External Sector: BoP, FDI & Exchange Rate PYQs

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1. Prelims 2022Q2External Sector: BoP, FDI & Exchange Rate

   With reference to the Indian economy, consider the following statements :

   1.An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.

   2.An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.

   3.An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.

   Which of the above statements are correct ?

   a1 and 2 onlyb2 and 3 onlyc1 and 3 onlyd1, 2 and 3
2. Prelims 2022Q6External Sector: BoP, FDI & Exchange Rate

   With reference to foreign-owned e-commerce firms operating in India, which of the following statements is/are correct ?

   1.They can sell their own goods in addition to offering their platforms as market-places.

   2.The degree to which they can own big sellers on their platforms is limited.

   Select the correct answer using the code given below :

   a1 onlyb2 onlycBoth 1 and 2dNeither 1 nor 2
3. Prelims 2021Q7External Sector: BoP, FDI & Exchange Rate

   Consider the following :

   1.Foreign currency convertible bonds

   2.Foreign institutional investment with certain conditions

   3.Global depository receipts

   4.Non-resident external deposits

   Which of the above can be included in Foreign Direct Investments?

   a1, 2 and 3b3 onlyc2 and 4d1 and 4
4. Prelims 2021Q8External Sector: BoP, FDI & Exchange Rate

   Consider the following statements :

   The effect of devaluation of a currency is that it necessarily

   1.improves the competitiveness of the domestic exports in the foreign markets

   2.increases the foreign value of domestic currency

   3.improves the trade balance

   Which of the above statements is/are correct?

   a1 onlyb1 and 2c3 onlyd2 and 3
5. Prelims 2020Q49External Sector: BoP, FDI & Exchange Rate

   If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India ?

   1.Not depending on short-term foreign borrowings

   2.Opening up to more foreign banks

   3.Maintaining full capital account convertibility

   Select the correct answer using the code given below :

   a1 onlyb1 and 2 onlyc3 onlyd1, 2 and 3
6. Prelims 2020Q51External Sector: BoP, FDI & Exchange Rate

   With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ?

   aIt is the investment through capital instruments essentially in a listed company.bIt is a largely non-debt creating capital flow.cIt is the investment which involves debt-servicing.dIt is the investment made by foreign institutional investors in the Government securities.
7. Prelims 2019Q63External Sector: BoP, FDI & Exchange Rate

   Consider the following statements :

   1.Most of India’s external debt is owed by governmental entities.

   2.All of India’s external debt is denominated in US dollars.

   Which of the statements given above is/are correct?

   a1 onlyb2 onlycBoth 1 and 2dNeither 1 nor 2
8. Prelims 2019Q65External Sector: BoP, FDI & Exchange Rate

   In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?

   1.The foreign currency earnings of India’s IT sector

   2.Increasing the government expenditure

   3.Remittances from Indians abroad

   Select the correct answer using the code given below.

   a1 onlyb1 and 3 onlyc2 onlyd1, 2 and 3
9. Prelims 2019Q86External Sector: BoP, FDI & Exchange Rate

   Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?

   aCurbing imports of non-essential goods and promoting exportsbEncouraging Indian borrowers to issue rupee denominated Masala BondscEasing conditions relating to external commercial borrowingdFollowing an expansionary monetary policy
10. Prelims 2017Q77External Sector: BoP, FDI & Exchange Rate

    Which of the following has/have occurred in India after its liberalization of economic policies in 1991 ?

    1.Share of agriculture in GDP increased enormously.

    2.Share of India's exports in world trade increased.

    3.FDI inflows increased.

    4.India's foreign exchange reserves increased enormously.

    Select the correct answer using the codes given below :

    a1 and 4 onlyb2, 3 and 4 onlyc2 and 3 onlyd1, 2, 3 and 4
11. Prelims 2016Q18External Sector: BoP, FDI & Exchange Rate

    Which of the following best describes the term 'import cover', sometimes seen in the news?

    aIt is the ratio of value of imports to the Gross Domestic Product of a countrybIt is the total value of imports of a country in a yearcIt is the ratio between the value of exports and that of imports between two countriesdIt is the number of months of imports that could be paid for by a country's international reserves
12. Prelims 2015Q34External Sector: BoP, FDI & Exchange Rate

    Convertibility of rupee implies

    abeing able to convert rupee notes into goldballowing the value of rupee to be fixed by market forcescfreely permitting the conversion of rupee to other currencies and vice versaddeveloping an international market for currencies in India
13. Prelims 2015Q94External Sector: BoP, FDI & Exchange Rate

    The problem of international liquidity is related to the non-availability of

    agoods and servicesbgold and silvercdollars and other hard currenciesdexportable surplus
14. Prelims 2014Q30External Sector: BoP, FDI & Exchange Rate

    With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?

    1.Balance of trade

    2.Foreign assets

    3.Balance of invisibles

    4.Special Drawing Rights

    Select the correct answer using the code given below.

    a1 onlyb2 and 3c1 and 3d1, 2 and 4
15. Prelims 2013Q41External Sector: BoP, FDI & Exchange Rate

    The balance of payments of a country is a systematic record of

    aall import and export transactions of a country during a given period of time, normally a yearbgoods exported from a country during a yearceconomic transaction between the government of one country to anotherdcapital movements from one country to another
16. Prelims 2013Q56External Sector: BoP, FDI & Exchange Rate

    Which of the following constitute Capital Account?

    1.Foreign Loans

    2.Foreign Direct Investment

    3.Private Remittances

    4.Portfolio Investment

    Select the correct answer using the codes given below.

    a1, 2 and 3b1, 2 and 4c2, 3 and 4d1, 3 and 4
17. Prelims 2013Q83External Sector: BoP, FDI & Exchange Rate

    Which one of the following groups of items is included in India’s foreign-exchange reserves?

    aForeign-currency assets, Special Drawing Rights (SDRs) and loans from foreign countriesbForeign-currency assets, gold holdings of the RBI and SDRscForeign-currency assets, loans from the World Bank and SDRsdForeign-currency assets, gold holdings of the RBI and loans from the World Bank
18. Prelims 2012Q78External Sector: BoP, FDI & Exchange Rate

    Which of the following would include Foreign Direct Investment in India?

    1.Subsidiaries of foreign companies in India

    2.Majority foreign equity holding in Indian companies

    3.Companies exclusively financed by foreign companies

    4.Portfolio investment

    Select the correct answer using the codes given below :

    a1, 2, 3 and 4b2 and 4 onlyc1 and 3 onlyd1, 2 and 3 only
19. Prelims 2012Q79External Sector: BoP, FDI & Exchange Rate

    Consider the following statements :

    The price of any currency in international market is decided by the

    1.World Bank

    2.demand for goods/services provided by the country concerned

    3.stability of the government of the concerned country

    4.economic potential of the country in question

    Which of the statements given above are correct?

    a1, 2, 3 and 4b2 and 3 onlyc3 and 4 onlyd1 and 4 only
20. Prelims 2011Q10External Sector: BoP, FDI & Exchange Rate

    Consider the following actions which the Government can take:

    1.Devaluing the domestic currency.

    2.Reduction in the export subsidy.

    3.Adopting suitable policies which attract greater FDI and more funds from FIIs.

    Which of the above action/actions can help in reducing the current account deficit?

    a1 and 2b2 and 3c3 onlyd1 and 3
21. Prelims 2011Q28External Sector: BoP, FDI & Exchange Rate

    Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country.

    Which one of the following statements best represents an important difference between the two?

    aFII helps bring better management skills and technology, while FDI only brings in capitalbFII helps in increasing capital availability in general, while FDI only targets specific sectorscFDI flows only into the secondary market, while FII targets primary marketdFII is considered to be more stable than FDI
22. Prelims 2010Q30External Sector: BoP, FDI & Exchange Rate

    A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies like UK and France. Why?

    aIndia has preference for certain countries as regards receiving FDIbIndia has double taxation avoidance agreement with MauritiuscMost citizens of Mauritius have ethnic identity with India and so they feel secure to invest in IndiadImpending dangers of global climatic change prompt Mauritius to make huge investments in India
23. Prelims 2010Q45External Sector: BoP, FDI & Exchange Rate

    Which of the following is/are treated as artificial currency?

    aADRbGDRcSDRdBoth ADR and SDR
24. Prelims 2007Q79External Sector: BoP, FDI & Exchange Rate

    Tarapur Committee was associated with which one of the following?

    aSpecial Economic ZonesbFuller capital account convertibilitycForeign exchange reservesdEffect of oil prices on the Indian economy
25. Prelims 2006Q16External Sector: BoP, FDI & Exchange Rate

    Assertion (A): ‘Balance of Payments’ represents a better picture of a country’s economic transactions with the rest of the world than the ‘Balance of Trade’.

    Reason (R): ‘Balance of Payments’ takes into account the exchanges of both visible and invisible items whereas ‘Balance of Trade’ does not.

    aBoth A and R are true and R is the correct explanation of AbBoth A and R are true but R is not a correct explanation of AcA is true but R is falsedA is false but R is true
26. Prelims 2005Q15External Sector: BoP, FDI & Exchange Rate

    Consider the following statements :

    1.During the year 2004, India’s foreign exchange reserves did not exceed the 125 billion U.S. Dollar mark

    2.The series of index numbers of wholesale prices introduced from April, 2000 has the year 1993-94 as base year.

    Which of the statements given above is/are correct?

    a1 onlyb2 onlycBoth 1 and 2dNeither 1 nor 2
27. Prelims 2004Q23External Sector: BoP, FDI & Exchange RateAnswer disputed

    In the last one decade, which one among the following sectors has attracted the highest Foreign Direct Investment inflows into India?

    aChemicals other than fertilizersbServices sectorcFood processingdTelecommunication
28. Prelims 2003Q58External Sector: BoP, FDI & Exchange Rate

    Which one of the following statements is correct with reference to FEMA in India?

    aThe Foreign Exchange Regulation Act (FERA), was replaced by Foreign Exchange Management Act (FEMA) in the year 2001bFERA was given a sunset clause of one year till 31st May 2002 to enable Enforcement Directorate to complete the investigation of pending issuescUnder FEMA, violation of foreign exchange rules has ceased to be a criminal offencedAs per the new dispensation, Enforcement Directorate can arrest and prosecute the people for the violation of foreign exchange rules
29. Prelims 2003Q85External Sector: BoP, FDI & Exchange Rate

    With reference to Government of India’s decisions regarding Foreign Direct Investment (FDI) during the year 2001-02, consider the following statements:

    1.Out of the 100% FDI allowed by India in tea sector, the foreign firm would have to disinvest 33% of the equity in favour of an Indian partner within four years.

    2.Regarding the FDI in print media in India, the single largest Indian shareholder should have a holding higher than 26%.

    Which of these statements is/are correct?

    aOnly 1bOnly 2cBoth 1 and 2dNeither 1 nor 2
30. Prelims 2002Q36External Sector: BoP, FDI & Exchange Rate

    India's external debt increased from US $98,158 million as at the end of March 2000 to US $100,225 million as at the end of March 2001 due to increase in

    amultilateral and bilateral debtbrupee debtccommercial borrowings and NRI depositsdborrowing from International Monetary Fund