Indian Economy MCQs

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Gresham’s law, enunciated by Sir Thomas Gresham, states that inferior currency (bad money) in circulation displaces valuable or superior currency (good money) if both are accepted at same face value, as people hoard the good currency and spend the bad.

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Circular trading involves participants repeatedly buying and selling the same securities within a group. This creates fake market activity without changing ownership. Circular trading is banned under SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003. SEBI monitors for such patterns using price bands and volume filters. The practice is classified as market manipulation under Indian securities law.

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The Competition Commission of India (CCI) is the statutory body responsible for preventing practices that have an adverse effect on competition in India. It enforces the Competition Act, 2002 and works to promote fair competition, protect consumer interests and ensure freedom of trade in markets. It is a quasi-judicial authority and the correct choice among the given options. The consumer forums and the Central Vigilance Commission do not perform this competition-regulation function.

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Fixed to Floating and Floating to Floating describe interest rate swaps, which are derivative contracts exchanging fixed and floating interest payments. Interest rate swaps, including vanilla and basis swaps, are widely used for hedging and managing interest rate risk. Basis swaps exchange floating rates based on different benchmarks. These swaps play a major role in global financial markets and are commonly used by banks and corporations.

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A currency depreciation lowers the foreign-currency price of a country’s exports and makes imports costlier. Governments may tolerate or allow depreciation when they want to improve export competitiveness and reduce a trade deficit or external imbalance. However, it does not remove the need for reserves, and it can raise inflation by making imported goods more expensive. Hence, improving the trade balance is the most appropriate motive among the given options.

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Primary deficit is the gross deficit which is obtained by subtracting interest payments from budget deficit of any country of a particular year. We need to know the value of primary deficit, while calculating the fiscal deficit. Alternative Definition of Primary Deficit Primary deficit corresponds to the net borrowing, which is required to meet the expenditure excluding the interest payment. Primary Deficit = (Fiscal Deficit – Interest Payment)

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• Crude Birth Rate : Number of Births per 1000 population in a given year.
• Crude Death Rate : Number of Deaths per 1000 population in a given year.
• Natural Increase Rate of Population = Crude Birth Rate- Crude Death rate

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Mixed Banking is the system in which banks undertake activities of commercial and investment banking together.

• These banks give short-term and long-term loans to industrial concerns.
• The banks appoint experts which give valuable advice on various financial issues and also help gauge the financial health of companies.
• Industries don’t have to run to different places for differential financial needs.
• They thus promote rapid industrialization.
• They may however pose a grave threat to liquidity of a bank and lead to bad debts.

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Self Help Groups (SHGs) are small groups of poor people. The members of an SHG face similar problems. They help each other, to solve their problems. SHGs promote small savings among their members.

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Both actions can tighten banks' liquidity position. When a central bank sells government securities, reserves are drained from the banking system, reducing immediately available funds. Stricter liquidity regulations can also force banks to hold more safe liquid assets or meet higher liquidity buffers, leaving less money available for lending and investment. Quantitative easing does the opposite, because it injects reserves into the system and eases liquidity conditions.