MCQ
upsc-p1-economy-foreign-investment-fdi MCQ - Practice Questions with Answers
Solve 9 upsc-p1-economy-foreign-investment-fdi questions for RAS/RPSC preparation.
Practice questions
Q1Match 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
Section 3 restricts unauthorised foreign-exchange dealings, Section 5 concerns current-account transactions, Section 6 concerns capital-account transactions, and Section 15 permits compounding of contraventions. Thus option C is correct.
Q2Arrange the following developments in chronological order, from the earliest to the latest: 1. SEBI's circular requiring granular disclosures from objectively identified FPIs 2. FEMA came into force, replacing the FERA framework 3. Amendments to the Non-Debt Instruments Rules simplified cross-border share swaps 4. SEBI FPI Regulations, 2019 Which one of the following is the correct sequence?
FEMA came into force on June 1, 2000. The SEBI FPI Regulations followed in 2019, the additional FPI disclosure circular was issued on August 24, 2023, and the Non-Debt Instruments Rules amendments concerning cross-border share swaps came in 2024. Therefore option D is correct.
Q3With 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.
Q4With reference to the constitutional basis of foreign-investment regulation in India, consider the following statements: 1. Article 246 read with the Seventh Schedule allocates legislative fields relevant to foreign investment. 2. Union List Entry 36 covers foreign exchange. 3. Union List Entry 48 covers banking. Select the correct answer using the code given below.
Statements 1 and 2 are correct. Entry 36 includes foreign exchange. Statement 3 is incorrect because Entry 48 concerns stock exchanges and futures markets, while banking falls under Entry 45.
Q5With 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.
Statements 1 and 2 state the classification rules correctly. Statement 3 is incorrect because an investment already classified as FDI continues to be treated as FDI even if the listed-company holding later falls below 10%.
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More questions
6Consider 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?
7A 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?
8With 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.
9Consider 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?