hence Statement 1 is correct.
Currency futures are contracts to buy or sell a specific underlying currency at a specific time in the future, for a specific price.
Currency future contracts allow investors to hedge against foreign exchange risk.
Hence Statement 2 is correct.
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Question 6 of 10
6. Question
Which of the following is/are Money Market instrument?
- Treasury Bills
- Shares of a Company
- Certificate of Deposit
- Commercial Papers
Select the correct answer using the codes given below.
Correct
Solution (b)
- Money Market is a place for short term lending and Borrowing normally within a year.
- It deals in short term debt financing and investments.
- Investment in money market is done throughout money market instruments.
- Money market instrument meets short term necessities of the borrowers and provides liquidity to the lenders.
Money Market Instruments are as follows:
- Treasury Bills (T-Bills)
- Repurchase Agreements
- Commercial Papers
- Certificate of Deposit
- Banker’s Acceptance
Shares of a company are bought and sold in the capital markets which are instruments of long term capital.
Incorrect
Solution (b)
- Money Market is a place for short term lending and Borrowing normally within a year.
- It deals in short term debt financing and investments.
- Investment in money market is done throughout money market instruments.
- Money market instrument meets short term necessities of the borrowers and provides liquidity to the lenders.
Money Market Instruments are as follows:
- Treasury Bills (T-Bills)
- Repurchase Agreements
- Commercial Papers
- Certificate of Deposit
- Banker’s Acceptance
Shares of a company are bought and sold in the capital markets which are instruments of long term capital.
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Question 7 of 10
7. Question
Consider the following statements with reference to the Foreign Direct Investment (FDI):
- FDI inflows are more volatile and the capital can leave the country overnight.
- FDI is preferable over debt financing as it does not create interest obligations.
Which of the following statements is/are correct?
Correct
Solution (b)
FDI is more stable and less volatile in nature; in contrast the Foreign Portfolio Investments are highly volatile in nature. They are also called the Hot Money, as they can leave India overnight to invest in other markets.
Hence Statement 1 is incorrect
FDI being more stable in nature involves investments with long term profits in mind. They generate profits by locally producing the goods and services, as such are more preferable over the Debt financing as it creates interest obligations even when the business is not running well.
Hence Statement 2 is correct
Incorrect
Solution (b)
FDI is more stable and less volatile in nature; in contrast the Foreign Portfolio Investments are highly volatile in nature. They are also called the Hot Money, as they can leave India overnight to invest in other markets.
Hence Statement 1 is incorrect
FDI being more stable in nature involves investments with long term profits in mind. They generate profits by locally producing the goods and services, as such are more preferable over the Debt financing as it creates interest obligations even when the business is not running well.
Hence Statement 2 is correct
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Question 8 of 10
8. Question
Consider the following statements about Foreign Portfolio Investment (FPI)
- Returns in FPI are in the form of dividends and interest payments.
- FPI is the passive holding of securities and other financial assets by a foreign firm.
Which of the following statements is/are NOT CORRECT?
Correct
Solution (d)
Foreign portfolio investment (FPI) is defined as an investment by individuals, firms, or a public body in foreign financial instruments, such as foreign stocks, government bonds, etc.
The returns in the case of FPI are generally in the form of non-voting dividends or interest payments.
Hence Statement 1 is correct
FPI is the passive holding of securities and other financial assets by a foreign firm, which does not entail management control of the issuing firm.
Hence Statement 1 is correct
Incorrect
Solution (d)
Foreign portfolio investment (FPI) is defined as an investment by individuals, firms, or a public body in foreign financial instruments, such as foreign stocks, government bonds, etc.
The returns in the case of FPI are generally in the form of non-voting dividends or interest payments.
Hence Statement 1 is correct
FPI is the passive holding of securities and other financial assets by a foreign firm, which does not entail management control of the issuing firm.
Hence Statement 1 is correct
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Question 9 of 10
9. Question
Consider the following statements with reference to the Venture capitalists (VCs)
- They invest money collected from a pool of investors.
- They provide the seed capital to start a business.
- Investment by VCs can be either as debt or as equity.
Which of the following statements is/are correct?
Correct
Solution (c)
Venture capitalists are the mostly the Limited Liability Partnership firms/funds, which raises fund from different investors.
Hence Statement 1 is correct
Venture Capitals generally invests in Growth stage (Series A) and forward, when the company has some proven numbers.
Hence Statement 2 is incorrect
VC’s investment can be either as equity or loan or a mix of both. If it is done by equity they demand a seat in the Board of the company.
Hence Statement 3 is correct
Incorrect
Solution (c)
Venture capitalists are the mostly the Limited Liability Partnership firms/funds, which raises fund from different investors.
Hence Statement 1 is correct
Venture Capitals generally invests in Growth stage (Series A) and forward, when the company has some proven numbers.
Hence Statement 2 is incorrect
VC’s investment can be either as equity or loan or a mix of both. If it is done by equity they demand a seat in the Board of the company.
Hence Statement 3 is correct
-
Question 10 of 10
10. Question
Which of the following are the characteristics of a Bull Market?
- In a bull market, there is a weak demand and strong supply of securities.
- Share prices will rise as investors compete to obtain available equity.
Which of the statements given above is/are correct?
Correct
Solution (b)
In a bull market, we see strong demand and weak supply for securities. In other words, many investors are wishing to buy securities while few are willing to sell. As a result, share prices will rise as investors compete to obtain available equity.
Hence Statement 1 is incorrect.
In a bear market, the opposite is true as more people are looking to sell than buy. The demand is significantly lower than supply and, as a result, share prices drop.
Incorrect
Solution (b)
In a bull market, we see strong demand and weak supply for securities. In other words, many investors are wishing to buy securities while few are willing to sell. As a result, share prices will rise as investors compete to obtain available equity.
Hence Statement 1 is incorrect.
In a bear market, the opposite is true as more people are looking to sell than buy. The demand is significantly lower than supply and, as a result, share prices drop.
