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Day-641
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Question 1 of 5
1. Question
1. With reference to financial market, consider the following statements about ‘algo trading’:
1. It refers to the use of algorithms to buy and sell shares at a very fast speed.
2. In India, only institutional investors can use this tool.
3. In India, it accounts for less than 10% of trading volumes.
How many of the above statements are correct?Correct
Answer: A
Explanation:
Statement 1 is correct: Algo trading refers to the use of computer programs (or algorithms) to buy and sell shares at lightning speeds, often in milliseconds. This type of trading relies on complex mathematical formulae to trigger buy/sell orders without human intervention. In recent years, it has become popular due to its ability to process large amounts of data and make trades at high speeds.
Statement 2 is incorrect: It arrived in India in 2008 and initially only institutional investors were allowed to use this tool. Retail investors were allowed to use this in 2016.
Statement 3 is incorrect: Currently, in India, the algo trading accounts for about 50% of trading volumes, while in the United States, Europe, and other Asian markets, the percentage ranges from 60 to 70% of the total trading volume.Incorrect
Answer: A
Explanation:
Statement 1 is correct: Algo trading refers to the use of computer programs (or algorithms) to buy and sell shares at lightning speeds, often in milliseconds. This type of trading relies on complex mathematical formulae to trigger buy/sell orders without human intervention. In recent years, it has become popular due to its ability to process large amounts of data and make trades at high speeds.
Statement 2 is incorrect: It arrived in India in 2008 and initially only institutional investors were allowed to use this tool. Retail investors were allowed to use this in 2016.
Statement 3 is incorrect: Currently, in India, the algo trading accounts for about 50% of trading volumes, while in the United States, Europe, and other Asian markets, the percentage ranges from 60 to 70% of the total trading volume. -
Question 2 of 5
2. Question
2. Which of the following statements is correct about disinflation?
Correct
Answer: D
Explanation:
Statement 1 is incorrect: Disinflation refers to the situation when goods and services are going up in price over time but at a slower rate than they have in the past.
Statement 2 is incorrect: During the disinflation period, prices of goods and services do not fall. The prices are rising but at a slower rate.
Statement 3 is incorrect: The purchasing power of the local currency falls as the prices are still rising. This means that fewer goods or services can be bought for the same amount of money.
Statement 4 is correct: To fight high inflation, the government introduces the contractionary monetary policy, which reduces the money supply by increasing the interest rate. This results in reducing the rate of inflation, thus resulting in disinflation.
Incorrect
Answer: D
Explanation:
Statement 1 is incorrect: Disinflation refers to the situation when goods and services are going up in price over time but at a slower rate than they have in the past.
Statement 2 is incorrect: During the disinflation period, prices of goods and services do not fall. The prices are rising but at a slower rate.
Statement 3 is incorrect: The purchasing power of the local currency falls as the prices are still rising. This means that fewer goods or services can be bought for the same amount of money.
Statement 4 is correct: To fight high inflation, the government introduces the contractionary monetary policy, which reduces the money supply by increasing the interest rate. This results in reducing the rate of inflation, thus resulting in disinflation.
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Question 3 of 5
3. Question
3. Consider the following:
1. Depreciation of a currency
2. Fall in domestic prices of goods meant for exports
3. Rise in foreign inflows
4. Subsidies for promoting exports
How many of the above-mentioned factors can positively impact the trade competitiveness of a country?Correct
Answer: C
Explanation:
Trade competitiveness refers to the comparative advantage a country possesses in producing certain goods and services so that it can better sell its products in the world market, increasing its exports.
Trade competitiveness is influenced by a number of factors:
● Depreciation of a currency: It results in making domestic goods and services cheaper in the world market. Thus, it will positively affect trade competitiveness. On the other hand, appreciation of a currency can negatively affect trade competitiveness.
● Fall in domestic prices of goods meant for exports: This will make domestic goods cheaper in the world market, thus improving the trade competitiveness.
● Rise in foreign inflows: It can result in appreciation of a currency, which can negatively affect the trade competitiveness.
● Subsidies for promoting exports: They can improve the trade competitiveness.Incorrect
Answer: C
Explanation:
Trade competitiveness refers to the comparative advantage a country possesses in producing certain goods and services so that it can better sell its products in the world market, increasing its exports.
Trade competitiveness is influenced by a number of factors:
● Depreciation of a currency: It results in making domestic goods and services cheaper in the world market. Thus, it will positively affect trade competitiveness. On the other hand, appreciation of a currency can negatively affect trade competitiveness.
● Fall in domestic prices of goods meant for exports: This will make domestic goods cheaper in the world market, thus improving the trade competitiveness.
● Rise in foreign inflows: It can result in appreciation of a currency, which can negatively affect the trade competitiveness.
● Subsidies for promoting exports: They can improve the trade competitiveness. -
Question 4 of 5
4. Question
4. Consider the following statements:
Statement-I: Countervailing duties are imposed to protect the domestic consumers from negative effects of export subsidies by the foreign country.
Statement-II: They are not prohibited under the World Trade Organization rules.
Which one of the following is correct in respect of the above statements?Correct
Answer: D
Explanation:
Statement-I is incorrect: Countervailing duties, also known as anti-subsidy duties, are import duties aimed to neutralise the negative effects of subsidies. They are imposed to protect the domestic producers from negative effects of export subsidies by the foreign country.
They are imposed after an investigation finds that a foreign country subsidises its exports, injuring domestic producers in the importing country.
● The duty nullifies and eliminates the price advantage (low price) enjoyed by an imported product when it is given subsidies or exempted from domestic taxes in the country where they are manufactured.
Statement-II is correct: Countervailing duties are WTO-compliant. The World Trade Organization (WTO) permits the imposition of countervailing duty by its member countries.
● In India, the CVD is imposed as an additional duty besides customs on imported products when such products are given tax concession in the country of their origin.Incorrect
Answer: D
Explanation:
Statement-I is incorrect: Countervailing duties, also known as anti-subsidy duties, are import duties aimed to neutralise the negative effects of subsidies. They are imposed to protect the domestic producers from negative effects of export subsidies by the foreign country.
They are imposed after an investigation finds that a foreign country subsidises its exports, injuring domestic producers in the importing country.
● The duty nullifies and eliminates the price advantage (low price) enjoyed by an imported product when it is given subsidies or exempted from domestic taxes in the country where they are manufactured.
Statement-II is correct: Countervailing duties are WTO-compliant. The World Trade Organization (WTO) permits the imposition of countervailing duty by its member countries.
● In India, the CVD is imposed as an additional duty besides customs on imported products when such products are given tax concession in the country of their origin. -
Question 5 of 5
5. Question
5. Consider the following statements:
Statement-I: Standing Deposit Facility is an efficient liquidity absorption tool than the regular reverse-repo rate.
Statement-II: It does not involve sale-purchase of government securities and interest is paid directly.
Which one of the following is correct in respect of the above statements?Correct
Answer: A
Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
Explanation:
A Standing Deposit Facility is an overnight deposit facility that allows banks to park excess liquidity and earn interest. This is much more efficient than the reverse repo arrangement where Government-securities had to be sold-and-repurchased to absorb liquidity.
Benefits of using SDF over reverse-repo auction:
● Reverse repo auction is at the discretion of the Reserve Bank of India, while under SDF, banks can plan liquidity management at their own discretion.
● SDF does not need exchange of collateral (sale-purchase of G-secs), which means that liquidity absorption is simple and fast.
Thus, SDF is an efficient liquidity absorption tool.Incorrect
Answer: A
Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I
Explanation:
A Standing Deposit Facility is an overnight deposit facility that allows banks to park excess liquidity and earn interest. This is much more efficient than the reverse repo arrangement where Government-securities had to be sold-and-repurchased to absorb liquidity.
Benefits of using SDF over reverse-repo auction:
● Reverse repo auction is at the discretion of the Reserve Bank of India, while under SDF, banks can plan liquidity management at their own discretion.
● SDF does not need exchange of collateral (sale-purchase of G-secs), which means that liquidity absorption is simple and fast.
Thus, SDF is an efficient liquidity absorption tool.
