Sharpe ratio is the measure of the risk-adjusted return of a financial portfolio. The Sharpe ratio divides a portfolio’s excess returns by a measure of its volatility to assess risk-adjusted performance. Excess returns are those above an industry benchmark or the risk-free rate of return.
The calculation may be based on historical returns or forecasts. A higher Sharpe ratio is better when comparing similar portfolios. A portfolio with a higher Sharpe ratio is considered superior relative to its peers.
The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.
4. With reference to the Indian economy, which of the following factors can cause or increase demand-pull inflation?
Expansionary policies
Fiscal stimulus
Increased prices of raw materials
Higher purchasing power
Rising interest rates
Select the correct answer from the code given below.
[A] 1, 2, 3 and 5 [B] 2, 3 and 4 [C] 1, 2 and 4 [D] 1, 2, 3, 4 and 5
Demand-pull inflation arises when the demand for goods and services surpasses their supply. As overall demand in the economy rises, consumers are willing to pay higher prices, leading to a general increase in price levels. A robust economy with high consumer spending can result in excess demand, causing upward pressure on prices.
Cost-push inflation occurs due to rising production costs for goods and services. Factors contributing to this type of inflation include higher wages, increased prices of raw materials, and supply chain disruptions, all of which drive up the cost of production.
5. With reference to the Indian economy, consider the following statements:
An increase in Nominal Effective Exchange Rate (NEER) signifies rupee appreciation.
An increase in Real Effective Exchange Rate (REER) reflects improved trade competitiveness.
Higher domestic inflation compared to other countries increases the divergence between NEER and REER.
The Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) are indicators of external trade competitiveness.
Statement 1 is correct: NEER represents the weighted average of bilateral nominal exchange rates of the home currency against foreign currencies. An increase in NEER indicates rupee appreciation.
Statement 2 is incorrect: REER is the weighted average of NEER adjusted for relative price differences between domestic and foreign economies. A rise in REER suggests that exports become more expensive and imports cheaper, reducing trade competitiveness.
Statement 3 is correct: REER adjusts NEER for inflation differentials between the home country and its trading partners. Higher domestic inflation leads to a greater divergence between NEER and REER.
The above questions are part of Daily UPSC 20 Current Affairs MCQs Series in GKToday Android Application. This series can be subscribed in the app only for user friendly test with detailed answers and explanations. Download Now
The above questions are part of Daily UPSC 20 Current Affairs MCQs Series in GKToday Android Application. This series can be subscribed in the app only for user friendly test with detailed answers and explanations. Download Now
