MCQ
upsc-p1-economy-external-sector-bop MCQ - Practice Questions with Answers
Solve 10 upsc-p1-economy-external-sector-bop questions for RAS/RPSC preparation.
Practice questions
Q1Arrange the following in chronological order, beginning with the earliest: A. Rangarajan High Level Committee on Balance of Payments B. Tarapore Committee on Capital Account Convertibility C. The Foreign Exchange Management Act coming into force D. Tarapore Committee on Fuller Capital Account Convertibility Select the correct answer using the code given below.
The Rangarajan Committee dates to 1993, the first Tarapore Committee to 1997, the Foreign Exchange Management Act came into force in 2000, and the Committee on Fuller Capital Account Convertibility followed in 2006. Hence option A is the correct sequence.
Q2Consider the following statements: 1. A country cannot simultaneously maintain a fixed exchange rate, free capital movement and an independent monetary policy. 2. India's managed float and calibrated approach to capital-account convertibility reflect this constraint by preserving room for monetary and exchange-rate management. Which one of the following is correct?
Both statements are correct. The impossible trinity rules out combining all three objectives fully. A managed float and regulated capital account leave India greater room to pursue monetary autonomy while managing disorderly currency movements.
Q3Consider the following statements regarding India's foreign exchange reserves: 1. They include foreign currency assets, gold, Special Drawing Rights and the reserve tranche position in the IMF. 2. Gold held by households forms part of the official reserves. 3. Their dollar value may change because of valuation movements even without fresh reserve purchases or sales. Which of the statements given above are correct? Select the correct answer using the code given below.
Statements 1 and 3 are correct. Official reserves comprise foreign currency assets, RBI-held gold, Special Drawing Rights and the IMF reserve tranche position. Household gold is not an official reserve asset, and valuation changes can move the reported dollar value without a reserve transaction.
Q4Consider the following statements: 1. The Balance of Payments records transactions between residents and non-residents during a period and is therefore a flow statement. 2. The International Investment Position records external assets and liabilities at a point in time and is therefore stock-based. Which one of the following is correct?
Both statements are correct. The Balance of Payments measures cross-border transactions over a period, whereas the International Investment Position is a snapshot of external assets and liabilities at a particular time.
Q5Match List I with List II: List I A. Union List Entry 36 B. Union List Entry 41 C. Section 5 of the Foreign Exchange Management Act D. Section 6 of the Foreign Exchange Management Act List II 1. Capital-account transactions 2. Current-account transactions 3. Foreign exchange 4. Foreign trade and customs frontiers Select the correct answer using the code given below.
Union List Entry 36 covers foreign exchange, while Entry 41 covers foreign trade and customs frontiers. Sections 5 and 6 of the Foreign Exchange Management Act concern current-account and capital-account transactions respectively; hence option C gives A-3, B-4, C-2 and D-1.
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6Consider the following statements about India's Balance of Payments: 1. Workers' remittances from abroad are recorded as secondary income in the current account. 2. Foreign portfolio investment in Indian government securities is a current-account receipt. 3. A drawdown of foreign exchange reserves can finance an external gap. Which of the statements given above are correct? Select the correct answer using the code given below.
7Consider the following statements about exchange-rate movements: 1. Depreciation is a market-driven fall in a currency's value under a flexible or managed-float regime. 2. Devaluation is an official downward adjustment under a fixed or pegged regime. 3. Rupee depreciation necessarily improves India's trade balance immediately. Which of the statements given above are correct? Select the correct answer using the code given below.
8Match List I with List II: List I A. Workers' remittances from abroad B. Foreign direct investment into India C. Import of crude oil D. Repayment of external debt List II 1. Current-account debit 2. Financial-account inflow 3. Current-account secondary income 4. Financial outflow Select the correct answer using the code given below.
9Arrange the following events in chronological order, beginning with the earliest: A. Two-step devaluation of the rupee B. Introduction of the Liberalised Exchange Rate Management System C. Unification of the exchange rate under a market-determined regime D. Current-account convertibility of the rupee and acceptance of IMF Article VIII obligations Select the correct answer using the code given below.
10With reference to the Foreign Exchange Management Act, consider the following statements: 1. Section 5 permits the sale or drawal of foreign exchange for current-account transactions through an authorised person, subject to restrictions. 2. Section 6 grants blanket freedom for all capital-account transactions. 3. Current-account convertibility means that no current transaction can be prohibited or subjected to prior approval. Which of the statements given above is/are correct? Select the correct answer using the code given below.