Indian Economy MCQs
Indian Economy Multiple Choice Questions (MCQs) for State and UPSC Civil Services Examinations. Objective Questions on Indian Economy for competitive examinations.
21. Liquidity Adjustment Facility (LAF) is used by RBI to bring changes in which of the following?
- CRR and SLR
- Repo and Reverse Repo rates
- Bank rate
Choose the correct option from the codes given below:
[A] 1,2,3
[B] 1 and 2
[C] 1 Only
[D] 2 Only
Show Answer
Correct Answer: D [2 Only]
Notes:
RBI’s LAF helps banks to adjust their daily liquidity mismatches. There are two components of LAF viz. repo (repurchase agreement) and reverse repo. When banks need liquidity to meet its daily requirement, they borrow from RBI through repo. The rate at which they borrow fund is called the repo rate. When banks are flush with fund, they park with RBI through the reverse repo mechanism at reverse repo rate. LAF basically is the adjustment of repo and reverse repo rates and this option 4 is correct answer in this question.
22. Which among the following is correct in context with the Brown ATMs (Automated Teller Machines) ?
[A] ATMs owned by Foreign Companies
[B] ATMs not owned by banks but by private ATM service providers.
[C] Outsourced ATM Service by Banks – The ATM named under a brand sponsor bank but ATM machine not owned by the Bank
[D] ATMs owned by Government
Show Answer
Correct Answer: C [Outsourced ATM Service by Banks – The ATM named under a brand sponsor bank but ATM machine not owned by the Bank]
Notes:
The ATM named under a brand sponsor bank but ATM machine not owned by the Bank
‘Brown Label’ ATM: Outsourcing of ATM services by banks. The ATM is named under the brand of the sponsor bank but the ATM machine is not owned by the bank. In such cases, the hardware as well as lease is under the ownership of the service provider, while connectivity and cash handling and management is the responsibility of the sponsor bank
23. Which of the following is not a part of Broad Money in India?
[A] Demand Deposits with Banks
[B] Currency with the Public
[C] Time Deposits with Banks
[D] Banks’ deposits with RBI
Show Answer
Correct Answer: D [ Banks’ deposits with RBI ]
Notes:
Narrow money is the most liquid part of the money supply because the demand deposits can be withdrawn anytime during the banking hours. Time deposits on the other hand have a fixed maturity period and hence can not be withdrawn before expiry of this period. When we add the time despots into the narrow money, we get the broad money, which is denoted by M3. M3 = Narrow money + Time Deposits of public with banks Here, you must note that Broad money does not include the interbank deposits such as deposits of banks with RBI or other banks. At the same time, time deposits of public with all banks including the cooperative banks are included in the Broad Money. When you add the Post Office Savings money also into the M3, it becomes M4.
24. What is IPO in context to a company?
[A] The first sale of stock by a private company to the public
[B] Upgradation of shares from primary to secondary market
[C] Selling of shares at premium by a company
[D] Convert of a private limited company to public limited Company
Show Answer
Correct Answer: A [ The first sale of stock by a private company to the public ]
Notes:
When an unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both for the first time to the public, it is called Initial Public Offering or IPO. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.
25. Which of the following is / are part of India’s external debt?
- External Commercial Borrowings
- NRI Deposits
- Inward Remittances
Select the correct option from the codes given below:
[A] Only 1 & 2
[B] Only 2 & 3
[C] Only 1 & 3
[D] 1, 2 & 3
Show Answer
Correct Answer: A [ Only 1 & 2 ]
Notes:
In recent times, the rise in external debt was on account of higher long-term debt particularly commercial borrowings and non-resident Indian (NRI) deposits. The main four main components of External debt are External Assistance, Commercial Borrowings, Short term Trade Credit and NRI deposits. Kindly note that Inward remittances may include the profits, earnings abroad, so this term will be simply omitted looking at the language of the question.
26. The basic WTO principle with reference to trade barriers is that:
[A] Trade barriers can be imposed by any country that believes it will benefit from such trade barriers
[B] Trade Barriers should be lowered equally and without discrimination for all member countries
[C] Trade Barriers can be imposed if a majority of the members of the WTO agree
[D] Trade Barriers should be the same in all member countries so that the result is equivalent to free trade
Show Answer
Correct Answer: B [ Trade Barriers should be lowered equally and without discrimination for all member countries ]
Notes:
27. Consider the following companies:
1. Coal India Limited
2. Oil India Limited
3. Gail Indian Limited
Which among the above is / are Maharatna companies?
[A] Only 1 & 2
[B] Only 2 & 3
[C] Only 1 & 3
[D] 1, 2 & 3
Show Answer
Correct Answer: C [ Only 1 & 3 ]
Notes:
Maharatna companies are:
Bharat Heavy Electricals Limited; Coal India Limited; GAIL (India) Limited; Indian Oil Corporation Limited; NTPC Limited; Oil & Natural Gas Corporation Limited & Steel Authority of India Limited
28. With reference to the Statutory Liquidity Ratio (SLR), consider the following observations:
1. Banks can keep cash, government bonds as well as gold to meet their SLR requirements
2. SLR is one of the means to finance government’s fiscal deficit
Which of the above is / are correct statements?
[A] Only 1
[B] Only 2
[C] Both 1 & 2
[D] Neither 1 nor 2
Show Answer
Correct Answer: C [ Both 1 & 2 ]
Notes:
The Economic Survey has made a case to bring down the SLR gradually while discussing about the “double financial repression” being faced by the PSU banks. On one side, they need to keep higher protion of their assets as SLR while on the other hand, they have to comply with the Priority sector requirements. This is what has been called “double financial repression”. SLR The Statutory Liquidity Ratio is a requirement on banks to hold a certain share of their resources in liquid assets such as cash, government bonds and gold. In principle, the SLR can perform a prudential role because any unexpected demand from depositors can be quickly met by liquidating these assets. SLR requirements have traditionally been high. From 38 per cent in the period before 1991, there was a dramatic decline to about 25 per cent at the end of the 1990s. Since then however, the number has hovered around the quarter century mark, only recently falling to 22 per cent. As of Feb 4, 2015 the minimum requirement is 21.5 per cent of total assets. Banks typically keep more than the required SLR, the current realised SLR is in fact over 25 per cent. In practice, the SLR has become a means of financing (at less than market rates presumably) a bulk of the government’s fiscal deficit, suggesting that SLR cuts are related to the government’s fiscal position.
29. Which of the following schemes are parts of Foreign Trade Policy of India (FTP 2015-20)?
- Merchandise Exports from India Scheme (MEIS)
- Services Exports from India Scheme
- Export Promotion Capital Goods
- Advance Authorisation Scheme
Select the correct option from codes given below:
[A] 1 & 2 Only
[B] 1, 2 & 4 Only
[C] 1, 2 & 3 Only
[D] 1, 2, 3 & 4
Show Answer
Correct Answer: D [1, 2, 3 & 4]
Notes:
The Export Promotion Capital Goods (EPCG) scheme allows duty-free imports of machinery and parts against an undertaking that a firm will export a specified amount within a stipulated time. This scheme is a part of Foreign Trade Policy of India (FTP 2015-20). Service Exports from India Scheme (SEIS) and Merchandise Exports from India Scheme (MEIS) were introduced under the Foreign Trade Policy of India (FTP 2015-20). Under SEIS, the service providers of notified services are incentivized in the form of Duty Credit Scrips at the rate of 3 or 5% on their net foreign exchange earnings. Similarly, Export Promotion from Capital Goods scheme provides Duty Credit Scrips to exporters from India. Under Advance authorization Scheme (AAS), exporter can import raw-materials and related inputs under 100% duty exemption schemes. The DGFT is the licensing authority for this scheme. This is also a part of Foreign Trade Policy of India (FTP 2015-20).
30. Which state in India is the largest producer of salt?
[A] Kerala
[B] Andhra Pradesh
[C] Gujarat
[D] Maharashtra
Show Answer
Correct Answer: C [Gujarat]
Notes:
Gujarat is the largest producer of salt in India because of its extensive dry coast. Gujarat accounts for 77% of the salt produced in our country. Salt industries of Gujarat are thriving in Surat, Kutch, Bhavnagar, Rajkot, Anand, etc.
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