PRAYAS - 2022 Test - 23: Economy

PRAYAS - 2022
Test – 23
Economy
Topics covered:
❖ Banking in India
❖ Security in India
❖ External Sector in India
e
in
nl
PRAYAS- 2022
l.o
ia
er
at
cm
ps
.u
w
w
w
OnlyIAS Nothing Else
Contact us :info@onlyias.com
Visit :dpp.onlyias.in
Contact : +91-7007 931 912
Q.1) As India follows the 'managed float system' of b) Yield curve in the long run fluctuates because of
currency exchange, which of the following things are the volatility induced due to higher interest rates
usually done by the RBI in case the Rupee starts c) It would give comparatively lesser returns than
depreciating against the dollar and becomes volatile? what can be earned through bank rates
1. Printing more currency d) It would reduce the coupon rate on the bond
2. Adopting accomodative Monetary policy, it will which results in declining returns
reduce the repo rate
3. Buy more dollars from the market to strengthen Q.5) Which of the following statements about the
the forex reserves in volatile times securities issued by the Government or G-secs
4. Increase direct and indirect taxes are not correct?
Select the correct answer by using the codes given 1. Government issues equity and debt securities for
below: carrying out its various developmental projects
a) 1, 2 and 4 only 2. Individuals and Foreign Portfolio investors can
b) 2 and 3 only also invest in G-secs
c) 3 and 4 only 3. Government securities market is managed and
d) None of the above regulated by SEBI( Securities and Exchange board
of India)
Q.2) Utkarsh 2022, often seen in news, is related to 4. Government securities carry no risk of default and
which of the following? are also called risk free gilt edged instruments
a) Quantitative easing scheme by the RBI to boost Select the correct answer using the codes given
the lending activity business sector below:
b) Renewable energy framework to increase the a) 1, 2 and 4 only
production capacity of renewables b) 1 and 3 only
c) Production linked incentive scheme for revival of c) 2 and 4 only
the MSME sector d) 1, 2, 3 and 4 only
d) Medium term roadmap to improve regulatory and
supervisory functions of RBI Q.6) Consider the following financial instruments:
1. Cash management bills
Q.3) Which of the following statements 2. Sovereign gold bonds
is/are not correct regarding the Monetary Policy 3. Collateralized borrowing and lending obligations
Committee(MPC)? 4. Certificate of deposits
1. The Monetary Policy Committee mainly meets 5. Commercial papers
when inflation is rising or falling. Which of the following are traded in the Money
2. The Governor of Reserve Bank of India is not Market?
allowed to vote in normal circumstances and can a) 1, 2, 5 only
have a casting vote in case of a deadlock over a b) 1, 3, 4, 5 only
decision. c) 1, 4, 5 only
3. It functions under the chairmanship of the Union d) 1, 2, 4, 5 only
e
Finance Minister.
in
Select the correct answer using the codes given Q.7) Consider the following statements about the
nl
below: Money supply:

l.o
a) 1 and 3 only 1. Deposits with public, interbank deposits, cash

b) 2 and 3 only reserves of commercial banks form a part of
ria
c) 1 and 2 only money supply

e
d) All of the above 2. Money supply in an economy is the total liability

at
of the Reserve Bank of India.

cm
Q.4) Bond prices in the market decrease when the Select the correct statements by using the codes
banks offer higher interest rates because- given below:
ps
a) It shows loss of trust in the economy, hence a) 1 only

people start removing their money from bond b) 2 only
.u
markets c) Both 1 and 2

w
PRAYSA TEST 23 1
w
w
Contact : +91-7007 931 912
d) Neither 1 nor 2 b) Financial inclusion and poverty reduction in the

economy
Q.8) Consider the following, in context of mediums c) Indian Rupee will appreciate against the dollar
of exchange used in India: d) Money supply is two times more the initial high
1. Bitcoins powered money or the monetary base
2. Cheques
3. Demand draft Q.12) Consider the following:
4. Coins 1. Maintaining price stability
5. Notes 2. Ensuring adequate flow of credit to productive
Which of the following can be considered as fiat sectors of the economy
money? 3. Achieving financial stability
a) 2, 3, 4,5 only 4. Reducing the expenses of the Government of
b) 1, 4, 5 only India
c) 2, 4, 5 only Which of the following are the objectives of the
d) 4 and 5 only monetary policy? Select the correct answer using the
codes given below:
Q.9) If the Government of India suddenly decides to a) 1 and 3 only
demonetize certain currency notes and replace it b) 1 only
with the new ones, which of the following things are c) 3 and 4 only
likely to happen as a consequence of this sudden d) 1, 2 and 3 only
demonetization?
1. Aggregate Demand shock Q.13) As per the Monetary Policy Framework
2. Aggregate supply shock Agreement signed between the Government of India
3. Fall in market interest rates and the Reserve bank of India in 2015, what is the
4. Liquidity crunch primary objective of the monetary policy?
5. Increase in RBI’s liability a) Regulating the creation and supply of money in
Select the correct answer by using the codes given the economy
below: b) Maintain the repo rate, cash reserve ratio and
a) 1, 4 and 5 only statutory liquidity ratio for inflation targeting
b) 2, 4 and 5 only c) Maintaining adequate foreign exchange reserves
c) 1, 2, 3 and 4 only which can be beneficial in the times of economic
d) 1, 2, 4 and 5 only crisis
d) Maintaining price stability, while keeping the
Q.10) In the context of Indian economy, which of the objective of growth in mind
following are most likely to happen if the repo rate is
decreased? Q.14) The interest rate at which the Reserve Bank
1. Increase in Currency Deposit Ratio absorbs liquidity, on an overnight basis, from banks
2. Decrease in the availability of money in the against the collateral of eligible government
e
market securities is:

in
3. Provide a boost to the business sector a) Repo rate

nl
Select the correct answer by using the codes given b) Marginal Standing Facility
l.o
below: c) Reverse Repo rate

a) 1 only d) Open Market Operations
ria
b) 3 only
e
c) 1 and 3 only Q.15) In the context of Indian economy consider the

at
d) 1 and 2 only following statements:

cm
1. Debentures are the debt instruments which may

Q.11) In the context of Indian economy, if the value be issued by a listed or non-listed firm to raise
ps
of the money multiplier is 2, what does it indicate? funds in a security market.

a) Reserve bank of India will reduce the repo rates 2. Hedge funds are pooled funds managed
.u
aggressively to generate higher returns.

w
PRAYSA TEST 23 2
w
w
Contact : +91-7007 931 912
3. Exchange traded funds (ETF) are less liquid than 1. The continued function of these institutions is
mutual funds. critical for the financial system of the country.
Which of the statements given above is/are correct? 2. They will be subject to additional regulatory
a) 1 only supervision by RBI.
b) 2 and 3 only Which of the statements given above is/are correct?
c) 3 only a) 1 only
d) 1 and 2 only b) 2 only
c) Both 1 and 2
Q.16) Bilateral netting sometimes seen in news, it d) Neither 1 nor 2
refers to
a) Protection provided to both parties in trade Q.20) The term shell company sometimes seen in
b) Net security to the depositors against losses in news ,it refers to
bank a) A company having active business operations in
c) Agreement among counter parties to offset claims the country
against each other to determine a single net b) A company in which people contribute on regular
payment obligation interval and earn on allocation basis
d) Credit derivative contracts that enable investors c) A company without active business operations
to swap credit risk on a company, country and used to disguise business ownership from law
enforcement or the public.
Q.17) Consider the following statements with d) Company aims to promote the habits of thrift and
reference to Municipal bonds saving amongst its members.
1. Municipal bonds are debt securities issued by
state and local governments. Q.21) Government looks at Consol bond as a
2. Municipal bonds cannot be traded on the stock compelling solutions in the pandemic, consider the
exchange. following statements with reference to it:
Which of the statements given above is/are correct? 1. It is a Fixed income security with maturity date.
a) 1 only 2. They pay steady interest payments forever
b) 2 only 3. They are redeemable
c) Both 1 and 2 Which of the statements given above is/are correct?
d) Neither 1 nor 2 a) 1 and 2 only
b) 2 only
Q.18) Payments Infrastructure Development Fund c) 1 and 3 only
(PIDF) scheme was recently in news ,consider the d) 1, 2 and 3
following statements with reference to PIDF:
1. It aimed at encouraging deployment of more Q.22) Consider the following statements:
digital payments infrastructure across tier-3 to 1. The decline in imports vis-à-vis exports of
tier-6 centres. merchandise products created a trade surplus in
2. The fund will be used to subsidize scheduled the previous year after nearly two decades of
e
commercial banks only. deficit.

in
3. The fund has a corpus of 1000 crores. 2. While the Net Remittances have shown a decline,
nl
Which of the statements given above is/are correct? there has been surplus in the Net Service receipts
l.o
a) 1only in the previous year.

b) 1 and 3only Which of the statements given above is/are correct?
ria
c) 2 and 3only a) 1 only

e
d) 1,2 and 3 b) 2 only

at
c) Both 1 and 2
cm
Q.19) ecently, Insurance Corporation of India (LIC), d) Neither 1 nor 2

General Insurance Corporation of India (GIC) and The
ps
New India Assurance Co. declared as Domestic Q.23) In the context of the External Commercial
Systemically Important Insurers (D-SIIs), it essentially Borrowings, consider the following statements:
.u
implies:
w
PRAYSA TEST 23 3
w
w
Contact : +91-7007 931 912
1. External Commercial Borrowings constitute the Q.27) In the context of International Financial
largest component of India’s external debt. Services Centre (IFSC), consider the following
2. External Commercial Borrowings facilitate statements:
investments in the Indian stock markets. 1. Gujarat International Finance Technology (GIFT) is
3. Financial corporations are the main source of the the Indian model of IFSC.
External Commercial borrowings from India. 2. IFSCs in India are established as a corporation
Which of the statements given above under the provisions of Companies Act, 2013.
is/are incorrect? 3. Private remittances form a part of the Current
a) 2 only Account of India.
b) 2 and 3 only Which of the statements given above is/are correct?
c) 1 and 2 only a) 1 and 2 only
d) 3 only b) 2 and 3 only
c) 1 and 3 only
Q.24) Which of the statements given below is least d) 1, 2, and 3
appropriate in the context of Indian exports?
a) Indian exports are mainly driven by the export of Q.28) Which of the following best describes
capital-intensive products. the accommodating transactions in the context of
b) Production Linked Incentive Scheme incentivizes Balance of Payment?
the incremental sale of products and boosts a) It is the buying and selling of the foreign
exports. government securities by the RBI to neutralize the
c) India has witnessed a trade deficit in terms of net BoP.
volume but not in terms of value. b) It is the buying and selling of domestic sovereign
d) USA and China are the largest trading partners in and private bonds and debentures.
terms of export and import from/to India. c) It is the infusion of dollars in the Indian market to
arrest the depreciation of the rupee.
Q.25) Consider the following statements: d) It is the transaction that impacts the forex
1. Special Economic Zones or SEZs are subjected to reserves available with the RBI.
performance-based tax incentives.
2. Remission of Duties and Taxes on Exported Q.29) Consider the following statements:
Products (RoDTEP) is a WTO compliant scheme 1. Reserve Tranche Position with the IMF carries
that provides tax benefits on custom duty only. least weightage in Forex reserve holding of the
Which of the statements given above is/are correct? RBI.
a) 1 only 2. Open Market Operations can be performed by
b) 2 only RBI to even out the mismatch in the BoP.
d) Neither 1 nor 2 a) 1 only
b) 2 only
Q.26) Consider the following statements regarding c) Both 1 and 2
e
foreign investments in India: d) Neither 1 nor 2

in
1. Foreign Portfolio Investments (FPI) are not

nl
registered with SEBI while FDIs are. Q.30) Consider the following statements:
l.o
2. Foreign Direct Investments (FDI) is permitted in 1. The idea of Tobin Tax was to end the speculation
Real Estates Business while FPI is not. and volatility in the stock prices of the secondary
ria
3. The component of FPI is more than the FDI in the market.

e
inflow of foreign credit to India. 2. Scarcity of dollars in the Indian market are
at
Which of the statements given above is/are favorable for the exporters and not for the
cm
incorrect? importers.
a) 1 and 2 only 3. Nominal Exchange rate considers the purchasing
ps
b) 2 and 3 only power of the country and excludes the effects of

c) 1 and 3 only Inflation.
.u
d) 1, 2, and 3
w
PRAYSA TEST 23 4
w
w
Contact : +91-7007 931 912
Which of the statements given above is/are

incorrect? Q.34) If India adopted full currency convertibility
a) 3 only without any limitations, which of the situations given
b) 1 and 3 only below would see considerable increase with respect
c) 2 and 3 only to Indian market?
d) 2 only 1. Easy Movement of Foreign Portfolio Investments
2. Increase the Non-Performing Assets.
Q.31) Consider the following statements: 3. Avoidance of Profit shifting.
1. Balance of Payments (BoP) records the economic 4. Currency volatility Risks.
transactions between the citizens and non-citizens Select the correct answer using the codes given
of a country. below:
2. Trade protectionists policies of the USA a) 1, 2, and 3 only
government can adversely impact the Current b) 2, 3, and 4 only
Account Deficit of India. c) 1, 3, and 4 only
Which of the statements given above is/are correct? d) 1, 2, and 4 only
a) 1 only
b) 2 only Q.35) Consider the following statements Nominal
c) Both 1 and 2 Effective Exchange rate (NEER) and the Real Effective
d) Neither 1 nor 2 Exchange Rate (REER):
1. NEER indicates the position of a currency with
Q.32) In the context of the Special Drawing Rights of respect to dollars while REER measures the same
the IMF, which of the statements given below is/are with other foreign currencies.
correct? 2. REER adjusts the exchange rate of India with the
1. The concept of SDR was introduced as an data of the Wholesale Price Index.
alternative to the Triffin Dilemma. 3. Greater the value of REER, India’s exports appear
2. The IMF does not offer any interest rate on the more attractive to the foreigners.
SDR quota deposited by the countries. Which of the statements given above is/are
3. Trading of SDRs amongst the members is incorrect?
prohibited for the management of the Balance of a) 1 and 2 only
Payment crisis. b) 2 and 3 only
Select the correct answer using the codes given c) 1 and 3 only
below: d) 1, 2, and 3
a) 1 only
b) 2 and 3 only Q.36) Which of the given statements best describes
c) 1 and 2 only the difference between the Repo Rate and the
d) 1 and 3 only Marginal Standing Facility?
a) Repo rate operations are carried out in primary
Q.33) In relation to the concept of currency market whereas the operations related to
e
convertibility, consider the following statements: the Marginal standing facility are carried out in
in
1. The concept of currency convertibility bears the secondary markets

nl
direct/indirect relation to the Managed Floating b) SLR securities (Statutory Liquidity Ratio) cannot be
l.o
exchange rate system. used for availing loans at the repo rate while they
2. The full currency convertibility of the Capital can be used for availing loans under the Marginal
ria
Account is linked to the performance criteria of Standing Facility

e
the sector. c) Repo rate loans are overnight loans while the
at
Which of the statements given above is/are loans under the Marginal standing facility are
cm
incorrect? available for 14 days

a) 1 only d) Repo rate facility can be increased above its limit
ps
b) 2 only under exceptional circumstances, marginal

c) Both 1 and 2 standing facility cannot be increased above its
.u
d) Neither 1 nor 2 prescribed limit

w
PRAYSA TEST 23 5
w
w
Contact : +91-7007 931 912
a) 1 only
Q.37) With reference to various reserve ratios of RBI, b) 2 and 3 only
consider the following statements: c) 2 only
1. Cash Reserve Ratio is to be maintained on a daily d) None of the above
basis whereas the Statutory Liquidity ratio is to be
maintained on a fortnightly basis. Q.41) Consider the following financial institutions:
2. The Cash Reserve Ratio is to be maintained as per 1. Non Banking Financial Institutions(NBFCs)
the Banking Regulation Act, 1949 whereas the 2. National Bank for Agriculture and Rural
Statutory Liquidity Ratio is to be maintained as Development
per the Reserve Bank of India Act, 1934. 3. Cooperative Banks
3. The Reserve Bank of India can decide 4. Export and Import Bank of India
CRR without any floor or ceiling rate as per the Which of the given financial institutions come under
situational demands of the economy full fledged regulation and supervision of RBI? Select
Select the incorrect statements by using the codes the correct answer using the codes given below:
given below: a) 1, 2 and 3 only
a) 1 and 3 only b) 1, 3 and 4 only
b) 1 and 2 only c) 2, 3 and 4 only
c) 3 only d) 1, 2 and 4 only
d) 1, 2 and 3
Q.42) With reference to the banking system in India,
Q.38) In the context of Indian economy, which of the a Bank Run can be said to have occurred in which of
following events are likely to happen as a result of the following circumstances?
the surge in the Capital Inflows of the country? a) When a particular bank has made no profits for 12
1. Increase the levels of investment which will result consecutive months
in economic growth b) When a bank has gone bankrupt or has become
2. Indian Rupee will depreciate an insolvent and cannot lend new loans anymore
3. Increased competitiveness of exports c) When the non performing assets of a bank
4. Rise in inflation constitute more than 50% of its loans
Select the correct answer using the codes given d) When the depositors withdraw their money
below: simultaneously fearing the bank’s inability to
a) 1 and 3 only return the money
b) 4 only
c) 1 and 4 only Q.43) In context of the payments ecosystem in India,
d) 1, 2, 3 and 4 consider the following statements:
1. Only payment systems authorized by the RBI can
Q.39) The terms ‘Dovish’ and ‘Hawkish’ are often be operated in the country
seen in news in the context of: 2. National Payments Corporation of India is a
a) To describe the monetary policy stances wholly owned subsidiary of RBI
e
b) To denote stages of the spread of disease in a 3. Only Banking entities are allowed as the payment
in
pandemic systems operators in India

nl
c) To describe the growth phases in the Stock Select the incorrect statements using the codes given
l.o
market below:
d) To denotes the phases of business cycle a) 1 only
ria
b) 2 and 3 only
e
Q.40) The Reserve Bank of India regulates the public c) 1 and 3 only
at
sector banks (PSBs) in matters of d) 1, 2 and 3

cm
1. Revoking the Banking license

2. Merger of banks Q.44) In the context of banking in India, which of the
ps
3. Winding-up of banks following agricultural and allied activities can be

Select the correct answer using the codes given granted loans under the scheme of Priority Sector
.u
below: Lending?
w
PRAYSA TEST 23 6
w
w
Contact : +91-7007 931 912
1. Setting up Compressed Biogas Plant b) 2, 3, 4, 5 only

2. Installation of solar plants c) 1, 3, 4, 5 only
3. Agricultural Machinery d) 1, 2, 3, 5 only
4. Loans to Farmer Producing Organizations
5. Food Processing Q.48) In the context of the Indian economy, which of
Select the correct answer using the codes the following factors positively or negatively affect
given: the money multiplier?
a) 1, 3 and 4 only 1. Cash reserve ratio
b) 3, 4 and 5 only 2. Statutory liquidity ratio
c) 1, 2, 3 and 4 only 3. Cost-push Inflation
d) 1, 2, 3, 4 and 5 4. High Powered Money
Select the correct answer by using the codes given
Q.45) The term ‘On-Lending Model’ is often seen in below:
the news in the context of- a) 1 and 2 only
a) Lending model to address the issue of Non- b) 1, 2 and 3 only
Performing Assets in the Banking sector c) 1, 2 and 4 only
b) Lending model related to emerging payments d) 1, 2, 3, 4 only
system operators
c) Lending model to improve the flow of credit to Q.49) Consider the following statements with
unserved and underserved sections reference to the MUDRA Bank:
d) Lending model recommended by the Basel III 1. MUDRA bank is a fully owned subsidiary of the
Accord Reserve Bank of India
2. It is formed with an objective of development and
Q.46) In context of the Priority Sector Lending in financing micro unit enterprises
India, consider the following statements: 3. MUDRA bank cannot refinance enterprises in the
1. Priority sector guidelines give preferential rate of informal sector.
interest for priority sector loans Select the incorrect statements using the codes given
2. As per recent RBI’s norms, incremental priority below:
sector credit will be given to the identified a) 1 and 2 only
districts to address the regional disparities in the b) 3 only
flow of credit on a district level c) 2 and 3 only
3. The districts for incremental credit flow will be d) 1, 2, 3 only
identified using the aspirational district criteria
Select the incorrect statements using the codes given Q.50) In context of Indian banking, consider the
below: following:
a) 1 and 2 only 1. Marginal Cost of Funds based Lending Rate
b) 1 and 3 only (MCLR)
c) 2 and 3 only 2. Repo rate
e
d) None of the above 3. Benchmark Prime Lending Rate

in
4. Three-Month Treasury Bill Yield

nl
Q.47) Consider the following reports/surveys: Which of the given rates are external benchmark
l.o
1. Consumer Confidence Survey rates? Select the correct answer using the codes
2. Inflation Expectation Survey given below:
ria
3. Trend and Progress of banking in India a) 1 and 2 only

e
4. Indian Economy Prospects b) 2, 3 and 4 only

at
5. Financial Stability Report c) 2 and 4 only

cm
Which of the above given reports/ surveys are d) 4 only

published by RBI as part of its policy research and
ps
data dissemination function? Select the correct Q.51) Consider the following statements with
answer using the codes given below: reference to the external benchmarking rate system
.u
a) 1, 2, 3 only that has been recently introduced by the RBI:

w
PRAYSA TEST 23 7
w
w
Contact : +91-7007 931 912
1. RBI has made it mandatory for banks to link all Which of the statements given above is/are correct?
new floating rate personal or retail loans and a) 1 only
deposit to an external benchmark effective b) 1 and 2 only
2. Under the new policy, the spread (given over the c) 2 only
repo rate) of any loan category cannot exceed d) 2 and 3 only
above 4 percent
Select the correct statements using the codes given Q.55) In the context of foreign investment, consider
below: the following financial instruments:
a) 1 only 1. External Commercial Borrowings
b) 2 only 2. Masala Bonds
c) Both 1 and 2 3. American Depository Receipts
d) Neither 1 nor 2 4. Indian Depository Receipts
Which of the following financial instrument(s) can be
Q.52) An increase in Capital to Risk Weighted Asset used for raising money from abroad?
Ratio of a bank indicates which of the following? a) 1 only
1. Lower safety of bank deposits b) 1 and 2 only
2. Bank’s freedom to lend is reduced c) 1, 2 and 3 only
Select the correct answer using the code given d) 1, 2 and 4 only
below:
a) 1 only Q.56) Consider the following statements with respect
b) 2 only to Foreign Direct Investment in India:
c) Both 1 and 2 1. A foreign investor can hold investments in a
d) Neither 1 nor 2 certain company, in both FPI(Foreign Portfolio
investment route) or FDI(Foreign Direct
Q.53) The Reserve Bank has specified certain Investment route) at the same time.
regulatory trigger points, as a part of prompt 2. An Indian company receiving FDI does not require
corrective action (PCA) Framework. Which of the any prior approval of RBI at any stage
following are included as parameters for introducing Which of the statements given above
a Prompt Corrective Action Framework in a is/are incorrect?
particular bank? a) 1 only
1. Capital to risk weighted assets ratio b) 2 only
2. Debt Service Obligation c) Both 1 and 2
3. Net non-performing assets d) Neither 1 nor 2
4. Return on Assets
Select the correct answer using the codes given Q.57) In context of the currency swap agreements,
below: consider the following statements:
a) 1, 2, 3 only 1. Currency swap agreements carry zero exchange
b) 2, 3, 4 only rate or other market risks
e
c) 1, 2, 4 only 2. Currency swap agreements can also be used as an

in
d) 1, 3, 4 only out of market transaction to stop the depreciation

nl
of Rupee
l.o
Q.54) In context of the Prompt Corrective Action Which of the statements given above
Framework of RBI, consider the following is/are incorrect?
ria
statements: a) 1 only
e
1. The Prompt Corrective Action Framework is b) 2 only

at
applicable only to commercial banks c) Both 1 and 2

cm
2. Under PCA, RBI can stop banks from lending and d) Neither 1 nor 2
there can be a cap on lending to specific
ps
sectors/entities Q.58) With reference to the Indian economy,

3. PCA can constrain normal operations of the banks consider the following:
.u
for the general public like lending and depositing 1. Long Term Repo Auctions
w
PRAYSA TEST 23 8
w
w
Contact : +91-7007 931 912
2. KYC Norms a) To make the government securities market stable

3. Currency Swap b) To bridge the fiscal and monetary deficit
4. Capital Adequacy Norms c) To increase the availability of money to boost the
Which of the above can be considered as the steps business sector
taken to achieve effective Monetary Policy d) To reduce the general interest rate in the
Transmission by the Reserve Bank of India? Select economy
the correct answer using the codes given below:
a) 1 only Q.63) Which of the following grants/grant direct
b) 1 and 4 only credit assistance to Micro, Small and Medium
c) 1 and 3 only Enterprises (MSME)?
d) 1, 2 and 4 only 1. National Bank for Agriculture and Rural
Development (NABARD)
Q.59) With reference to strategic disinvestment in 2. Small Industries Development Bank of India
India, consider the following statements: (SIDBI)
1. Any proposal for strategic disinvestment is 3. MUDRA Bank
approved by the Department of Investment and Select the correct answer using the codes given
Public Asset Management (DIPAM) under the below:
Ministry of Finance a) 1 and 2 only
2. Strategic disinvestment in India began under the b) 2 and 3 only
Prime Ministership of P.V. Narasimha Rao c) 3 only
3. Transfer of management control from one Public d) None of the above
Sector Enterprise to another Public sector
enterprise can also be considered as strategic Q.64) Consider the following financial institutions:
disinvestment 1. Insurance Companies
Which of the following statement(s) are correct? 2. Chit Companies
Select the answer using the codes given below: 3. Stock Broking Companies
a) 1 and 2 only 4. Micro Financial Institutions
b) 2 only Which of the given financial institution(s) can be
c) 1 and 3 only considered as Non-Banking Financial Companies?
d) 3 only a) 1 and 4 only
Q.60) When the Reserve Bank of India increases the b) 1, 3 and 4 only
Cash Reserve Ratio by 50 basis points, which of the c) 4 only
following is likely to happen? d) 1, 2, 3 and 4
a) Money in circulation falls drastically
b) The non performing assets of the banks will Q.65) Consider the following statements with respect
reduce to the Payment Banks:
c) Scheduled Commercial Banks may cut their 1. Payment banks can issue ATM/debit cards and
lending rates credit cards
e
d) It will reduce the amount of money available for 2. Payments bank cannot undertake lending
in
banks to lend activities

nl
3. Payment banks can accept demand and time

l.o
Q.61) Which of the following terms indicates a deposits and provide remittance services
mechanism used by the Reserve Bank of India for Which of the given statement(s) is/are incorrect?
ria
absorbing excess liquidity from the market? a) 1 only

e
a) Marginal Standing Facility b) 2 only

at
b) Open Market Operations c) 1 and 3 only

cm
c) Operation Twist d) None of the above

d) Market Stabilization Scheme
ps
Q.66) When RBI increases the sale of government

Q.62) The basic aim of Government Securities securities through open market operations, which of
.u
Acquisition Programme (G-SAP) is that the following is most likely to happen?

w
PRAYSA TEST 23 9
w
w
Contact : +91-7007 931 912
a) Central bank is adopting accommodative c) 3 only

monetary policy stance d) None of the above
b) Market interest rates are likely to fall
c) Central is following a contractionary monetary Q.70) If everyone started withdrawing their time
policy deposits with banks due to low returns, the
d) Rise in Inflation in the economy immediate effect on aggregate money supply in the
economy will be
Q.67) With reference to India, consider the a) Money supply and monetary base will reduce
following: b) Money supply will increase
1. Prompt Corrective Action c) Monetary base will expand
2. Creation of Payments Infrastructure Development d) Money supply will remain unchanged
Fund (PIDF)
3. Lead Banks Scheme Q.71) In context of Indian banking, consider the
4. Banking Regulation (Amendment) Act, 2020 following:
Which of the above can be considered as step(s) 1. Cash Certificates
taken to reduce the Non-Performing Assets in the 2. Demand Drafts
banking sector of India? 3. Cash reserves
a) 1 only 4. Money deposited in savings account
b) 1 and 2 only 5. Money deposited in current account
c) 3 and 4 only Which of the following is/are considered as the Net
d) 1 and 4 only Demand and Time Liabilities (NDTL) of the banks?
a) 1, 2, 3 and 4 only
Q.68) Which of the following event(s) is/are most b) 1, 2, 4 and 5 only
likely to happen as a consequence(s) of a liquidity c) 1, 2 and 4 only
trap in the economy? d) 1, 2, 3, 4 and 5
1. People keep their funds in fixed and demand
deposits instead of investing in bonds and other Q.72) Consider the following statements:
financial instruments 1. The concept of Helicopter money is used to boost
2. The Central banks will start to increase the repo demand in the economy.
rates to make the money market more liquid 2. Negative interest rates act as liability for the
Select the correct answer using the codes given depositor and assets for the borrower.
below: Which of the statements given above is/are correct?
a) 1 only a) 1 only
b) 2 only b) 2 only
c) Both 1 and 2 c) Both 1 and 2
d) Neither 1 nor 2 d) Neither 1 nor 2
Q.69) Consider the following statements with respect Q.73) Which of the below mentioned steps are likely
e
to the Small finance banks: to cause the appreciation of rupee against dollar?
in
1. The small finance banks are required to extend 1. Increase limit of FPI in Indian Bond market.
nl
more than half of its total credit to the sectors 2. Currency Swap Agreements with other countries.
l.o
eligible for classification as priority sector lending 3. Increase threshold for External Commercial
(PSL) borrowings.
ria
2. At least 50% of its loan portfolio should constitute 4. Dollar Swap between RBI and the Indian banks.
e
loans and advances of up to Rs. 25 lakhs 5. Dear Money Policy of RBI.

at
3. Unlike Payments Banks, Small Finance banks can Select the correct answer using the codes given
cm
accept all types of deposits below:

Select the incorrect statements by using the codes a) 1, 2, 3, and 4 only
ps
given below: b) 1, 3, 4, and 5 only

a) 1 only c) 2, 3, 4, and 5 only
.u
b) 2 and 3 only d) 1, 2, 3, 4, and 5

w
PRAYSA TEST 23 10
w
w
Contact : +91-7007 931 912
a) 2 and 3 only
Q.74) Consider the following multilateral b) 3 only
organizations: c) 1 and 3 only
1. African Development Bank d) 1, 2, and 3
2. Asian Development Bank
3. European Bank for Reconstruction and Q.78) Consider the following statements:
Development 1. WTO’s peace clause is an exception to the
4. International Centre for the Settlement of agreement on Subsidies and Countervailing
Investment Disputes. Measures.
Which of the above-mentioned organizations include 2. WTO’s Agreement on Agriculture, fixes the upper
India as its member? limit of subsidies for developed countries, while
a) 1, 2, and 4 only the developing countries are not subjected to any
b) 2, 3, and 4 only upper limit.
c) 1, 2, and 3 only 3. The extension of the Peace Clause on subsidies
d) 2 and 3 only was the outcome of the Nairobi package, 2015.
Which of the statements given above is/are
Q.75) Consider the following statements: incorrect?
1. The loan share is highest for the largest a) 1 and 2 only
shareholder in case of Asian Infrastructure b) 2 and 3 only
Investment Bank. c) 1 and 3 only
2. All the Bretton woods organizations provide for d) 1, 2, and 3
unequal voting power depending on the amount
of shareholding. Q.79) Which of the following best describes the
Which of the statements given above is/are Special Safeguard Mechanism often mentioned
incorrect? regarding WTO?
a) 1 only a) It permits the imposition of taxes on imports by a
b) 2 only member country in case of breach of the upper
c) Both 1 and 2 subsidy limit by another member.
d) Neither 1 nor 2 b) It includes within its purview the levy of
countervailing and the anti-dumping duty to
Q.76) Consider the following statements: protect domestic manufacturers.
1. Countervailing duties on imported goods have c) It permits the imposition of taxes/tariffs by the
been abolished in India. third world countries to protect their farmers
2. Inverted Duty structure relates to the exporter from the export surges by the developed
country while Anti-dumping duty relates to the countries.
importer. d) It is a set of reforms that extends the Peace Clause
Which of the statements given above is/are correct? on Agreement on Agriculture to an indefinite
a) 1 only period.
e
b) 2 only
in
c) Both 1 and 2 Q.80) Which of the situations given below are likely
nl
d) Neither 1 nor 2 to increase the External Debt of the country?

l.o
1. Increase deposits in the Foreign Currency Non-

Q.77) Consider the following statements regarding Residents Accounts (FCNR).
ria
World Trade Organization (WTO): 2. Tightening the thresholds on the External

e
1. Agreement on Agriculture is the only agreement Commercial Borrowings.

at
of WTO regarding subsidies. 3. Increase in the share of SDR receipts.

cm
2. General Agreement on Tariffs and Trade (GATT) 4. Appreciation of rupee with respect to dollars.
covers both the goods and services. 5. Decreasing subsidies on exports.
ps
3. India’s tax relief to Special Economic Zones (SEZs) Select the correct answer using the codes given
is regarded as a kind of trade barrier in WTO. below:
.u
Which of the statements given above is/are correct? a) 1, 2, and 3 only

w
PRAYSA TEST 23 11
w
w
Contact : +91-7007 931 912
b) 1, 3, and 5 only 5. Ensuring mandatory government procurement.

c) 1, 3, and 4 only Which of the above steps should be adopted to have
d) 3, 4, and 5 only a positive impact on India’s exports?
a) 1, 2, 3, and 5
Q.81) In relation to Regional Comprehensive b) 1, 2, and 3 only
Economic Partnership (RCEP), consider the following c) 1, 2, 4, and 5 only
statements: d) 1, 2, and 4 only
1. RCEP is a proposed Free Trade Agreement where
member countries do not charge any tariff on the Q.85) Consider the following statements:
trade against each other. 1. Compulsory licensing of a patented product does
2. More than half of India’s trade deficit among the not require the consent of the patent holder.
RCEP nations is with China. 2. Patent Pooling shares patent licenses amongst the
Which of the statements given above is/are correct? patent owners as well as to the third party.
a) 1 only 3. It is not mandatory for a WTO member country to
b) 2 only comply with the TRIPS obligation.
d) Neither 1 nor 2 a) 1 and 2 only
b) 2 and 3 only
Q.82) Consider the following statements: c) 1 and 3 only
1. Signing of Free Trade Agreements have helped d) 1, 2, and 3
India in boosting its exports.
2. The concept of Rules of Origin are not applicable Q.86) In the context of the Certificate of Origin,
to the FTA partners. which of the statements given below is/are
3. Special 301 report of the USA lists countries with incorrect?
records of exchange rate manipulations. 1. It is the responsibility of the Government of the
Which of the statements given below is/are exporting country to provide the Certificate of
incorrect? Origin.
a) 1 and 2 only 2. India’s rules on Certificate of Origin are applicable
b) 2 and 3 only for the imports claiming preferential duty rates.
c) 1 and 3 only Select the correct answer using the codes given
d) 1, 2, and 3 below:
a) 1 only
Q.83) Consider the following statements regarding b) 2 only
India’s trading profile: c) Both 1 and 2
1. India maintains a trade surplus with its current d) Neither 1 nor 2
largest trading partner.
2. Countries with the Most Favored Nations status Q.87) Arrange the following events in the increasing
are subjected to tariffs above the Bound tariff rate order of their occurrence:
e
of WTO. 1. Formation of the United Nations.

in
Which of the statements given above is/are correct? 2. Bretton Woods Conference.
nl
a) 1 only 3. India’s Independence.

l.o
b) 2 only 4. Formation of General Agreement on Trade and

c) Both 1 and 2 Tariffs (GATT)
ria
d) Neither 1 nor 2 Select the correct answer using codes given below:
e
a) 1-2-3-4
at
Q.84) Consider the following factors in relation to b) 2-1-3-4

cm
India’s economic situation: c) 2-3-1-4

1. Subnational export promotion policies. d) 1-2-3-4
ps
2. Diversification of the exports.

3. Higher GST on domestic consumption. Q.88) Which of the following is not a secondary
.u
4. Addressing inter-regional disparities. market instrument?

w
PRAYSA TEST 23 12
w
w
Contact : +91-7007 931 912
a) Debentures Q.93) In the context of Indian economy consider the

b) Preference shares. following statements:
c) Qualified institutional placement 1. Scrip Share is a share given to new shareholders
d) Equity without charge.
2. Sweat Share is a share given to the employees of
Q.89) Consider the following statements with the company without any charge.
reference to Security and Exchange Board (SEBI) 3. Futures are derivative financial contracts in which
1. The Security and Exchange Board is a non parties transact an asset at predetermined future
statutorybody . date and price.
2. SEBI registers merchant banks and brokers Which of the statements given above is/are not
3. It comes under the jurisdiction of the ministry of correct?
finance. a) 1 only
Which of the statements given above is/are correct? b) 2 and 3 only
a) 1 and 2only c) 3 only
b) 2only d) 1,2 and 3
c) 2 and 3only
d) 1, 2 and 3 Q.94) Consider the following statements with respect
to Exchange Traded Funds:
Q.90) Consider the following statements: 1. Bharat Bond ETF is India’s first corporate bond ETF
1. Gold exchange traded funds are better for tax to create an additional source of funding for
saving as compared to physical gold. CPSEs.
2. Increase in investment in gold ETF will increase 2. Both anchor and non-anchor investors can invest
the current account deficit. in Bharat 22 ETF.
Which of the statements given above is/are correct? Which of the statements given above is/are correct?
a) Only 1 a) Only 1
b) Only 2 b) Only 2
c) Both 1 and 2 c) Both 1 and 2
d) Neither 1 nor 2 d) Neither 1 nor 2
Q.91) What is the purpose of Credit default swap ? Q.95) With reference to the functions of The
a) To manage the Currency risk Securities and Exchange Board of India
b) To prevent loans to convert into NPAs (SEBI), Consider the following statements:
c) Reducing volatility of equity in capital market 1. To Ensure fair practices by companies and
d) transfer risk from one investor to another prohibiting fraudulent and unfair trade practices
in the securities market
Q.92) In the context of Participatory note consider 2. Investor protection by educating and training the
the following statements: investors.
1. Any entity investing in participatory notes is not 3. Improving the earnings of shareholders
e
required to register with SEBI , whereas all FIIs 4. Promoting efficient services by brokers
in
have to compulsorily get registered. by regulating the working of market

nl
2. The investor in Participatory notes owns the intermediaries.

l.o
underlying Indian security. Which of the following statements is/are NOT the
3. The Participatory notes holder also does not enjoy functions of SEBI?
ria
any voting rights in relation to security/shares. a) 2 and 3 only

e
Which of the statements given above is/are correct? b) 3 only

at
a) 1 only c) 2 and 4 only

cm
b) 1 and 2 only d) 1 and 3 only

c) 1 and 3 only
ps
d) 3 only Q.96) Consider the following statements regarding

the proposed Social Stock Exchange (SSE), frequently
.u
seen in news:
w
PRAYSA TEST 23 13
w
w
Contact : +91-7007 931 912
1. A TaskForce under Ishaat Hussain has been set up 1. The Financial Stability and Development Council is
to recommend the various modalities related to a statutory body created by an act of Parliament.
the working of Social Stock Exchanges (SSE). 2. It is headed by the Governor of the RBI.
2. 2.The Social Sector enterprises can list Zero 3. It aims to monitor macro-prudential supervision
Coupon Zero Principal Bond in SSE. of the economy.
3. SSE is to be jointly regulated by the Home Which of the statements given above is/are correct?
Ministry and Ministry of Social Justice and a) 1 and 3 only
Empowerment. b) 3 only
4. Participation in For Profit Enterprises (FPE) will be c) 1 and 2 only
prohibited. d) 1 only
Which of the statements given above is/are correct?
a) 1,2 and 4 only Q.100) Consider the following statements regarding
b) 1 and 2 only the insurance cover provided to depositors by
c) 2 and 3 only Deposit Insurance and Credit Guarantee Corporation
d) 1, 3 and 4 only (DICGC).
Q.97) Consider the following statements regarding 1. All commercial banks and urban cooperative
Masala Bonds: banks have to register with DICGC for providing
1. They are the rupee-denominated bonds and are a insurance to depositors.
source of debt financing for the public and private 2. RBI incurs the insurance premium burden.
sector. 3. Government incurs the insurance premium
2. They are issued by the International Finance burden.
Corporation, which is an arm of the International Which of the statements given above is/are
Monetary Fund. incorrect?
3. These bonds can only be issued to a resident of a) 1 only
such a country which is a member of the Financial b) 2 and 3 only
Action Task Force (FATF). c) 3 only
Which of the statements given above is/are correct? d) 1 and 3 only
a) 1 and 2 only
b) 1 only
c) 1 and 3 only
d) 1,2 and 3.
Q.98) Consider the following statements regarding

International Securities Identification Number (ISIN):
1. ISIN is a unique 12-digit alphanumeric code that
uniquely identifies a specific security like stocks
and bonds.
2. RBI issues ISIN for all securities in India.
e
3. ISIN facilitates digital transactions through a

in
DEMAT account.
nl
Which of the statements given above is/are correct?

l.o
a) 1 and 2 only
b) 2 and 3 only
ria
c) 1 and 3 only
e
d) All of the above

at
cm
Q.99) With reference to Financial Stability and

Development Council (FSDC), Consider the following
ps
statements:
.u
w
PRAYSA TEST 23 14
w
w
Contact : +91-7007 931 912
Q.1) Ans: d Exp:

• Option D is the correct answer.
Exp: • 'Utkarsh 2022’ is the Reserve Bank of India’s
o The currency exchange market works on demand Medium-term Strategy Framework, in line with
and supply forces, where a given currency the evolving macroeconomic environment, to
appreciates if it is highly demanded in the market achieve excellence in the performance of RBI’s
and depreciates if it is not in demand. Keeping this
mandates and strengthening the trust of citizens
basic principle in mind, let's analyse the given
and other institutions.
statements:
• The Medium-term Vision Statements set out the
• Statement 1 is Incorrect: Printing more currency
following:
will lead to easy availability of Rupee, and when
• Excellence in performance of statutory and other
it is easily available in the market, it's value will
functions;
drop down even further. Hence, this measure can
• Strengthened trust of citizens and other
be followed if Rupee keeps on appreciating, to
Institutions in the RBI;
make our exports more competitive.
• Enhanced relevance and significance in national
• Statement 2 is Incorrect: When a Central Bank
and global roles;
follows an accommodative monetary policy
• Transparent, accountable and ethics-driven
stance, it reduces the repo rate, which again leads
internal governance;
to easy availability of rupee in the market,
depreciating its value. Therefore, this is also called • Best-in-class and environment friendly digital as
well as physical infrastructure; and
following an easy money policy.
• Innovative, dynamic and skilled human resources
• Statement 3 is Incorrect: As buying more dollars
would result in increased demand for dollars, it • This specifically includes the central bank’s
would further depreciate the Rupee. In contrast, proactive role to avoid any other IL&FS debt
if the Rupee has become very volatile and is default issue in future.
depreciating against the dollar then, RBI starts
selling dollars in the market from its foreign Q.3) Ans: d
exchange reserves to check the appreciation of Exp:
dollar. • In May 2016, the Reserve Bank of India (RBI) Act,
• Statement 4 is Incorrect: RBI being a monetary 1934 was amended to provide a statutory basis
authority, has nothing to do with increasing or for the implementation of the flexible inflation
decreasing direct and indirect taxes which are targeting framework.
the tools of fiscal policy. • Statement 1 is not correct: The Monetary Policy
• Hence, to ensure stability of the rupee, India Committee (MPC) is required to meet at least
follows a managed float system. four times in a year. The quorum for the meeting
• Managed Float System: of the MPC is four members.
o Under this system, the Central bank sometimes • Statement 2 is not correct: Each member of the
intervenes in the market to buy and sell foreign MPC has one vote, and in the event of an equality
of votes, the Governor has a second or casting
e
currencies in case the domestic currency becomes

in
very volatile. For example, Indian Rupee is a vote.

• Statement 3 is also not correct: The Governor of
nl
managed float. So, if the Rupee has become very

Reserve Bank of India is an ex officio
l.o
volatile and is depreciating against the dollar

then, RBI starts selling dollars in the market from Chairperson of the Monetary Policy Committee.
ria
its foreign exchange reserves to check the • Under the amended RBI Act, the Monetary Policy
appreciation of dollar and keep the rupee stable Committee consists of the following Members:
e
1. The Governor of the Bank who is also the ex

at
and prevent its depreciation. In case of India, RBI

officio Chairperson
cm
intervenes in the foreign exchange market to

contain volatility in the rupee and not to set any 2. Deputy Governor of the Bank, in charge of
Monetary Policy
ps
price band.
3. One officer of the Bank to be nominated by the
.u
Q.2) Ans: d Central Board

w
PRAYSA TEST 23 15
w
w
Contact : +91-7007 931 912
4. Three persons to be appointed by the Central • Statement 3 in Incorrect: Govt. Securities Market
government members. is regulated and managed by RBI. When Govt.
5. The amended RBI Act also provides for the (Central or State) wants money, the RBI raises
inflation target to be set by the Government of money for them by issuing securities/bonds in the
India, in consultation with the Reserve Bank, Govt. Securities Market. G-Secs are issued
once in every five years. Accordingly, the Central through auctions conducted on the electronic
Government has notified 4 per cent Consumer platform called the E-Kuber, the Core Banking
Price Index (CPI) inflation as the target with the Solution (CBS) platform of RBI. First time the
upper tolerance limit of 6 per cent and the lower Govt. securities are issued in the Govt. Securities
tolerance limit of 2 per cent. Market (basically primary market transaction)
and then secondary market transactions also
Q.4) Ans: c happen in the same market.
Exp: • Statement 4 in Correct: The Government
• Option C is the correct answer. securities are also called as risk-free, gilt-edged
• Bonds are investment securities where an instruments. This is mainly due to the fact that G-
investor lends money to a company or a Secs carry practically no risk of default.
government for a set period of time, in exchange
for regular interest payments. Q.6) Ans: b
• Bonds prices in the market decrease when the Exp:
bank interest rate rises. Usually, when bank • Option B is the Correct answer.
interest rates rise, investors deposit their money • Financial markets are generally of two types. The
in banks. This is mainly because investors will short term financial market is known as
receive a higher return with the same amount of the money market, while the long-term financial
money that was earlier invested in bonds. It will market is known as the capital market.
also decrease the demand for bonds in the • Money Market is a segment of the financial
market, further reducing bond prices. And the market in which financial instruments with high
inverse will happen if the bank interest rates liquidity and very short maturities (less than one
reduce, it leads to increase in the price of bonds, year) are traded. Money market instruments are
because investors will demand more bonds to basically debt instruments and include Call
invest in, speculating higher returns than what money, Repos, Treasury Bills, Cash Management
they would otherwise receive through banks. Bills, Commercial Paper, Certificate of Deposit
• Hence, option C is the Correct answer. and Collateralized Borrowing and Lending
Obligations (CBLO). The players who can trade in
Q.5) Ans: b the money market are financial institutions,
Exp: commercial banks, central banks and highly rated
• Statement 1 in Incorrect: A Government Security corporate/companies. These markets are less
(G-Sec) is a tradable instrument issued by the risky. The Money Market can also be classified as
Central Government or the State primary and secondary. Following are some of the
e
Governments. Government issues only debt instruments of the money market:

in
securities and not equity securities. • Cash Management Bills: In 2010, Government of
nl
• Statement 2 in Correct: Commercial banks, India, in consultation with RBI introduced a new
l.o
scheduled Urban Cooperative Banks (UCBs), short-term instrument, known as Cash

Primary Dealers (PD), insurance companies and Management Bills (CMBs), to meet the temporary
ria
provident funds can trade in Govt, mismatches in the cash flow of the Government
e
securities. Foreign Portfolio Investors of India. The CMBs have the generic character of
at
(FPIs) are also allowed to participate in this T-bills but are issued for maturities less than 91
cm
market. Moreover, individuals (retail days.

investors) can also participate directly in the Govt. • Collateralized Borrowing and Lending
ps
securities market. Obligation: It is an RBI-approved Money Market

instrument for its eligible participants. CBLO is a
.u
w
PRAYSA TEST 23 16
w
w
Contact : +91-7007 931 912
discounted Instrument available in electronic Reserve Money [M0]. Money Supply and
form. CBLO was conceived and developed Monetary Base are two distinct terms; money
by Clearing Corporation of India Ltd.(CCIL). supply being the money with the public either in
• Certificate of Deposit (CD): Introduced in cash or in deposits with banks and Monetary Base
1989, the CD was used by banks and issued to the is the total liability of RBI.
depositors for a specified period ranging less than
one year—they are negotiable and tradable in Q.8) Ans: d
the money market. Since 1993 the RBI allowed Exp:
the financial institutions to operate in it— IFCI, • The term fiat money or fiat currency is generally
IDBI, IRBI (IIBI since 1997) and the Exim Bank— associated with a classification of money that has
they can issue CDs for the maturity periods been authorized for use by a country's
above one year and upto three years. government.
• Commercial Paper (CP): It was introduced • Statement 1 is Incorrect: Bitcoin is
in 1990. It is used by the corporate houses in a cryptocurrency. Bitcoins are not fiat money
India (which should be a listed company with a because the Cryptocurrencies are not legal
working capital of not less than Rs. 5 crore). The tender and although there is no ban on trading in
CP issuing companies need to obtain a specified cryptocurrencies, they have not yet been
credit rating from an agency approved by the RBI recognized as a valid form of currency by the
(such as CRISIL, ICRA, etc). Government of India. It also means that if
• Sovereign gold bonds (SGB) are unique someone purchasing something cannot ask the
instruments, prices of which are linked to seller to accept cryptocurrency.
commodity price viz Gold. It is a Dated • Statements 2 and 3 are also Incorrect: Although
Government Security. SGBs are also budgeted in cheques and demand drafts are often used in
lieu of market borrowing. banking transactions, they do not fall in the
category of fiat money because they can be
Q.7) Ans: d rejected as the mode of transaction.
Exp: • Statements 4 and 5 are Correct: Coins and notes
• Statement 1 is Incorrect: The total stock of money are fiat money because the value of the currency
in circulation among the public at a particular notes and coins is derived from the guarantee
point of time is called money supply. RBI provided by the Central Government on these
publishes figures for four alternative measures of items. Every currency note bears on its face a
money supply. They are as follows: promise from the RBI that if someone produces
• M1 = Currency with the Public + Demand the note to RBI or any other commercial bank, RBI
deposits of public with banks will be responsible for giving the person
• M2 = M1 + Savings Deposits with Post Office purchasing power/value equal to the value
Savings Bank printed on the note. The same is also true for
• M3 = M1 + Time deposits of public with banks coins.
• M4 = M3 + Total deposits with Post Office • Moreover, Currency notes and coins do not have
e
Savings Bank intrinsic value i.e. the piece of paper in case of

in
• Only deposits of public (includes businesses) held rupee note or the iron in case of coin does not
nl
by the banks are part of the money supply have the value of the material but it derives its
l.o
and inter-bank deposits are excluded. Cash value from the promise of RBI. Currency notes
and coins are therefore called fiat money. They
ria
reserves of the commercial banks are not treated

as a component of money supply, because cash are also called legal tenders as they cannot be
e
held by the creators/suppliers of money (RBI, refused by any citizen of the country for
at
Government and Banks) is never treated as a payment/discharge of debt.

cm
component of money supply.

• Statement 2 is Incorrect: The total liability of the Q.9) Ans: c
ps
Monetary Authority (RBI) of the country is called Exp:

.u
Monetary Base or High Powered Money or

w
PRAYSA TEST 23 17
w
w
Contact : +91-7007 931 912
o Demonetization is the withdrawal of a coin, so that the ratio of cash in hand and deposits in
note, or precious metal from use as legal banks is Rs.50/Rs.50 = 1. However, when the repo
tender. In India demonetization was done on rate is reduced, the interest on bank deposits will
November 8, 2016. The Central Government reduce and this will result in more money with
demonetized the Rs. 500 and Rs. 1000 currency the public.
notes which constituted 86% of the cash/currency • Hence, the currency deposit ratio will increase if
in circulation. the repo rate falls, because people will not prefer
• Statement 1 and 2 is Correct: Demonetization, to deposit their money with the banks.
especially a sudden demonetization, creates • Statement 2 is Incorrect: As already stated, when
an aggregate demand shock, because it reduces RBI reduces the repo rate, it follows an easy
the supply of money and affects private wealth. It money policy, this means that money will be
also created an aggregate supply shock to the easily available in markets for borrowing and
extent that cash was a necessary input for lending activities. This will increase the money
economic activity. supply in the economy resulting in more
• Statement 3 is Correct: In the banking system, liquidity.
demonetization will result in increased liquidity • Statement 3 is Correct: If the repo rate is
(here liquidity means deposits with the reduced, the business houses will get cheaper
banks) which causes the market interest rates to loans and easy availability of credit. This will
fall. evidently provide a boost to the business
• Statement 4 is Correct: Demonetization will lead activities
to a liquidity (effective cash in circulation) crunch • Hence, only statements 1 and 3 are correct.
for a temporary period as the old notes can no
longer be used for transaction purposes. Q.11) Ans: d
• Statement 5 is Incorrect: Demonetization, at least Exp:
for a temporary period reduces the RBI's liability • Option D is the correct answer.
to the extent the old notes are not returned to • To understand the concept of money multiplier,
the banking system.In 2016, the notes that were let us first understand the fractional reserve
not returned to the RBI, led to the transfer of banking system which is at the base of the process
wealth from holders of illicit black money to the of money creation.
public sector. • Money is created by banks when they issue
• Demonetization is usually done as per the RBI Act loans. Banks earn profit from the interest rates
1934 which says that "on recommendation of the charged on the loans. However, banks lend the
Central Board of RBI, the Central Government money after a certain percentage of deposits is
may declare that any series of bank notes of any kept as a reserve as per the prescription of the
denomination shall cease to be legal tender". Reserve Bank of India. Thus, banks can earn profit
through giving loans because they have been
Q.10) Ans: c given the liberty to keep only a fraction of the
Exp: deposited money as reserve in their vaults and
e
o When the central bank reduces the repo rate, it the rest they can lend to others. This is
in
follows the easy money policy i.e. money is easily called "fractional reserve banking". Thus, a
nl
available for lending to business activities due to system in which banks hold reserves whose value
l.o
fall in interest rates. is less than the sum of claims outstanding on

• Statement 1 is Correct: those reserves is called a fractional reserve
ria
• Currency Deposit Ratio (cdr) = Currency held by banking system.

e
Public/ Deposits of public in • So, additional money is getting created through

at
banks fractional reserve banking.

cm
• Let us assume that the CDR is equal to 1, • The magnitude of the additional money created
this means that whenever an individual gets is represented by the money multiplier
ps
some amount of cash, say Rs. 100, then he will concept. Thus,
.u
keep Rs. 50 as cash and Rs. 50 as deposit in banks,

w
PRAYSA TEST 23 18
w
w
Contact : +91-7007 931 912
• Money Multiplier = Money Supply (M3)/ above inflation target for the period from August
Monetary Base (Reserve Money M0) 5, 2016 to March 31, 2021. The RBI Act
• If the money multiplier is 2, as given in the 1934 provides for the inflation target to be set by
question, it simply means that with the given the government of India, in consultation with the
monetary base and money supply initially, the Reserve Bank, once in every five years.
RBI has been able to increase/create the money • The inflation is measured through the “Consumer
supply to twice the initial amount through Price Index (CPI) – Combined” which is published
fractional reserve banking. So, the money supply by Ministry of Statistics and Programme
is now 2 times the monetary base. Hence, Option Implementation (NSO)
D is the correct answer. • The RBI shall be seen to have failed to meet the
Target if inflation is more than 6% or less than
Q.12) Ans: d 2% for three consecutive quarters
Exp: • In case RBI fails to meet the target, it will have
• All of the given statements except statement 4 to give a written report to the Government of
are correct because reducing the Government's India explaining the reasons of failure, remedial
expenses falls under the fiscal policy head and actions to be taken and an estimated time period
not under the monetary policy. within which the Target would be achieved.
• Monetary Policy is the process by which the
monetary authority (RBI) of a country controls the Q.13) Ans: d
creation and supply of money in the economy. Exp:
The objectives of monetary policy in India • Option A is Incorrect because regulating the
have evolved over time. They include: creation and supply of money in the economy is
• Controlling the creation and supply of money in a process through which price stability is
the economy maintained and not the objective of the
• Maintaining price stability Monetary Policy framework of 2015.
• Ensuring adequate flow of credit to productive • Option B is also Incorrect because although the
sectors of the economy for supporting economic repo rate is maintained by the Monetary Policy
growth Committee, the Cash Reserve ratio and Statutory
• Achieving financial stability Liquidity ratio is decided by the RBI alone.
• Based on its assessment of macroeconomic and • Option D is also Incorrect as maintaining forex
financial conditions, RBI takes the call on the reserves does not come under the ambit of the
stance of monetary policy and monetary Monetary Policy Committee.
measures. RBI issues monetary policy statements • Hence, Option D is the Correct answer.
which reflect the changing circumstances and • A new “Monetary Policy Framework”
priorities of the RBI and the thrust of the policy Agreement was signed between the Government
measures for the future. of India and RBI in Feb 2015. As per the new
• A new “Monetary Policy Framework” monetary policy framework agreement, following
Agreement was signed between the Government are the important points: -
e
of India and RBI in Feb 2015. As per the new o The objective of the monetary policy is
in
monetary policy framework agreement, following to primarily maintain price stability, while
nl
are the important points: keeping in mind the objective of growth

l.o
• The objective of the monetary policy is o The monetary policy framework is operated by
RBI
ria
to primarily maintain price stability, while

keeping in mind the objective of growth o The inflation target is 4% with a band of +/- 2%
e
• The monetary policy framework is operated by o The inflation target is decided by the
at
RBI Government of India in consultation with the

cm
• The inflation target is 4% with a band of +/- 2% RBI. The central government has notified the
• The inflation target is decided by the above inflation target for the period from August
ps
Government of India in consultation with the 5, 2016 to March 31, 2021. The RBI Act
.u
RBI. The central government has notified the 1934 provides for the inflation target to be set by
w
PRAYSA TEST 23 19
w
w
Contact : +91-7007 931 912
the government of India, in consultation with the • Statement 2 is correct:Hedge funds are financial
Reserve Bank, once in every five years. partnerships that use pooled funds and employ
o The inflation is measured through the “Consumer different strategies to earn active returns for their
Price Index (CPI) – Combined” which is published investors.
by Ministry of Statistics and Programme o These funds may be managed aggressively or
Implementation (NSO) make use of derivatives and leverage to generate
o The RBI shall be seen to have failed to meet the higher returns.
Target if inflation is more than 6% or less than • Statement 3 is incorrect: An exchange traded
2% for three consecutive quarters fund (ETF) is a type of security that tracks an
o In case RBI fails to meet the target, it will have index, sector, commodity, or other asset, but
to give a written report to the Government of which can be purchased or sold on a stock
India explaining the reasons of failure, remedial exchange the same as a regular stock.
actions to be taken and an estimated time period o Because ETF can be bought or sold in secondary
within which the Target would be achieved. markets throughout the day, ETFs are more liquid
• The Government of India constituted a “Monetary than mutual funds, which can only be bought or
Policy Committee” (MPC) in September sold at their end-of-day closing price.
2016 which now determines the Policy (Repo)
Rate required to achieve the inflation target. MPC Q.16) Ans: c
has 6 members, three from RBI (including the RBI Exp:
Governor) and 3 appointed by the Government • A bilateral netting agreement enables two
of India. All the members have one vote and in counterparties in a financial contract to offset
the event of equality of votes, the Governor gets a claims against each other to determine a single
second or casting vote. The decision of the MPC is net payment obligation that is due from one
binding on RBI. counterparty to the other, meaning that the
• Moreover, the MPC has the authority to decide payables and receivables are netted off. Such a
the Repo Rate only and not Cash Reserve Ratio provision would allow companies, especially
or Statutory Liquidity Ratio. banks, to set aside far lesser capital based on their
net positions rather than gross settlements,
Q.14) Ans: c where the entire amount due must be covered.
Exp:
• Option C is the correct answer. Q.17) Ans: a
• The (fixed) interest rate at which the Reserve Exp:
Bank absorbs liquidity, on an overnight • Statement 1 is correct: Municipal bonds are debt
basis, from banks against the collateral of eligible securities issued by state and local governments.
government securities under the Liquidity • Statement 2 is incorrect: they can be traded on
Adjustment Facility is called the Reverse Repo the stock exchange.
Rate. o UP govt lists Lucknow municipal body bonds
• Usually, the RBI declares only the policy rate i.e. worth Rs 200 crore at Bombay Stock Exchange
e
the Repo Rate and the Reverse Repo Rate, Bank

in
Rate and Marginal Standing Facility rate are linked Q.18) Ans: a
nl
to the Repo Rate with a formula (which can also Exp:

l.o
change). • Statement 1 is correct: Payments Infrastructure

Thus, Development Fund (PIDF) scheme, aimed at
ria
Reverse Repo Rate = Repo Rate – 0.65% encouraging deployment of more digital
e
payments infrastructure across tier-3 to tier-6

at
Q.15) Ans: d centres.

cm
Exp: • Statement 2 is incorrect: The fund will be used

• Statement 1 is correct:Debentures are the debt to subsidize banks and non-banks for deploying
ps
instruments which may be issued by a listed or payment infrastructure, which will be contingent
non-listed firm to raise funds in a security market. upon specific targets being achieved
.u
w
PRAYSA TEST 23 20
w
w
Contact : +91-7007 931 912
• Statement 3 is incorrect: PIDF presently has a Q.22) Ans: b

corpus of ₹ 345 crore (₹ 250 crore contributed by Exp:
RBI and ₹ 95 crore by the major authorised card • Statement 1 is incorrect: As per the Economic
networks in the country). Survey 2020-2021, there was a decline in India’s
exports and imports in accordance with the
Q.19) Ans: a decline in the global trade. The decline witnessed
Exp: in imports was much more than witnessed in
• Statement 1 is correct: Domestic Systemically exports and hence the trade deficit was
Important Insurers (D-SIIs) refer to insurers of lowered as compared to the previous year. As
such size, market importance and domestic and against the trade deficit of 125.9 billion USD last
global interconnectedness whose distress or year, it stood at 57.5 billion USD. It was not a
failure would cause a significant dislocation in situation of trade surplus. The deficit declined
the domestic financial system. Therefore, the owing to greater decline in imports. The trade
continued functioning of D-SIIs is critical for the surplus was witnessed in the month of June 2020
uninterrupted availability of insurance services to after a gap of 18 years and not for the entire year.
the national economy. • Statement 2 is correct: The Net Services receipt
• Statement 2 is incorrect:These considerations amounted to 41.7 billion USD in April-September
require that D-SIIs should be subjected to 2020 while it was 40.5 billion USD when
additional regulatory supervision by IRDAI to deal compared to last year. The services
with the systemic risks and moral hazard sector remained stable owing to the contribution
issues. IRDAI will list D-SIIs on an annual basis. of the software services. The Net
remittances showed a decline of 6.7 per cent as
Q.20) Ans: c compared to last year.
Exp:
• Option C is correct Q.23) Ans: b
o A shell corporation is a corporation without active Exp:
business operations or significant assets. These • Statement 1 is correct: According to the data by
types of corporations are not all necessarily illegal, Economic Survey, India’s external debt stood at
but they are sometimes used illegitimately, such 556.2 billion USD by the end of September 2020.
as to disguise business ownership from law The major component of which was the External
enforcement or the public. Legitimate reasons for Commercial Borrowings followed by the NRI
a shell corporation include such things as a deposits. External Commercial Borrowings or ECBs
startup using the business entity as a vehicle to are a part of the Capital Account of the Balance of
raise funds, conduct a hostile takeover or to go Payment (BOP). ECBs are loans availed by Indian
public. corporations and public sector Undertakings by
foreign entities.
Q.21) Ans: b • Statement 2 is incorrect: The loans availed cannot
Exp: be used for the investment in the Indian stock
e
• Statement 1 is incorrect: A perpetual bond, also market and the speculation activities in the real
in
known as a "consol bond" or "prep," is a fixed estate sector. The regulation of the External
nl
income security with no maturity date. This type Commercial Borrowings is done by the Ministry of
l.o
of bond is often considered a type of equity, Finance and the Reserve Bank of India.
rather than debt. • Statement 3 is incorrect: According to the latest
ria
• Statement 2 is correct: However, the major Economic Survey, the ECBs stood at USD 163.8
e
benefit of them is that they pay a steady stream billion till September 2020. It was mainly
at
of interest payments forever. denominated in US dollars (around 77 per

cm
• Statement 3 is incorrect: One major drawback to cent). 74.5 per cent of all ECBs were accessed by
these types of bonds is that they are not the non-financial corporations.
ps
redeemable.
Q.24) Ans: c
.u
w
PRAYSA TEST 23 21
w
w
Contact : +91-7007 931 912
Exp: to boost exports. The scheme covers the custom

• Option A is correct: According to the latest duty, Excise and VAT on transport fuel, Electricity
economic survey data, though India has a duty, fees charged by APMCs, etc. The scheme
comparative advantage in the labor-intensive seeks to replace the Merchandise Exports from
commodities, yet it does not find a place in the India Scheme that is not compliant with the WTO
top export commodities. The export of capital- norms and is applicable only on the custom duty.
intensive products is more from India.
• Option B is correct: Production Linked Incentive Q.26) Ans: a
scheme was launched to incentivize the Exp:
companies on the incremental sale of products • Statement 1 is incorrect: Foreign Portfolio
manufactured from India. It seeks to boost not Investments are the foreign entities registered
just the domestic manufacturing but also exports with SEBI that invest in the stocks and shares of
from India. Indian companies, and in the corporate and
• Option C is incorrect: Net Terms of Trade or the government bonds. They only invest in the
Commodity terms of trade measures the trade in shares/equity without any share in the ownership
terms of value while the Gross term of or management of the Company. Their only
Trade measures the trade in terms of quantity or purpose is to make profit from the invested
volume. It has been witnessed that there has amount and hence withdraw from the market
been a trade deficit in terms of value but in terms when there is fall in the market prices.
of quantity, the export is more than the imports Hence, they are also called hot money.
implying that India exports in bulk but at lower • Statement 2 is incorrect: Foreign Direct
cost. Investment or FDI includes not only the
• Option D is correct: As per the largest data by the investment but also the share in the management
Economic Survey, USA (accounting for 16%) is the and production of the company. FDI amounting to
largest export destination for greater than 10% of the equity/share is allowed in
India while China (accounting for 14%) is the a particular company. However, there are certain
largest exporter to India. Hence, major exports of sectors where FDI is not permitted. These include
India goes to the USA while the major imports Betting, Lottery, Chit Funds, Real estate, etc.
come from China. • Statement 3 is correct: The data for the total
foreign investment in India indicates that there
Q.25) Ans: d exists greater investment in the form of FPI or the
Exp: hot money as compared to FDI. FPI also
• Statement 1 is incorrect: Special Economic dominates in the total foreign investment debited
Zones or SEZs are the areas demarcated as foreign from the country.
territories for the purpose of tax and trade related
laws. They are provided with Tax holidays and are Q.27) Ans: c
created with the view to generate greater jobs Exp:
and boost exports. However, there have been • Statement 1 is correct: International Finance
e
issues of tax evasion and lack of benefits for the Services Centre or IFSC are created by different
in
workers as witnessed in the SEZs. To investigate countries as areas where there is relaxation in the
nl
these issues, the Baba Kalyani committee was set taxation, investments, FDI norms, currency
l.o
up in 2018. It was this committee that suggested convertibility norms, etc. to ensure greater
the reforms of SEZs and recommended for the foreign investment and attract financial foreign
ria
grant of performance-based tax-incentives to be companies. On the same lines, India had set up
e
given to them depending upon the exports and the Gujarat International Financial Technology
at
jobs created. However, not implemented Centre (GIFT) to attract international financial
cm
currently. companies in 2015.

• Statement 2 is incorrect: Remission of Duties and • Statement 2 is incorrect: GIFT in India was
ps
Taxes on Exported Products is a tax incentive established under the provisions of the Special
scheme aimed to provide tax credit to exporters
.u
w
PRAYSA TEST 23 22
w
w
Contact : +91-7007 931 912
Economic Zones Act, 2005 and not under the hence to avoid such a scenario, open market
Companies Act. operation is done by RBI, which involves the
• Statement 3 is correct: The current account of selling of government securities. This entire
Balance of Payments consists of the Invisibles and process is referred to as Sterilization.
Visibles. While goods are a part of
Visibles, Services, Income, and Transfer payments Q.30) Ans: b
are included in the invisible part of the current Exp:
account. Remittances are a part of the transfer • Statement 1 is incorrect: The currency exchange
payments sent by the Indians working abroad to transactions may cause volatility in the exchange
the country. rates due to speculative trading leading to
appreciation or depreciation in the value of a
Q.28) Ans: d currency as the case may be. Currency exchange
Exp: transactions done by the authorized currency
• Option D is correct: The calculation of the Balance dealers are subjected to GST. Tobin tax was
of Payments is done by summing up the Current suggested to avoid speculation and volatility in
Account Deficit, Capital Account Deficit, and the currency exchange market. It does not deal
Errors and Omissions. After the summation, if with the volatility in the stock market.
there is any deficit or surplus obtained then the • Statement 2 is correct: Scarcity of Dollar in Indian
same is accommodated by the Reserve Bank of market in relation to its demands leads to
India by selling in dollars from its reserve in case appreciation in the price of dollar and
of deficit and sucking in dollars in case of depreciation in the Indian rupee with respect to
surplus. This transaction decreases (during deficit) dollars. This situation is not favorable for the
and increases (during surplus) the availability of importers as for goods worth 1 dollar, more
dollars with the Reserve Bank. The above exercise rupees are to be spent. However, this benefits the
by the Reserve Bank of India to make the net exporters, as their goods appear cheaper in the
Balance of Payment as zero is done to arrest the international market.
depreciation (during deficit) and appreciation • Statement 3 is incorrect: Nominal Exchange
(during surplus) of the rupee. It is referred to as rate refers to the price of a currency of a country
the accommodative transaction. with respect to Dollar. It is not adjusted for the
effects of inflation and the purchasing power of
Q.29) Ans: b the country.
Exp:
• Statement 1 is incorrect: The Reserve Bank of Q.31) Ans: b
India maintains certain forex reserves to deal with Exp:
the Balance of Payment mismatch. The forex • Statement 1 is incorrect: Balance of
reserves of RBI includes multiple components (in Payment refers to the economic
decreasing order of their weights) like: Foreign transactions occurring between the residents and
currencies (including the foreign government the non-residents of a country. It does not include
e
bonds), Gold, Reserve Tranche Position in the the concept of citizens and non-citizens. The
in
IMF and the Special Drawing Rights or SDRs. Balance of Payment is composed of two
nl
Hence, SDRs have the least weightage in the forex components:

l.o
reserves of RBI. o Current Account

• Statement 2 is correct: The Accommodative o Visibles (Goods)
ria
transactions of the Reserve Bank of India to make o Invisibles (Services, Income in the form of Interest,
e
the net Balance of Payment as zero involves the profit, dividend, and Transfer Payment:
at
selling of dollars from its forex reserves (during remittances, donations, etc)
cm
deficit) and buying dollars (during surplus). o Capital Account

However, in case there is a situation of surplus, o Investment like FDI or FPI
ps
the RBI sells rupees to buy dollars, this injection of o Loans

rupee may cause inflation in the economy and o Bank deposits or Foreign Currency Non-resident
.u
Accounts.
w
PRAYSA TEST 23 23
w
w
Contact : +91-7007 931 912
• Statement 2 is correct: Trade protectionist prevent this situation, RBI imposes certain
policy of a country aims at reserving the economy limitations on the convertibility of rupee.
and market for the residents or locals. It prohibits • Statement 2 is incorrect: There is no full currency
imports from other countries. Such a policy of convertibility in the Capital Account of the
USA is bound to decrease India’s exports and country. The RBI imposes sector specific
hence would lead to deficit in the Current limitations. The rupee is fully convertible on the
Account as trade in invisibles and visibles forms a current account as these deals with import-
part of the Current Account. export, remittances, etc. Ensuring full convertible
on the Capital account may lead to sudden
Q.32) Ans: a incoming and outgoing of FPI or Portfolio
Exp: Investments leading to huge volatility in the
• Statement 1 is correct: Triffin Dilemma was Indian market.
associated with the fixed exchange rate system
wherein IMF had fixed the exchange rate for every Q.34) Ans: c
country with respect to the US dollar and this in Exp:
turn was linked to gold prices. So, a country could • Option is C correct: Allowing full currency
print currency in accordance with the availability convertibility in both the Capital Account and
of gold in its reserves. However, this system was Current Account would ensure easy movement of
not effective as the supply of gold was fixed. the Foreign Portfolio Investments in the Indian
Hence, the system of SDR was introduced as an market. They would invest during the periods of
alternative to this for the IMF. SDR or Special growth while withdrawing by immediately
Drawing rights refers to the deposits made by a converting their assets during the periods of
country in the IMF in accordance with the quota slowdown. The problems of Non-Performing
allocated to it. Assets would be better dealt with if there is full
• Statement 2 is incorrect: IMF offers a small rate convertibility as greater investments by FPIs
of interest on the SDR deposited by the countries. would cause corporates to pay back the loans on
These SDR deposits are given out to member time. Investors are more inclined to invest in the
countries as loans when they face any shortage or regions where the convertibility norms are
Balance of Payment crisis. relaxed. Similar is true for the companies.
• Statement 3 is incorrect: SDRs are used by the Relaxation in currency convertibility norms would
IMF to extend loans to countries facing the discourage companies from shifting their profits
Balance of Payment crisis. It is lent out as loans to to tax havens. The full currency convertibility
the member countries on which the IMF charges increases the problems of volatility witnessed in
interest. However, it can also be traded amongst a currency exchange rate. The ease of investment
the countries to solve the Balance of Payment and withdrawal depending upon the economic
crisis or to settle Balance of Payment transactions. situation of a country can cause fluctuations in its
exchange rates.
Q.33) Ans: b
e
Exp: Q.35) Ans: d

in
• Statement 1 is correct: In a Managed Floating Exp:

nl
Exchange rate system, the exchange rate of • Statement 1 is incorrect: Nominal Effective
l.o
currency is determined by the market forces of Exchange Rate (NEER) is obtained by calculating
demand and supply. Such a system allows the geometric average of the exchange rate of
ria
interference by the Reserve Bank of India in rupee in relation to different foreign

e
situations when too much volatility is observed in currencies depending upon their trade volumes
at
the currency. Currency convertibility refers to the with India. Real Effective Exchange Rate
cm
ease with which a currency can be converted into (REER) is inflation adjusted exchange rate (CPI in
any other currency or dollar. Full convertibility of case of India). Hence, both REER and NEER
ps
a currency may lead to high volatility and to measures the position of a currency not just with
.u
w
PRAYSA TEST 23 24
w
w
Contact : +91-7007 931 912
respect to dollars but also with respect to other Q.37) Ans: b

foreign currencies. Exp:
• Statement 2 is incorrect: REER is adjusted with • Statement 1 is Incorrect: The amount of cash that
the data of the Consumer Price Index level to the scheduled and non-scheduled commercial
measure the status of the Indian currency with banks are required to maintain with RBI with
respect to the entire global market and not with respect to their Net Deposit and Time
respect to dollars only. Liabilities (on a fortnightly basis) is called
• Statement 3 is incorrect: Greater the value of the Cash Reserve Ratio (CRR).
REER for India, indicates appreciation in the Indian • On the other hand, the Statutory Liquidity Ratio
currency with respect to the other currencies, this (SLR) is the amount of reserves that the scheduled
would make the exports of India less attractive to commercial banks are required to maintain with
the foreign buyers, as it would cost them more themselves on a daily basis in safe and liquid
rupees to purchase the same commodity. assets such as government securities, gold and
cash with respect to their NDTL i.e. Net Deposit
Q.36) Ans: b and Time Liabilities.
Exp: • Statement 2 is Incorrect: All Commercial and
• Option B is the Correct answer The Repo Rate is Cooperative Banks (either scheduled or non-
the (fixed) interest rate at which the RBI scheduled) are required to maintain CRR and SLR.
provides overnight liquidity up to a certain limit For scheduled banks, the maintenance of CRR is
(0.25% of their NDTL) to banks against the governed through The Reserve Bank of India Act
collateral of government and other approved 1934 and for Non-Scheduled banks CRR is
securities under the Liquidity Adjustment Facility governed through Banking Regulation Act 1949.
(LAF). Repo is short form of "Repurchase • The Banking Regulation Act 1949 (Section 24)
Agreement". governs maintenance of SLR for all banks
• Marginal Standing Facility (MSF) is a facility (scheduled and non-scheduled) commercial and
introduced in 2011, under which scheduled cooperative.
commercial banks can borrow additional amount • Statement 3 is Correct: As per the RBI Act,
of overnight money (over and above what is 1934- “In terms of Section 42(1) of the RBI Act,
available to them through repo rate) from the 1934 the Reserve Bank, having regard to the
Reserve Bank by dipping into their SLR needs of securing the monetary stability in the
portfolio up to a limit at a penal rate of country, prescribes the CRR for SCBs without any
interest. This provides a safety valve against floor or ceiling rate”.
unanticipated liquidity shocks to the banking • However, as per the Banking Regulation Act
system. 1949, the maximum limit for SLR is 40%.
o The main difference between the Repo rate • Deposits of the public are the liability of
loans and the loans availed under the Marginal banks. One of the basic reasons for keeping CRR
Standing Facility: and SLR with RBI is to provide safety to the public
§ When banks take loans from RBI at Repo rate, deposits and it also enables the RBI to control the
e
banks need to keep Govt. Securities with RBI, amount of money that banks can create. It
in
but this security is in addition to the requirement ensures that banks have a safe cushion of assets
nl
of SLR. Banks cannot keep SLR securities to avail to draw on when account holders want to be
l.o
loan from RBI at Repo Rate. paid. In absence of the CRR and SLR requirements,
§ But under MSF, banks can borrow money/cash to make more profits banks may lend most of the
ria
from RBI by dipping into the SLR reserve. This deposits and if there is a sudden rush to
e
means the banks can keep 3% of the SLR withdraw, banks will struggle to meet the
at
securities with RBI (i.e. the SLR can go down up repayments.

cm
to 3% below the normal SLR limit) and can Q.38) Ans: c

borrow cash from RBI. Exp:
ps
MSF Rate = Repo Rate + 0.25% • Statement 1 is Correct: As availability of the

.u
capital is one of the most important factors

w
PRAYSA TEST 23 25
w
w
Contact : +91-7007 931 912
contributing to the economic growth an increase the economy for supporting economic growth
in the capital inflows of the country is widely and achieving financial stability.
regarded as a very welcome phenomenon. It o Monetary policy can be either expansionary or
increases the levels of investment and contractionary. Expansionary monetary policy
encourages economic growth. increases the total supply of money more rapidly
• Statement 2 and 3 are Incorrect: The surging than the usual whereas contractionary policy
capital inflows can also lead to destabilizing side expands the money supply slower than the usual
effects, including a tendency of the local currency or even reduces it. Expansionary policy is also
to appreciate. Hence, the Indian Rupee will called ‘Dovish’ or ‘Accommodative’ or ‘Easy
appreciate instead of depreciating as a result of Money Policy’. Contractionary policy is also
increasing capital inflows. This will have a called ‘Hawkish’ or ‘Tight Money Policy’.
negative impact on the exports of the country as
it undermines the competitiveness of exports of Q.40) Ans: d
the country. Exp:
• Statement 4 is Correct: Increase in Capital inflows • A Public sector bank is a bank where the majority
can also lead to inflation. This is mainly because, stakes are owned by the Government or the
when foreign investors bring foreign central bank of the country. Public Sector Banks
currency/dollars, ultimately this dollar comes to (PSBs) are under dual regulation of Central Govt.
RBI and new money/currency is given by RBI to and RBI.
the investors which increase money supply (and • Statement 1 is Incorrect: When it comes to the
monetary base) in the economy without a Public Sector Banks, the powers of RBI
corresponding increase in production: too much are curtailed. RBI cannot remove directors and
money begins to chase too few goods and management of a public sector bank. Along with
services resulting in inflation. this RBI cannot revoke the banking licence as
o Hence, to reduce inflation in such cases, central well.
banks often attempt what is known as • Statement 2 is Incorrect: In case of Private sector
the “sterilization” of capital flows. In a successful banks, RBI regulates the merger of banks,
sterilization operation, the domestic component however it doesn't have the same powers when it
of the monetary base/ money supply is reduced to comes to Public sector banks.
offset the inflow of capital, at least temporarily. • Statement 3 is Incorrect: RBI cannot merge or
This is done through the use of open market wind up the public sector banks because they are
operations, that is, selling Treasury bills and under the dual regulation of RBI and Central Govt.
other securities by RBI to reduce the domestic Along with this, RBI also cannot supersede the
component of the monetary base/ money board of Public sector banks.
supply. • In case of private commercial banks a license is
(Note: In the above given statements, Rupee required from RBI to:
appreciation(Statement 2) and rise in inflation o To commence banking operations
(Statement 4) are contradictory options. Hence, one o Opening of new bank branches
e
of them can be eliminated to get the right answer.) o Closing of branches or change in the location of
in
existing branches (As per the recent norms

nl
Q.39) Ans: a however, no approval is required for shifting,

l.o
Exp: merger and closure of urban branches)

• Option A is the correct answer; Monetary Policy o RBI also regulates merger, amalgamation and
ria
is the process by which the monetary authority winding up of private commercial banks.
e
(RBI) of a country controls the creation and o Thus, RBI cannot regulate merger, closing down
at
supply of money in the economy. or matters regarding revoking license of a public

cm
o The objectives of monetary policy in India sector bank.

include maintaining price stability, ensuring Q.41) Ans: d
ps
adequate flow of credit to productive sectors of Exp:

.u
w
PRAYSA TEST 23 26
w
w
Contact : +91-7007 931 912
• Statements 1, 2 and 4 are Correct: The four All Q.43) Ans: b

India Financial Institutions – NABARD, NHB, EXIM Exp:
Bank and SIDBI are under full-fledged regulation • Reserve Bank authorizes Payment Systems in
and supervision of the RBI. NBFCs, Primary terms of powers vested with it by the Payment
Dealers and CICs are also under the regulation and Settlement Systems Act, 2007 (PSS Act).
and supervision of RBI. • Statement 1 is Correct: The Payment and
• RBI regulates Banks and NBFCs both but till July Settlement Systems Act, 2007 provides for
2019 RBI had the powers to supersede the Board regulation and supervision of payment systems in
of Banks only (in case of any India and as per the Act, only payment systems
mismanagement/default) and not NBFCs. In July authorized by the RBI can be operated in the
2019, RBI Act 1934 was amended to allow RBI to country.
supersede the Board of NBFCs also (and appoint • RBI, as the regulator of payment and settlement
administrator) in public interest. systems in the country, sets the necessary
• Statement 3 is Incorrect: Cooperative regulatory framework to ensure that different
Banks however, are under dual regulation of RBI types of payment systems operate in a safe,
and Government. Banking related functions are secure and efficient manner to meet the needs of
regulated by RBI and management related varied segments of society.
functions are regulated by respective State • Statement 2 is Incorrect: National Payments
governments or the Central Government, as the Corporation of India (NPCI), is a non-bank
case may be payment system operator authorized by RBI to
operate the following payment systems under the
Q.42) Ans: d PSS Act 2007.
Exp: • NPCI is a ‘Not for Profit’ company where 51%
• Option D is the Correct answer; A bank run stake is owned by public sector banks.
occurs when a large number of customers of a • Statement 3 is also Incorrect: The non-bank
bank or other financial institution withdraw their entities have also been permitted access to the
deposits simultaneously over concerns of the payment space, given the demand for varied
bank's solvency. payment services and in keeping with the fast
• It is a situation that occurs when everybody wants pace of technological change . These non-banks
to take money out of one’s bank account before are co-operating, as well as, competing with
the bank runs out of reserves. As more and more banks, either as technology service providers to
people withdraw their funds, the probability of banks or by directly providing retail electronic
default increases, thereby prompting more payment services.
people to withdraw their deposits. In extreme • It may be noted that licensed banks also need to
cases, the bank’s reserves may not be sufficient obtain specific permission from RBI for setting up
to cover the withdrawals. A bank run is typically and operating a payment system. This is because
the result of panic which can ultimately lead to banking functions are different and operating a
default. "payment system" (which facilitates payment
e
• In such extreme situations, the RBI stands by the from one entity to another) is different.
in
commercial banks as a guarantor and extends

nl
loans to ensure the solvency of the Q.44) Ans: d

l.o
banks. (Solvency is the ability of a company to Exp:

meet its long-term financial obligations which is • Priority sectors refer to those sectors of the
ria
essential to staying in business). This system of economy which may not get timely and
e
guarantee assures individual account holders that adequate credit in the absence of this special
at
their banks will be able to pay their money back in scheme. Typically, these are small value loans to
cm
case of a crisis and there is no need to panic thus those sectors of the society/economy that impact
avoiding bank runs. This role of RBI is also called large segments of the population and weaker
ps
‘lender of last resort’. sections, and to the sectors which are

.u
w
PRAYSA TEST 23 27
w
w
Contact : +91-7007 931 912
employment intensive such as agriculture and preferential rate of interest for priority sector
small enterprises. loans.
• Statements 1, 2, 3, 4 and 5 are • Statement 2 is Correct: To address regional
Correct: In Agriculture sector, following activities disparities in the flow of priority sector credit at
can be granted loans under the Priority Sector the district level, the Reserve Bank of India has
Lending: decided to rank districts on the basis of per capita
o Loans to Individual farmers and Farmer Producer credit flow to priority sector and build an
Organisations incentive framework for districts with
o Crop loans, machinery loans for all kinds of agri comparatively lower flow of credit and a dis-
and allied activities incentive framework for districts with
o Loans for food and agro-processing activities are comparatively higher flow of priority sector
also included under Agriculture credit.
o Loans for installation of solar plants and for • Statement 3 is Incorrect: As per RBI, from FY
solarisation of grid connected pumps 2021-22 onwards, a higher weight (125%) would
o Setting up Compressed Biogas plants be assigned to the incremental priority sector
credit in the identified districts where the credit
Q.45) Ans: c flow is comparatively lower (per capita PSL less
Exp: than ₹6000), and a lower weight (90%) would be
• Option C is the Correct answer. assigned for incremental priority sector credit in
• On-lending means loans sanctioned by banks to the identified districts where the credit flow is
eligible intermediaries for onward lending only for comparatively higher (per capita PSL greater than
the creation of priority sector assets. The average ₹25,000)." RBI has given the list of different
maturity of priority sector assets thus created categories of districts. Hence, the given statement
should be broadly co-terminus with maturity of is wrong because districts are not categorised as
the bank loan. per the criteria of aspirational districts.
• The RBI issued a circular under which on-lending • It will be applicable for the new (incremental)
by registered NBFCs (other than MFIs) towards loans given from 1st April 2021 onwards.
agriculture, MSEs and housing sector up to
prescribed limits will be treated as priority sector Q.47) Ans: d
loans. It is being done in order to boost credit to Exp:
the needy segment of borrowers. • RBI has over time established a sound and rich
• Bank credit to NBFCs for ‘On-Lending’ will be tradition of policy-oriented research and an
allowed up to a limit of five percent of individual effective mechanism for disseminating data and
bank’s total priority sector lending on an ongoing information. The RBI disseminates data and
basis. information regularly in the form of several
publications, press releases and through its
Q.46) Ans: b website.
Exp: • All of the given reports except the Indian
e
• Priority sectors refer to those sectors of the Economy Prospects are published by the RBI.
in
economy which may not get timely and • RBI is under legal obligation under the RBI Act to
nl
adequate credit in the absence of this special publish two reports every year: The Annual
l.o
scheme. Report and the Report on Trend and Progress of

• Statement 1 is Incorrect: Priority Sector lending Banking in India. Besides these two, following are
ria
constitutes small value loans to those sectors of some of the important reports published by the
e
the society/economy that impact large segments RBI:

at
of the population and weaker sections, and to the o Consumer Expectation Survey
cm
sectors which are employment intensive such as o Inflation Expectation Survey

agriculture and small enterprises. However, o Financial Stability Report
ps
priority sector guidelines do not lay down any o Interest Subvention Report
o Report on Foreign Exchange Reserves
.u
w
PRAYSA TEST 23 28
w
w
Contact : +91-7007 931 912
o India is also a signatory of the Special Data o MUDRA (Micro Units Development and
Dissemination Standards (SDDS) as defined by Refinance Agency Ltd.) is a financial institution set
the IMF for the purpose of releasing data. up by Govt. of India for development and
refinancing micro unit enterprises.
Q.48) Ans: c • Statement 1 is Incorrect: MUDRA Bank was
Exp: launched on 8 April 2015. In 2016, it was
o Money Multiplier relates to the maximum converted as a wholly owned subsidiary of SIDBI
amount of commercial bank money that can be and renamed as MUDRA (SIDBI) Bank. The micro
created, given a certain amount of central bank finance institutions (MFIs) can become Member
money. It is also represented in the following Lending Institutions (MLIs) with MUDRA (SIDBI)
form: Bank for refinance and with National Credit
• Let us analyze the given statements in the light Guarantee Trustee Company (NCGTC) for credit
of the above equation: guarantee.
• Statement 1 is Correct: Cash Reserve Ratio is • Statement 2 is Incorrect: MUDRA has been
the amount of cash that the scheduled established with an objective of aiding the
commercial banks are required to maintain with development of micro unit enterprises.
RBI with respect to their NDTL (on a fortnightly However, MUDRA is a refinancing
basis). The lesser the reserves, the more is the Institution. MUDRA does not lend directly to the
amount available for lending activities and vice micro entrepreneurs / individuals (Refinancing
versa. Hence, Cash Reserve Ratios do affect means MUDRA loans will be available through
the Money Multiplier. Banks/NBFCs/MFIs and not direct
• Statement 2 is Correct: The amount of reserves lending). Mudra loans under Pradhan Mantri
that the scheduled commercial banks are required Mudra Yojana (PMMY) can be availed of from
to maintain with themselves on a daily basis in nearby branch offices of a bank, NBFC, MFIs etc.
safe and liquid assets such as government Borrowers can also now file online applications for
securities, gold and cash with respect to their MUDRA loans on the Udyamimitra portal.
NDTL is called the Statutory Liquidity Ratio. The • Statement 3 is Incorrect: The purpose of MUDRA
percentage of the SLR also determines the is to provide funding to the non-
liquidity and hence the money multiplier in the corporate (informal sector) small business
economy. sector such as small manufacturing units,
• Statement 3 is Incorrect: Inflation, whether cost shopkeepers, fruits and vegetable sellers, hair
push or demand pull inflation is partially caused salons, beauty parlours, truck operators, hawkers,
by the amount of monetary supply in the artisans in rural and urban areas with financing
market. A higher money multiplier increases the requirements of up to Rs 10 lakhs.
liquidity in the economy leading to a higher level o MUDRA would be responsible for refinancing all
of disposable income which leads to Last Mile Financiers such as Micro Financial
inflation. Hence, inflation is the effect and not Institutions, Non-Banking Finance Companies,
the cause affecting the money multiplier. Societies, Trusts, Companies, Co-operative
e
• Statement 4 is Correct: The total liability of the Societies, Small Banks, Scheduled Commercial
in
Monetary Authority (RBI) of the country is called Banks and Regional Rural Banks which are in the
nl
Monetary Base or High Powered Money or business of lending to micro/small business

l.o
Reserve Money [M0]. As per the given entities engaged in manufacturing, trading and
equation, the money supply will increase in services activities.
ria
proportion to the increase in the High powered

e
money or the monetary base. Hence, it will affect Q.50) Ans: c

at
the money multiplier as well. Exp:

cm
• RBI has made it mandatory for banks to link all

Q.49) Ans: d new floating rate personal or retail loans and
ps
Exp: floating rate loans to MSMEs to an external

benchmark effective October 1, 2019.
.u
w
PRAYSA TEST 23 29
w
w
Contact : +91-7007 931 912
• Only Statements 2 and 4 are Correct: Banks can o The purpose of linking the lending rate with an
choose one of the four external benchmarks external benchmark is faster transmission of repo
• Repo rate rate into lending rate and this mechanism is
• Three-month treasury bill yield more transparent also. Adopting multiple
• Six-month treasury bill yield benchmarks by the same bank is not allowed
• Any other benchmark interest rate published by within a loan category.
Financial Benchmarks India Pvt. Ltd.
• This was mainly done because the transmission of Q.52) Ans: d
policy (repo) rate changes to the lending rate of Exp:
banks under the MCLR framework has not been The CRAR is the ratio of the Bank’s capital to the risk
satisfactory due the various reasons like: weighted assets of the Banks. It is defined as:
• Banks feared that they might lose (Tier -1 Capital (Equity) + Tier-2 Capital (Debt)/ Risk
depositors/customers if they reduced the Weighted Assets (RWAs))
deposit rate first, and since deposit rate was not • Statement 1 is Incorrect: The CRAR is based on
reduced, MCLR (or base rate) was also not the concept that the banks should have sufficient
coming down. capital in order to withstand the risk associated
• Government offering higher interest rates on its with the loans given by them. The Banks are
own small savings scheme. required to assign risk weightage to the different
• However, banks are not mandated to link their categories of loans. Thus, a higher the capital to
deposit rates with an external benchmark rate. risk weighted asset ratio (CRAR), higher is the
Marginal Cost of Funds based Lending Rate safety of bank deposits.
(MCLR) and Benchmark Prime Lending Rate are • Statement 2 is Incorrect: The higher the capital is
internal benchmark rates. above the regulatory minimum, the greater the
freedom banks have to make loans. The closer
Q.51) Ans: d bank capital is to the minimum, the less inclined
Exp: banks are to lend. If capital falls below the
• Statement 1 is Incorrect: RBI has made regulatory minimum, banks cannot lend or face
it mandatory for banks to link all new floating restrictions on lending.
rate personal or retail loans and floating rate • When loans go bad and turn into non-performing
loans to MSMEs to an external benchmark assets (NPAs) banks have to make provisions for
effective October 1, 2019. Banks can choose one potential losses (i.e. banks are required to keep
of the four external benchmarks – repo rate, certain funds in reserve which they can’t lend and
three-month treasury bill yield, six-month is called provisioning against NPAs). This tends to
treasury bill yield or any other benchmark interest erode bank capital and put breakes on loan
rate published by Financial Benchmarks India Pvt. growth. Public Sector Banks (PSBs) have been
Ltd. However, banks are not mandated to link facing this issue since 2012-13.
their deposit rates with an external benchmark
rate. Q.53) Ans: d
e
• Statement 2 is Incorrect: Banks are free to decide Exp:

in
the components of spread and the amount of The RBI introduced the Prompt Corrective Action
nl
spread. But in general, the spread consists of framework in 2002 as a structured early-intervention
l.o
credit risk premium, business strategy, mechanism for banks that become undercapitalised
due to poor asset quality, or vulnerable due to loss of
ria
operational costs of banks etc. While the banks

will be free to decide on the spread over the profitability. It aims to check the problem of Non-
e
external benchmark, credit risk premium can Performing Assets (NPAs) in the Indian banking
at
change only when the borrower's credit sector.

cm
assessment undergoes a substantial change. The • Statements 1, 3 and 4 are correct: The Reserve
other components of the spread like operating Bank has specified certain regulatory trigger
ps
cost can be altered once in three years. points, as a part of prompt corrective action (PCA)
Framework, in terms of three parameters, i.e.
.u
w
PRAYSA TEST 23 30
w
w
Contact : +91-7007 931 912
• Capital to risk weighted assets ratio (CRAR) External Commercial Borrowings(ECB). Money is
• Net non-performing assets (NPA) raised in foreign currency and the borrower
• Return on Assets (RoA) issued Dollar denominated bonds to the foreign
• These are considered for initiation of certain investor.
structured and discretionary actions in respect of • Statement 2 is Correct: Masala Bonds are a kind
banks hitting such trigger points. The PCA of ECB where the bonds are issued outside India
framework is applicable only to commercial but denominated in Indian Rupees, rather than
banks and not extended to co-operative banks, the local currency. Masala is an Indian word and it
non-banking financial companies (NBFCs) and means spices. Unlike dollar bonds, where the
FMIs. borrower takes the currency risk, Masala bonds
make the investors bear the currency risk.
Q.54) Ans: b • Statement 3 is Correct: American Depository
Exp: Receipts provide US investors with an
• Statement 1 is Correct: RBI’s Prompt Corrective opportunity to trade in shares of a foreign
Action Framework aims to check the problem of company. The domestic company, already listed
Non-Performing Assets (NPAs) in the Indian in its local stock exchange, sells its shares in bulk
banking sector. The PCA framework is applicable to a U.S. bank to get itself listed on U.S. exchange.
only to commercial banks and not extended to The U.S. bank accepts the shares of the issuing
co-operative banks and non-banking financial company. The bank keeps the shares in its
companies (NBFCs). RBI has also brought security and issues certificates (ADRs) to the
in “Supervisory Action Framework” (SAF) for interested investors through the exchange.
Urban Cooperative Banks in place of PCA for • Statement 4 is Incorrect: Indian depository
commercial banks. receipt (IDR) is a negotiable and transferable
• Statement 2 is Correct: For banks under PCA, RBI financial instrument denominated in Indian
may put restrictions on branch expansion, rupees that enables foreign companies to raise
distributing dividends, capping compensation funds from Indian stock and financial
and fees of management and directors. In certain markets. Indian depository receipts are the Indian
cases, banks may be stopped from lending and versions of similar Global depository receipts.
there can be a cap on lending to specific
sectors/entities. Further, RBI may take steps to Q.56) Ans: a
bring in a new management/Board, appoint Exp:
consultants for business/ organizational • Statement 1 is Incorrect: The Government has
structuring, take steps to change ownership and accepted the international practice regarding the
can also take steps to merge the bank. definitions of Foreign Direct Investment and
• Statement 3 is Incorrect: Under the PCA Foreign Portfolio Investment. Hence, in a
framework, RBI’s objective is to facilitate the particular company, an investor can hold the
banks to take corrective measures including those investments either under the FPI route or under
prescribed by the Reserve Bank, in a timely the FDI route, but not both.
e
manner, in order to restore their financial health. • Statement 2 is Correct: As per the regulations
in
The RBI has clarified that the PCA framework is under Foreign Exchange Management Act
nl
not intended to constrain normal operations of (FEMA) 1999, an Indian company receiving
l.o
the banks for the general public like lending and FDI does not require any prior approval of RBI at
depositing. any stage. It is only required to report the capital
ria
inflow and subsequently the issue of shares to the

e
Q.55) Ans: c RBI in prescribed formats under both the routes.

at
Exp:
cm
• Statement 1 is Correct: Indian companies (either Q.57) Ans: d

government company or private) raising debt Exp:
ps
finance (through bank loans or issuance of bonds

.u
etc.) from foreign countries/investors is called

w
PRAYSA TEST 23 31
w
w
Contact : +91-7007 931 912
• A currency swap between two countries is an o Statement 2 is Incorrect: KYC means “Know Your
agreement or contract to exchange currencies Customer”. It is a process by which banks obtain
with predetermined terms and conditions. information about the identity and address of the
• Statement 1 is Correct: The main purpose of customers. This process helps to ensure that
currency swap by a central bank is to get the banks’ services are not misused and has little to
foreign currency from the issuing foreign central no role in monetary policy transmission.
bank at the predetermined conditions (like o Statement 3 is Correct: Currency swap operation
exchange rate and the volume of currency for the can also lead to better transmission into the
swap. lending rate also. RBI did forex swap in March
o This is done to avoid turbulence and other risks 2019 to increase (rupee) liquidity/money supply in
in the foreign exchange market and exchange the economy because RBI had already exhausted
rate. These swap operations carry zero exchange much of the open market operation limit.
rate or other market risks, as transaction terms o Statement 4 is Incorrect: Capital Adequacy Ratio
are set in advance. (CAR) is the ratio of a bank’s capital in relation to
• Statement 2 is Correct: This facility provides the its risk weighted assets and current liabilities. It is
country, which is getting the dollars, with decided by central banks and bank regulators to
the flexibility to use these reserves at any time in prevent commercial banks from taking excess
order to maintain an appropriate level of balance leverage and becoming insolvent in the
of payments or short-term liquidity. process. It is measured as
• Thus, the RBI can just keep these dollars with o Capital Adequacy Ratio = (Tier I + Tier II + Tier III
itself also to shore up its own foreign exchange (Capital funds)) /Risk weighted assets
reserves and defend the rupee. In case of Rupee o However, Capital Adequacy ratio is related to a
depreciation, RBI can either sell these dollars (or bank’s financial soundness and not policy
yen) to importers to settle their bills or to transmission.
borrowers to pay off their foreign loans. This
allows RBI to stop depreciation of Rupee without Q.59) Ans: d
actually going to the market to purchase these o The term “Strategic Disinvestment” means
dollars (by selling rupees) which would have the sale of a substantial portion of the
further depreciated the rupee. So, currency swap Government share-holding of a central public
is a kind of out of market transaction which can sector enterprise (CPSE) of up to 50%, or such
be used to stop depreciation of the respective higher percentage (to the strategic
currency. partner) along with transfer of management
control.
Q.58) Ans: c • Statement 1 is Incorrect: As per the new policy
Exp: (2019), Department of Investment and Public
o Monetary policy transmission is the process Asset Management (DIPAM) under the Ministry
through which policy action of the central bank is of Finance has been made the nodal
transmitted to meet the ultimate objectives of department for the strategic
e
inﬂation and growth. disinvestment. DIPAM and NITI Aayog will now
in
o Statement 1 is Correct: The Reserve Bank of India jointly identify PSUs for strategic disinvestment
nl
(RBI) has decided to introduce long-term repo and then it is approved by CCEA.
l.o
operations (LTRO) to facilitate the transmission • Statement 2 is Incorrect: The policy of

of monetary policy actions and flow of credit to liberalisation began in India in 1991 under then
ria
the economy. In this, the central bank will Prime Minister P.V. Narasimha Rao, since then,
e
conduct long-term repos of one- and three-year the country saw a steady flow of disinvestment
at
tenors of appropriate sizes for up to a total decisions. However, strategic disinvestment

cm
amount of Rs 1,00,000 crore at the policy repo (privatisation), where buyers took over
rate. It will also bring down the cost of funds for management control, began later under the
ps
banks without effectively cutting deposit rates. National Democratic Alliance governments. Arun
Shourie, the country’s first Disinvestment
.u
w
PRAYSA TEST 23 32
w
w
Contact : +91-7007 931 912
Minister, gave an impetus to the exercise. He is the government will spend the money in the
credited with the privatisation of Maruti, Bharat economy thereby adding to liquidity.
Aluminium Company Ltd., Videsh Sanchar Nigam
Limited and Hindustan Zinc through the strategic Q.62) Ans: a
sale process. Exp:
• Statement 3 is Correct: Even if the government • Option A is the Correct answer.
gives its management control to another PSU • The Reserve Bank of India recently announced
(rather than a private partner), it is also a Government Security Acquisition Programme,
considered as strategic disinvestment. For GSAP 1.0. Under the programme, the central bank
instance, if the government in future decides to will purchase government bonds worth Rs 1
transfer 100% of its ownership and management trillion (or one lakh crores of rupees).
control in BPCL to GAIL, it will be considered as a • The main objective of this programme is
strategic disinvestment. to provide stability and avoid volatility in the G-
sec market(A G-Sec is a tradable instrument
Q.60) Ans: d issued by the Central Government or the State
Exp: Governments) in view of its central role in the
Option D is the Correct answer. pricing of other financial market instruments
• The amount of cash that the scheduled across the term structure and issuers, both in the
commercial banks are required to maintain with public and private sectors
RBI with respect to their NDTL (on a fortnightly • The programme will help to reduce the spread
basis) is called Cash Reserve Ratio. One of the between repo rate and the ten-year government
basic reasons for keeping CRR with RBI is to bond yield.
provide safety to the public deposits. “In terms of • It will also help to reduce aggregate cost of
Section 42(1) of the RBI Act, 1934 the Reserve borrowing for the centre and states in fiscal year
Bank, having regard to the needs of securing the 2022.
monetary stability in the country, prescribes the • It will enable a stable and orderly evolution of
CRR for SCBs without any floor or ceiling rate”. the yield curve amidst comfortable liquidity
• When the Cash Reserve Ratio is increased banks conditions.
will have a lesser quantity of money to lend than • The rise in bond yields led to weakness in the
before. This will also result in a decrease in the equity markets. Now, the yields will once again
money supply. When the central bank increases stabilize. With this, the FPI inflow into equities
the CRR it is also said to be following a tight could regain momentum.
money policy.
Q.63) Ans: d
Q.61) Ans: d Exp:
Exp: • Statement 1 is Incorrect: NABARD was
Option D is the Correct answer. established in 1982. It provides credit for the
• Market Stabilization Scheme (MSS) is a monetary promotion of agriculture, small scale industries,
e
policy intervention by the RBI to withdraw excess cottage and village industries, handicrafts and
in
liquidity (or money supply) by selling other rural crafts and other allied activities.
nl
government securities in the economy. It does not extend direct credit at individual
l.o
• The MSS was introduced in April 2004. level but extends indirect financial assistance by
• Excess liquidity or money from the system is way of refinance (NABARD finances those
ria
removed by selling government bonds under this institutions which provide financial assistance to
e
scheme. the rural sector).

at
• These securities are owned by the • Statement 2 is Incorrect: SIDBI was established in
cm
government though they are issued by the RBI. 1990 under the provisions of Small Industries
• The money obtained under MSS should be kept Development of India Act 1989. SIDBI mainly
ps
with the RBI. It should not be transferred to the extends indirect financial assistance (by way of
.u
government. This is because, if it is transferred,

w
PRAYSA TEST 23 33
w
w
Contact : +91-7007 931 912
refinance) to financial institutions for onward income households etc. as they will offer low cost
lending to MSMEs. savings accounts and remittance services so that
• Statement 3 is Incorrect: MUDRA (Micro Units those who now transact only in cash can take
Development and Refinance Agency Ltd.) is a their first step into the formal banking system.
financial institution set up by Govt. of India for • Statement 2 is Correct: The payments
development and refinancing micro unit bank cannot undertake lending activities as it is a
enterprises. MUDRA loans will be available differentiated bank. However, distribution of
through Banks/NBFCs/MFIs and not direct non-risk sharing simple financial products like
lending. mutual fund units and insurance products, etc. is
allowed.
Q.64) Ans: d • Statement 3 is Incorrect: Payments banks will
Exp: accept only demand deposits i.e. only savings
• An NBFC is a company registered under account and current account facility will be
the Companies Act, 1956/2013 engaged in the available. RBI has put a cap of Rs. 1 lakh on
business of loans and advances, acquisition of deposits that payment banks can receive from
shares/ stocks/bonds/debentures/ securities individual customers. This restriction will allow
issued by Government or local authority or other only those companies to seek payment bank
marketable securities of a like nature, leasing, licenses who are really interested in targeting the
hire-purchase, insurance business, chit business. poor.
• Statements 1, 2, 3 and 4 are Correct: All of the
given financial institutions are Q.66) Ans: c
NBFCs. Some examples of NBFCs: Exp:
o Venture Capital Fund, Merchant Banking Option C is the Correct answer.
Companies, Stock broking companies (registered • Open Market operations are the sale or purchase
with SEBI) of government securities by RBI in the open
o Insurance Companies (holding a valid certificate market (secondary bond/debt market) to
of registration issued by IRDA) banks/financial institutions for injection and
o Nidhi Companies (registered under Companies absorption of durable liquidity (money supply) in
Act and regulated by Ministry of Corporate the economy. Open Market Operations are done
Affairs ) on the E-Kuber platform of RBI.
o Chit companies (Chit Funds Act, 1982 and o If the inflation in the economy is high then, to
regulated by respective State governments) control the inflation RBI reduces the money
o Micro Financial Institutions (MFIs) supply by selling government securities to the
o However, it does not include any institution public.
whose principal business is that of agriculture o If RBI wants to increase the money supply then it
activity, industrial activity, purchase or sale of any buys government securities from the public and
goods (other than securities) or providing any pays them money in exchange of government
services and sale/ purchase/ construction of securities which increases the money supply in
e
immovable property. the economy.

in
o Hence, in the above given case, an increase in the

nl
Q.65) Ans: c sale of G-secs indicates that the RBI is following a

l.o
Exp: tight or contractionary money policy to reduce

o Payment Banks are examples of differentiated the inflation in the economy.
ria
banks in India. Differentiated Banks (niche banks)

e
are banks that serve the needs of a certain Q.67) Ans: d

at
demographic segment of the population. Exp:

cm
• Statement 1 is Incorrect: Payments banks can • An asset which stops giving returns to its
issue debit cards however, they cannot issue investors for a specified period of time is known
ps
credit cards. The main target for payment banks as Non-Performing Asset (NPA). The Non
will be migrant labourers, self-employed, low Performing Assets in Public Banks are valued at
.u
w
PRAYSA TEST 23 34
w
w
Contact : +91-7007 931 912
approximately $ 62 Billion, which represents 90% accounts (demand deposits) and do not want to
of total NPA in India. Hence, the Reserve Bank of lock their investment in fixed deposits at a very
India has taken many steps to tackle the problem low interest rate. They hope that in future the
of Non Performing Assets: interest in the market will rise and then they will
• Statement 1 is Correct: Prompt Corrective Action invest in bonds or other instruments.
or PCA is a framework under which banks with • Statement 2 is Incorrect: One marker of a
weak financial metrics are put under watch by liquidity trap is low interest rates. In fact, when
the RBI. The PCA framework deems banks as risky there was a situation of liquidity trap after the
if they slip below certain norms on three financial crisis of 2008, the European Central Bank
parameters — capital ratios, asset quality and resorted to quantitative easing (QE) and a
profitability. It has been done to keep a check on negative interest rate policy (NIRP) in some areas
the Non Performing Assets in banks. in order to free themselves from the liquidity trap.
• Statement 2 is Incorrect: A "Payments • While a liquidity trap is a function of economic
Infrastructure Development Fund (PIDF)" has conditions, it is also psychological since
been created by RBI in June, 2020. The purpose consumers are making a choice to hoard
of this fund will be to encourage cash instead of choosing higher-paying
Merchants/Retailers, so that more and more investments because of a negative economic
merchants and retailers start using the Point of view. High consumer savings levels, often spurred
Sale (PoS) Infrastructure in underserved areas by the belief of a negative economic event on the
like Tier 3/4/5/6 cities and in eastern States. horizon, causes monetary policy to be generally
• Statement 3 is Incorrect: The Lead Bank Scheme ineffective.
was introduced by RBI in December 1969. The • A liquidity trap is characterised by:
Scheme aims at coordinating the activities of 1. Very low-interest rates
banks and other developmental agencies through 2. Low inflation
various fora in order to achieve the objective 3. Slow/negative economic growth
of enhancing the flow of bank finance to priority 4. Preference for saving rather than spending and
sector and other sectors and to promote banks’ investment
role in overall development of the rural sector. 5. Monetary policy becomes ineffective in
• Statement 4 is Correct: As per the Banking boosting demand
Regulation (Amendment) Act, 2020, RBI can As the Central Bank cannot stimulate the economy
supersede the management of the Urban beyond this point, the government should use its
Cooperative Banks (UCB), State Cooperative fiscal policy to pull the economy out of
Banks (StCB) and District Central Cooperative recession/slowdown.
Banks (DCCB) if RBI feels that the affairs of the
bank are conducted in a manner detrimental to Q.69) Ans: d
the interest of the depositors. This will keep a Exp:
check on increasing NPAs in the cooperative o Small Finance Banks are examples of
banks. Earlier this was applicable only for UCBs differentiated banks in India. Differentiated
e
and now in the amendment 2020, StCB and DCCB Banks (niche banks) are banks that serve the
in
have also been included. needs of a certain demographic segment of the

nl
population.
l.o
Q.68) Ans: d • Statement 1 is Correct: There will not be any

Exp: restriction in the area of operations of small
ria
o A liquidity trap is when monetary policy becomes finance banks. The small finance banks will be
e
ineffective due to very low interest rates required to extend 75% of its total credit to the
at
combined with consumers who prefer to save sectors eligible for classification as priority sector
cm
rather than invest in higher-yielding bonds or lending (PSL) by the RBI.

other investments. • Statement 2 is Correct: At least 50 per cent of its
ps
• Statement 1 is Incorrect: In case of liquidity trap, loan portfolio should constitute loans and
people keep their funds in normal savings advances of up to Rs. 25 lakhs. This is done to
.u
w
PRAYSA TEST 23 35
w
w
Contact : +91-7007 931 912
increase financial inclusion and ease the o Money deposited in current account
availability of credit for marginal sections of the o Demand drafts
society. o Unclaimed deposits and so on.
• Statement 3 is Correct: The small finance banks
shall primarily undertake basic banking Q.72) Ans: c
activities of acceptance of ALL kinds of Exp:
deposits (such as FD, RD, Savings, and Current, • Statement 1 is correct: The concept of Helicopter
etc.) and lending to unserved and underserved money was given by Milton Friedman and deals
sections including small business units, small and with the creation of demand in the
marginal farmers, micro and small industries and economy thereby boasting its growth. In
unorganized sector entities. situations of slowdown or recession when the
people are reluctant to buy then by infusing
Q.70) Ans: d money in the economy by the Central Bank at
Exp: zero interest rates would lead to creation of
• Option D is the Correct answer. demand and hence revive growth.
• The total stock of money in circulation among the • Statement 2 is correct: Providing negative
public at a particular point of time is called money interest rates on deposits acts as a liability for the
supply. RBI publishes figures for four alternative depositor. If banks provide a negative interest
measures of money supply. They are as follows: rate on saving accounts instead of +3% (consider)
o M1 = Currency with the Public + Demand interest, then depositors instead of earning
deposits of public with banks interest would be liable to pay some of the
o M2 = M1 + Savings Deposits with Post Office deposits. In case of loans, the borrower
Savings Bank benefits as the negative interest charged by the
o M3 = M1 + Time deposits of public with banks investor would cause the investor to not only lend
o M4 = M3 + Total deposits with Post Office the money but also pay some extra amount as
Savings Bank interest.
o Hence, even if the time deposits are withdrawn
(part of M3) there will be no immediate effect on Q.73) Ans: d
money supply as the money withdrawn will be Exp:
counted as the currency held with the public • Option is D correct: The depreciation of Indian
(part of M1). currency is good for the exporters while adversely
impacts the importers. Hence, certain measures
Q.71) Ans: b are adopted to bring about appreciation of the
Exp: rupee when there is too much depreciation
• Deposits of the public are the liability of observed. The appreciation of Indian rupee can be
banks. The public’s demand deposits are demand achieved simply by decreasing its supply since
liability of the bank and time deposits are time reduced supply with constant demand would
liability of the banks and the total of demand and certainly push the prices up. When greater FPI is
e
time deposits of the public is called the Net allowed in the Indian market, more dollars come
in
Demand and Time Liabilities (NDTL) of the banks. in as investment and the supply of rupee in
nl
• Statements 1, 2, 4 and 5 are Correct: All of the relation to dollars is less, thereby causing its
l.o
given statements form a part of NDTL except the appreciation. Currency swap agreements with
Cash reserves as they are calculated on the basis other countries allows the parties to the
ria
of NDTL of a particular bank. agreement to use up a certain amount of dollars

e
Net demand and time liabilities usually include: from each other’s forex reserves in case of crisis.
at
o Money deposited in Fixed deposits (FD) Allowing greater External Commercial

cm
o Cash certificates borrowings by the corporates would increase the

o Gold deposits. coming in of dollars and thereby appreciate
ps
o Staff security deposit rupee. When RBI allows swapping of dollars with
o Money deposited in savings account the Banks, then greater dollars available with the
.u
w
PRAYSA TEST 23 36
w
w
Contact : +91-7007 931 912
banks are indirectly used to increase the supply of Organization envisages the concept of one
dollars in the economy. Adopting the Dear country one vote.
Money policy by the RBI would increase the
interest rates on domestic loans given in rupee. Q.76) Ans: a
This would reduce the rupee at the hands of Exp:
people and may appreciate its value. • Statement 1 is correct: Countervailing Duty is
regarded as a kind of tariff barrier imposed by an
Q.74) Ans: c importer country when the imported goods
Exp: appear cheaper than the domestic goods by way
• Option is C correct: African Development of subsidies provided to the exporters by the
Bank was established in 1964 and is based in Ivory exporting country. Hence, countervailing duties
Coast. India is a member of this bank and is are imposed on the imported goods. India has
entitled to the loans under it. India is a member of abolished this duty and charges the basic custom
the Asian Development bank. Asian Development duty along with the social welfare surcharge.
Bank was established in 1966 with its headquarter • Statement 2 is incorrect: Inverted Duty
in Manilla, Philippines. European Bank for Structure refers to a situation when import duty
Reconstruction and Development was on the final good is less than that on the raw
established in 1991 in London. India is a material imported for its domestic production.
member of this bank but is not entitled to loans This makes the domestic production of such
from EBRD. The International Centre for goods less remunerative as compared to their
Settlement of Disputes is one among the five imports. Hence, it relates to imports. Anti-
banks under the World Bank group. India is not a Dumping duty is charged when the price of export
member of this. Other organizations part of the by an exporting country is less than its domestic
World Bank group are: International Bank for cost of production. The purpose of such different
Reconstruction and Development, International prices is to dump the goods from one country to
Development Association, International Finance another country. The importing country charges
Corporation, and Multilateral Investment anti-dumping duty to curb such exports by the
Guarantee Agency, other country.
Q.75) Ans: c Q.77) Ans: b

Exp: Exp:
• Statement 1 is incorrect: Asian Infrastructure • Statement 1 is incorrect: A number of
Investment Bank (AIIB) is based in Beijing, China agreements have been concluded at the WTO to
and is a multilateral institution to finance curb the menace of tariff and non-tariff barriers
infrastructure and development projects. China is which acts as a limitation on global trade. Some
the largest shareholder of the Bank followed by non-tariff barriers related are Agreement on
India and the UK. The voting power in the Bank is Technical Barriers to Trade and the Subsidies and
based on the share capital held by a member. The Countervailing Measures (for subsidies) for the
e
Asian countries command 75% of the voting non-food items. While for the food items,
in
power. Even though India is the second largest agreements include Agreement on Sanitary and
nl
shareholder, it is the largest borrower of the bank. Phytosanitary Measures and the Agreement on
l.o
Hence, the loan share is not related to the Agriculture (for subsidies). Hence, to curb the use
shareholding of the member country. of subsidies as a non-tariff barrier to trade, WTO
ria
• Statement 2 is incorrect: The Bretton wood has two agreements for food and non-food items.
• Statement 2 is incorrect: General Agreement on
e
organizations like World Bank, International

at
Monetary Fund, and the World Trade Tariffs and Trade (GATT) is an agreement to end
cm
Organization differ in their voting structures. the tariff barriers. It relates only to goods while
While the World Bank and International the General Agreement to Trade in Services
ps
Monetary Fund provides for voting share based (GATS) includes the same for services.
on the shareholdings, the World Trade
.u
w
PRAYSA TEST 23 37
w
w
Contact : +91-7007 931 912
• Statement 3 is correct: India’s Special Economic agricultural exports. It introduced a Special

Zones that seeks to create special demarcated Safeguard Mechanism that seeks to protect the
territories considered as foreign areas and local farmers of a developing country. Under this
subjected to relaxed tax laws. Tax holidays and arrangement, an importing developing country
subsidies to boost exports in SEZ schemes has can impose tariffs and taxes on the sudden surge
been regarded as a violation under Subsidies and of exports from the developed countries in the
Countervailing measures as per USA. agricultural exports. Besides, the Nairobi Package
also stressed on the technical reforms needed to
boost the exports of the Least Developed
Q.78) Ans: a Countries (LDCs).
Exp:
• Statement 1 is incorrect: Peace Clause was Q.80) Ans: c
introduced by the WTO in its Bali Package and Exp:
Trade Facilitation Agreement in Bali, Indonesia in • Option C is correct: The Foreign Currency Non-
2013. Peace clause provides immunity to the Residents or FCNR accounts are a part of the
developing countries from the upper limit of food Capital Account and are deposited in the Indian
subsidies provided to their food security banks. These deposits act as liability to the banks
programs. The Amber Box subsidies under for which they need to pay the interests.
the Agreement on Agriculture allows developed The tightening or decreasing the threshold of
countries to provide a 5% subsidy on the volume External Commercial Borrowings causes lesser
of production while the same for developing borrowings of the corporates which in turn
countries is 10%. Hence, the Peace clause is decreases the external debt of the country. The
introduced as an exception to the Agreement on external debt of a country is in the form of foreign
Agriculture. currencies and also includes the SDRs of the IMF.
• Statement 2 is incorrect: The Amber Box under Hence, greater SDR receipts would increase the
the Agreement of Agriculture provides for a external debt of the country. SDRs are deposits
certain threshold limit of subsidies that can be with the IMF on which an interest is
provided by both developed and developing charged. Appreciation of rupee increases the
countries as a percentage of their production. external debt as the country’s external debt is
The developed countries are entitled to 5% raised both in terms of dollars (approx. 50%)and
subsidy under this while the same for the rupees (approx. 35%) as per the RBI data. The
developed countries is 10%. appreciated rupee can then accommodate greater
• Statement 3 is correct: The Nairobi Package of quantities of dollars which is reflected in the
2015 extended the duration of the Peace Clause. increased external debt when denominated in
The peace clause was introduced at Bali (2013) as dollars. Decreasing subsidies on any sector,
a temporary measure, which was extended in export or food, provides more money at the
Nairobi and further extended to indefinite period hands of the government which in turn would
of time in the Buenos Aires Summit in 2017 as reduce its borrowing needs.
e
there is yet no consensus between the developed

in
and developing countries on the issue of food Q.81) Ans: b

nl
subsidy. Exp:
l.o
• Statement 1 is incorrect: Regional

Q.79) Ans: c Comprehensive Economic Partnership is a
ria
Exp: proposed free trade agreement between 10

e
• Option C is correct: The Special Safeguard countries of the ASEAN and its six Free-Trade
at
Mechanism came into existence in the Bali partners including India, China, Australia, Japan,
cm
summit, 2013. The Nairobi summit not only New Zealand, and South Korea. The aim of RCEP
extended the Peace clause but also provided for or any FTA is to reduce the tariff and the non-
ps
the immediate end of export subsidies provided tariff barriers amongst each other by charging
by the developed countries to its exporters in lower reduced rates to boost trade and economic
.u
w
PRAYSA TEST 23 38
w
w
Contact : +91-7007 931 912
indicators. It does not mean charging no tariffs been accorded the Most favored nations status
rather aims at charging the reduced common are charged with tariffs that are either less or
rates to all parties. same as the Bound tariff rates or the upper tariff
• Statement 2 is correct: India has backed out of limits.
the negotiations with RCEP citing its huge trade
deficit with the RCEP countries, which were likely Q.84) Ans: d
to increase post the signing of the RCEP. Exp:
India’s current trade deficit with the RCEP • Option D is correct: Boosting India’s exports is
countries stood at around 100 billion USD of important to improve the situation of India in the
which a little over 50% was with China alone. global trade and to arrest the current account
deficits. NITI Ayog’s Export Preparedness
Q.82) Ans: b Index talks of several measures that can be
Exp: employed to boost the exports of the country. It
• Statement 1 is correct: As per the observations focuses on the competitiveness of the states and
made at the Economic Survey 2020-2021, aims at eliminating inter and intra-regional
the signing of Free Trade Agreements by India has disparities to promote export growth.
indeed improved the situation of India’s exports in Hence, subnational export promotion
the share of global trade. policies that aim to induce the states to improve
• Statement 2 is incorrect: Rules of Origin applies on their exports is a step in a positive
to the Free Trade Agreement partners as well. direction. Diversification of the exports by adding
Hence, Rules of Origin forms a part of the Free more and more commodities to the list also helps
Trade Agreements. It aims to prevent a Free trade in boosting exports. Charging higher GST rates on
partner from dumping the goods originated from the domestic consumption would have a greater
a third country into India under the garb of its FTA adverse impact on the domestic demand and may
with India. Hence, it ensures that for an imported not necessarily increase exports. Addressing
good to be subjected to the benefits of Free Trade inter-regional disparities aims to promote the
Agreement must necessarily contain some growth of exports by ensuring the landlocked
percentage of value addition from the exporting states have better access to the transportation
country. and other facilities. Ensuring mandatory
• Statement 3 is incorrect: Special 301 report of the government procurement would leave lesser
United States deals with the Intellectual Property goods available for the exports. Hence, may not
Rights issue and not with the issue of currency increase the exports of the country.
manipulations. A country is placed by the USA in
its priority or priority watch lists, etc. depending Q.85) Ans: a
on the harm it is causing to the patents of the Exp:
USA. • Statement 1 is correct: Compulsory licensing is a
flexibility accorded under the TRIPS or the Trade
Q.83) Ans: a Related Intellectual Property Rights of the WTO. It
e
Exp: enables the government of a country to extend

in
• Statement 1 is correct: USA is currently the the license for the use of a patented product to a
nl
largest trading partner of India from the 2018-19 government agency or a third private party. It
l.o
and India maintains a trade surplus with USA. does not require the consent of the owner of the
China is the second largest trading partner of India patent before according to the license.
ria
and India maintains a trade deficit with China. • Statement 2 is correct: Patent Pooling is a
e
• Statement 2 is incorrect: Bound tariff rates in the situation where the two or more than patent
at
WTO is the commitment by an importing country holders come together to share the license of the
cm
to reduce the tariff on its imports gradually. patent with a third party or with one another. This
Bound tariff rate is the maximum tariff rate that concept gained wide prominence after the
ps
can be charged on the country with the Most emergence of COVID pandemic to allow more
favored Nation’s status. Countries which have innovation in the domain of public health.
.u
w
PRAYSA TEST 23 39
w
w
Contact : +91-7007 931 912
• Statement 3 is incorrect: The TRIPS agreement India, and the General Agreement of Trade and
was negotiated at the WTO during the Uruguay Tariffs.
rounds in 1995. A country party to the WTO has to
mandatorily comply with the TRIPS Agreement. It Q.88) Ans: c
covers multiple areas for the protection of Exp:
Intellectual Property Rights and is in line with • Option C is correct
the Paris (for the protection of Intellectual • A secondary market is a platform wherein the
property) and the Berne convention (for the shares of companies are traded among investors.
protection of Artistic and Literary works) of • Examples of fixed income securities are –
the World Intellectual Property Rights debentures, bonds, and preference shares.
Organization. • Examples of variable income instruments are –
equity and derivatives.
Q.86) Ans: a
Exp: Q.89) Ans: c
• Statement 1 is incorrect: It is the responsibility of Exp:
the exporters to provide the Certificate of Origins • Statement 1 is incorrect: The regulator of Indian
for their goods. In the certificate, there needs to stock market, set up under the Security and
be a mention of the Nationality, Exchange Board of India Act, 1992 (as a non-
contents, and compliance with the customs and statutory body set on 12 April, 1988 through a
trade requirements. government resolution and given Statutory
• Statement 2 is correct: Certificates of Origin are Powers on 30 January 1992 through the SEBI Act,
of two types either of Non preferential rules of 1992
origin or the preferential rules of origin. In case • Statement 2 is correct:Function of SEBI
of non-preferential types, the certificate deals :Registering and stock exchanges, merchant
with the countries with which there exists no banks, mutual funds, underwriters, registrars to
preferential trade agreements. Preferential types the issues, brokers, sub-brokers, transfer agents
deal with the countries with which there is a and others.
reciprocal or non reciprocal preferential trade • Statement 3 is correct:SEBI comes under the
agreement. India’s Customs (Administration of jurisdiction of the ministry of finance.
Rules of Origin under Trade Agreement) Rules,
2020 covers the imports where there is a claim of Q.90) Ans: a
a preferential duty for imports. Exp:
• Statement 1 is correct: Gold ETF, or Exchange
Q.87) Ans: b Traded Fund, is a commodity-based Mutual Fund
Exp: that invests in assets like gold. These exchange-
• Option B is correct: The United Nations was traded funds perform like individual stocks and
formed in October 1945 to ensure the peace and are traded similarly on the stock exchange.
security of the world and to foster friendly o Exchange-traded funds represent assets, in this
e
relations and cooperation among the member case, physical gold, both in dematerialised and
in
states. The Bretton Woods conference was held paper form.

nl
in July 1945 which proposed the creation of three o Tax benefits – Other than capital gains tax, gold
l.o
international institutions to promote peaceful exchange traded funds do not attract VAT,
trade. India was a participant of this Securities Transaction Tax or Value Added Taxes,
ria
conference. India became independent from the allowing an individual to save taxes on their
e
rule of the Britishers on 15 August, 1947. investment.

at
The General Agreement on Trade and Tariffs was o Investing in physical gold can make an individual
cm
organized in 1948. Hence, the correct liable to pay wealth taxes.

chronological order is: Bretton Woods conference, • Statement 2 is incorrect: Increase in investment
ps
formation of the United Nations, independence of in gold ETF will decrease the current account
.u
deficit as gold imports will reduce.

w
PRAYSA TEST 23 40
w
w
Contact : +91-7007 931 912
Q.91) Ans: d Sector Enterprises (CPSEs), Central Public Financial

Exp: Institutions (CPFIs) and other Government
Option D is correct organizations to meet their borrowing
• CDS is a credit derivative that can be used requirements, apart from bank financing. An
to transfer credit risk from the investor exposed Exchange Traded Fund (ETF) listed on NSE, which
to the risk (called protection buyer) to an investor invests your money in public sector bonds. Lowest
willing to take risk (called protection seller). unit of it is just Rs1000/- so that even retail
• Through a CDS, the buyer can avoid the investors can invest. Bond ETF will provide safety,
consequences of a borrower's default by shifting Liquidity (tradability on exchange) and predictable
some or all that risk onto an insurance company tax efficient returns.
or other CDS seller in exchange for a fee. In this • Statement 2 is correct: Bharat 22 exchange
way, the buyer of a credit default swap receives traded fund includes under one roof 22 blue chips
credit protection, while the seller of the swap like IOC, ONGC, SBI and partially in ITC, Larsen &
guarantees the creditworthiness of the debt Toubro, Axis Bank which are held by it through
security. the Specific Undertaking of the Unit Trust of
India (SUUTI) (SEBI Registered mutual fund).
Q.92) Ans: c Bharat 22 ETF is managed by ICICI Prudential
Exp: Mutual Fund. It was Launched with the
• Statement 1 is correct: A Participatory Note (PN expectation of increasing the process
or P-Note) in essence, is a derivative instrument of disinvestment. Both anchor and non-anchor
issued in foreign jurisdictions, by a SEBI registered investors can invest in Bharat 22 ETF.
FII, against Indian securities—the Indian security
Extra Edge by Only IAS
instrument may be equity, debt, derivatives or
About Exchange Traded Funds:
may even be an index.
• ETFs are index funds that are listed and traded on
• Statement 2 is incorrect:The investor in PN does
stock exchanges just like regular shares.
not own the underlying Indian security, which is
• They are a basket of stocks with assigned weights
held by the FII who issues the PN.
that reflect the composition of an index.
• Statement 3 is correct:The PN holder also does
• The ETFs trading value is based on the Net Asset
not enjoy any voting rights in relation to
Value (NAV) of the underlying stocks that it
security/shares referenced by the PN.
represents.
• They enable investors to gain broad exposure to
Q.93) Ans: a
entire stock markets in different countries and
Exp:
specific sectors with relative ease, on a real-time
• Statement 1 is incorrect: Scrip Share: A share
basis and at a lower cost than many other forms of
given to the existing shareholders without any
investing.
charge—also known as bonus share.
• The ETF is aimed at helping speed up the
• Statement 2 is correct:Sweat Share :A share given government’s disinvestment programme.
to the employees of the company without any
e
charge.
in
• Statement 3 is correct Futures :A trading allowed Q.95) Ans: b

nl
in shares where a future price is quoted for the Exp:

l.o
shares and the payment and delivery takes place About The Securities and Exchange Board of India
on the predetermined dates. (SEBI)
ria
o SEBI is a statutory body established on April 12,

e
Q.94) Ans: c 1992 in accordance with the provisions of

at
Exp: the Securities and Exchange Board of India Act,

cm
• Statement 1 is correct: Bharat Bond ETF is 1992.

the first corporate bond ETF in India. It aims to o It is also a quasi-legislative and quasi-judicial
ps
create an additional source of funding for Central body which can draft regulations, conduct
inquiries, pass rulings and impose penalties.
.u
Public Sector Undertakings (CPSUs) Central Public

w
PRAYSA TEST 23 41
w
w
Contact : +91-7007 931 912
o Composition: • Statement 2 is correct: The Social Sector

o The SEBI Board shall consist of the following nine enterprises can raise funds by listing Zero Coupon
(9) members, namely: Zero Principal Bonds, development impact bonds,
o A Chairman. The Chairman is to be nominated by social impact funds with 100% grants-in grants out
the Central Government. provision, and donations by investors through
o Two members from amongst the officials of the mutual funds.
Ministry of the Central Government dealing with • Statement 3 is incorrect: SSE is to be regulated
finance and administration of the Companies Act by SEBI that comes under the Finance
2013; ministry. Social enterprises can engage in
o One member from amongst the officials of activities such as:
the Reserve Bank of India; o Eradicating hunger, poverty, malnutrition and
o Five other members of whom at least three shall inequality;
be whole-time members, to be appointed by the o promoting health care and sanitation;
Central Government. o Promoting education, employability and
Functions of SEBI livelihoods.
o Reviewing the market operations, organizational o Promoting gender equality,
structure and administrative control of the stock o Ensuring environmental sustainability, addressing
exchanges. climate change
o Promoting efficient services by brokers o Promoting livelihoods for rural and urban poor,
by registration and regulation of working of o Slum area development, affordable housing
market intermediaries such as merchant bankers, • Statement 4 is incorrect: Both For Profit
portfolio managers, stock brokers etc. Enterprise (FPE) and Not for Profit Organisation
o To overlook the registration and regulation of (NPO) will be eligible to tap the SSE if they are
Mutual Funds, Venture Capital Funds and able to show their primary goals are social intent
Collective Investment Schemes. and impact. The entities listed on SSE will have to
o To promote and regulate Self-Regulatory disclose their social impact report on an annual
Organizations. basis covering aspects such as “strategic intent
o Ensure fair practices by companies and prohibiting and planning, approach, impact score card”.
fraudulent and unfair trade practices in the
securities market. Q.97) Ans: c
o Prohibition of Insider Trading. Exp:
o To educate and train the investors thereby • Statement 1 is correct: It is a debt instrument
protecting investors. issued by an Indian entity in foreign markets to
o To conduct inspections and inquiries raise money, in Indian currency, instead of dollars
o Conducting research to perform the above or local denomination. They are the rupee-
functions denominated bonds and are a source of debt
financing for the public and private sector. The
Q.96) Ans: b major objectives of Masala Bonds are to fund
e
Exp: infrastructure projects, ignite internal growth

in
• Statement 1 is correct: A panel was set up by and internationalise the Indian rupee.
nl
SEBI in 2019 under the Chairmanship of Ishaat • Statement 2 is incorrect: Masala Bonds are issued
l.o
Hussain, Director at SBI Foundation, to suggest by International Finance Corporation, which is an

possible structures and regulations for creating a arm of the World Bank. In 2019, Kerala became
ria
Social Stock Exchange, to facilitate listing and the first Indian state to issue Masala Bonds worth
e
fund-raising by social enterprises as well as Rs. 2,150 crore on the London Stock Exchange.
at
voluntary organisations. Social Stock Exchange is State-owned Kerala Infrastructure Investment

cm
a platform that helps organisations working for Fund Board (KIIFB) had issued the bonds to raise
social welfare to raise capital via debt, equity and funds in the overseas market
ps
mutual funds. It is regulated by SEBI. The aim is to • Statement 3 is correct: These bonds can only be
raise funds to help organizations working for issued to a resident of such a country which is a
.u
social well-being.
w
PRAYSA TEST 23 42
w
w
Contact : +91-7007 931 912
member of the Financial Action Task Force. Also, Rajan committee (2008) on financial sector
the security market regulator of the country must reforms first proposed the creation of FSDC.
be a member of the International Organisation of • Statement 2 is incorrect: The Chairman of the
Securities Commission. These bonds can also be Council is the Union finance minister and
subscribed by regional and multilateral financial its members include
institutions where India is a member country. o The heads of financial sector Regulators (RBI, SEBI,
PFRDA, IRDA),
Q.98) Ans: c o Chairperson of Insolvency and Bankruptcy Board
Exp: of India (IBBI),
• Statement 1 is correct: ISIN is a unique 12-digit o Chief Economic Advisor
alphanumeric code that uniquely identifies a o Secretaries from the ministry of finance, ministry
specific security like stocks and bonds. An ISIN is of Information Technology and ministry of
not the same as the ticker symbol, which Corporate Affairs.
identifies the stock at the exchange level. The ISIN o The Council can also invite experts to its meeting
is a unique number assigned to a security that is if required.
universally recognizable. ISINs are used for • Statement 3 is correct: The functions of FSDC are:
numerous reasons including clearing and o To strengthen and institutionalize the
settlement. The numbers ensure a consistent mechanism for maintaining financial stability,
format so that holdings of institutional investors enhancing inter-regulatory coordination and
can be tracked consistently across markets promoting financial sector development.
worldwide o To monitor macro-prudential supervision of the
• Statement 2 is incorrect: The National economy. It assesses the functioning of the large
Numbering Agency (NNA) – a country-specific financial conglomerates.
establishment – is responsible for allocating ISINs • Without prejudice to the autonomy of regulators,
for all the securities issued in the country. In the Council shall also deal with issues relating to:
India, National Securities Depository Limited o Financial stability
(NSDL) issues ISIN for various securities, as o Financial sector development
assigned by the Securities and Exchange Board of o Inter-regulatory coordination
India (SEBI). For government securities, the o Financial literacy
allotment of the ISIN code is regulated by o Financial Inclusion
the Reserve Bank of India (RBI). The NSDL was o Macro prudential supervision of the economy
established in August 1996, under the aegis of including the functioning of large financial
the Depositories Act, 1996. conglomerates.
• Statement 3 is correct: International Securities o Coordinating India’s international interface with
Identification Number is useful in financial sector bodies like Financial Action Task
o Preventing mistakes in buying/selling Force (FATF), Financial Stability Board (FSB), and
shares/bonds of companies with similar sounding any such body as may be decided by the Finance
o names. Minister from time to time.
e
o Facilitates digital transactions through the DEMAT o Any other matter relating to the financial sector
in
account. stability and development referred to by a

nl
o The code is also helpful in preventing member/Chairperson and considered prudent by

l.o
counterfeiting and forgery. the Council/Chairperson.

ria
Q.99) Ans: c Q.100) Ans: b

e
Exp: Exp:
at
• Statement 1 is incorrect: Financial Stability and • Statement 1 is correct: As per "The Deposit
cm
Development Council is a non-statutory apex Insurance and Credit Guarantee

council under the Ministry of Finance constituted Corporation (DICGC) Act 1961", DICGC must
ps
by the Executive Order in 2010. The Raghuram register all commercial banks (scheduled and
non-scheduled both) and Urban Cooperative
.u
w
PRAYSA TEST 23 43
w
w
Contact : +91-7007 931 912
banks (UCB) and State and District Central

Cooperative Banks (StCB/DCCB) as an insured
bank.
• Statement 2 and statement 3 is incorrect: Every
insured bank is liable to pay premium to DICGC as
may be notified by DICGC after the approval of
RBI. But the premium shall not exceed fifteen
paise per annum for every hundred rupees of the
total amount of the deposits in that bank. Which
means premium has been capped under the
DICGC Act. As per the rules, premium cost is
required to be borne by the
bank themselves and cannot be passed on to
depositors.
• Since the insurance cover has been increased
from the present Rs. 1 lakh per depositor per bank
to Rs. 5 lakh per depositor per bank, the insurance
premium has also been increased from
presently 10 paise per Rs. 100 of deposit to 12
paise per Rs. 100 of deposit.
• Deposits of foreign governments, deposits of
central and state governments, and inter-bank
deposits are not covered/insured.
e
in
nl
l.o
e ria
at
cm
ps
.u
w
PRAYSA TEST 23 44
w
w

PRAYAS - 2022 Test - 23: Economy

Uploaded by

Copyright:

Available Formats

PRAYAS - 2022 Test - 23: Economy

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

PRAYAS - 2022 Test - 23: Economy

Uploaded by

Copyright:

Available Formats

PRAYAS - 2022

below: Money supply:

a) 1 and 3 only 1. Deposits with public, interbank deposits, cash

c) 1 and 2 only money supply

d) All of the above 2. Money supply in an economy is the total liability

of the Reserve Bank of India.

a) It shows loss of trust in the economy, hence a) 1 only

markets c) Both 1 and 2

d) Neither 1 nor 2 b) Financial inclusion and poverty reduction in the

market securities is:

3. Provide a boost to the business sector a) Repo rate

below: c) Reverse Repo rate

c) 1 and 3 only Q.15) In the context of Indian economy consider the

d) 1 and 2 only following statements:

1. Debentures are the debt instruments which may

of the money multiplier is 2, what does it indicate? funds in a security market.

aggressively to generate higher returns.

commercial banks only. deficit.

a) 1only in the previous year.

c) 2 and 3only a) 1 only

d) 1,2 and 3 b) 2 only

Q.19) ecently, Insurance Corporation of India (LIC), d) Neither 1 nor 2

foreign investments in India: d) Neither 1 nor 2

1. Foreign Portfolio Investments (FPI) are not

3. The component of FPI is more than the FDI in the market.

b) 2 and 3 only power of the country and excludes the effects of

Which of the statements given above is/are

1. The concept of currency convertibility bears the secondary markets

Account is linked to the performance criteria of Standing Facility

incorrect? available for 14 days

b) 2 only under exceptional circumstances, marginal

d) Neither 1 nor 2 prescribed limit

pandemic systems operators in India

sector banks (PSBs) in matters of d) 1, 2 and 3

1. Revoking the Banking license

3. Winding-up of banks following agricultural and allied activities can be

1. Setting up Compressed Biogas Plant b) 2, 3, 4, 5 only

d) None of the above 3. Benchmark Prime Lending Rate

4. Three-Month Treasury Bill Yield

3. Trend and Progress of banking in India a) 1 and 2 only

4. Indian Economy Prospects b) 2, 3 and 4 only

5. Financial Stability Report c) 2 and 4 only

Which of the above given reports/ surveys are d) 4 only

a) 1, 2, 3 only that has been recently introduced by the RBI:

c) 1, 2, 4 only 2. Currency swap agreements can also be used as an

d) 1, 3, 4 only out of market transaction to stop the depreciation

1. The Prompt Corrective Action Framework is b) 2 only

applicable only to commercial banks c) Both 1 and 2

sectors/entities Q.58) With reference to the Indian economy,

2. KYC Norms a) To make the government securities market stable

banks to lend activities

3. Payment banks can accept demand and time

absorbing excess liquidity from the market? a) 1 only

a) Marginal Standing Facility b) 2 only

b) Open Market Operations c) 1 and 3 only

c) Operation Twist d) None of the above

Q.66) When RBI increases the sale of government

Acquisition Programme (G-SAP) is that the following is most likely to happen?