MCQ
upsc-p1-economy-foreign-investment-fdi MCQ - Practice Questions with Answers
Solve 7 upsc-p1-economy-foreign-investment-fdi questions for RAS/RPSC preparation.
Practice questions
Q1Consider the following statements regarding FPI in India: 1. FPI participation can improve market liquidity and price discovery. 2. The country recorded as the immediate source of foreign investment necessarily identifies its ultimate beneficial owner. Which one of the following is correct?
Statement 1 is correct because FPI participation can deepen markets through liquidity and price discovery. Statement 2 is incorrect: treaty routing and holding-company structures can make the immediate source country different from the ultimate beneficial owner.
Q2With reference to foreign investment and the Balance of Payments, consider the following statements: 1. FDI and FPI flows are recorded in the financial account. 2. Dividend and interest payments to foreign investors can affect the current account through primary income. 3. Gross FDI inflow is a narrower measure than FDI equity inflow. Select the correct answer using the code given below.
Statements 1 and 2 are correct: investment flows enter the financial account, while later investor-income payments affect the current account. Statement 3 reverses the relationship. Gross FDI can include equity inflow, reinvested earnings and other capital, so FDI equity inflow is the narrower measure.
Q3A proposed FDI transaction must pass through the following stages: 1. Issue or transfer an eligible instrument at the correct price and complete prescribed reporting 2. Check investor eligibility 3. Check sector permissibility and cap, and identify the entry route 4. Receive funds through banking channels Which one of the following is the correct sequence?
Eligibility is checked first. The investee then checks whether the sector is open, the applicable cap and the entry route. Funds are then received through banking channels, after which an eligible instrument is issued or transferred at the correct price and prescribed reporting is completed. Hence option A is the correct sequence.
Q4Consider the following statements regarding the treatment of transactions under FEMA: 1. Current-account transactions are generally permitted unless restricted. 2. Capital-account transactions become unrestricted whenever the investment enters through the automatic route. Which one of the following is correct?
Statement 1 is correct. FEMA generally permits current-account transactions subject to restrictions. Statement 2 is incorrect because capital-account transactions remain confined to specified rules and limits; the automatic route only removes prior approval.
Q5With reference to the FDI mechanism in India, consider the following statements: 1. The automatic route removes the requirement of prior government approval, but does not remove sectoral caps, pricing and reporting conditions. 2. Fully and mandatorily convertible preference shares and debentures can operate as equity instruments under the foreign-investment framework. 3. Investment by a foreign-owned or foreign-controlled Indian company in another Indian company is excluded from sectoral foreign-investment limits. Select the correct answer using the code given below.
Statements 1 and 2 are correct. Automatic-route investment remains subject to ordinary compliance, and fully and mandatorily convertible instruments can be treated as equity instruments. Statement 3 is incorrect because such downstream investment is counted as indirect foreign investment for sectoral limits, subject to the rules.
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6Match List I with List II and select the correct answer using the code given below. List I (FEMA provision) A. Section 3 B. Section 5 C. Section 6 D. Section 15 List II (Subject) 1. Current-account transactions 2. Compounding of contraventions 3. Capital-account transactions 4. Restriction on unauthorised foreign-exchange dealings
7With reference to the classification of foreign investment in Indian companies, consider the following statements: 1. Investment through equity instruments by a person resident outside India in an unlisted Indian company is treated as FDI. 2. In a listed Indian company, investment of 10% or more of post-issue paid-up equity capital on a fully diluted basis is treated as FDI. 3. If an existing FDI holding in a listed company later falls below 10%, it is automatically reclassified as FPI. Select the correct answer using the code given below.