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DAILY MCQ
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Question 1 of 5
1. Question
1. Consider the following statements about vostro account:
1. It is a type of account that domestic banks hold for foreign banks in foreign currency.
2. It helps domestic banks gain wider access to foreign financial markets without having any physical presence abroad.
Which of the statements given above is/are correct?Correct
Answer: B
Explanation:
Statement 1 is incorrect: A vostro account is an account that domestic banks hold for foreign banks in local currency. For example, a vostro account in an Indian Bank for a bank in the US would maintain in Indian rupee and not in dollars.
Statement 2 is correct: It is an integral offshoot of correspondent banking that entails a bank (or an intermediary) to facilitate wire transfer, conduct business transactions, accept deposits and gather documents on behalf of the other bank. It helps domestic banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.
• The Economic Survey (2022-23) had argued that the framework could largely reduce the “net demand for foreign exchange, the U.S. dollar in particular, for the settlement of current account related trade flows”.
• Indian exporters could get advance payments in rupees from overseas clients and in the long-term promote rupee as an international currency once the rupee settlement mechanism gains traction, the survey argued.Incorrect
Answer: B
Explanation:
Statement 1 is incorrect: A vostro account is an account that domestic banks hold for foreign banks in local currency. For example, a vostro account in an Indian Bank for a bank in the US would maintain in Indian rupee and not in dollars.
Statement 2 is correct: It is an integral offshoot of correspondent banking that entails a bank (or an intermediary) to facilitate wire transfer, conduct business transactions, accept deposits and gather documents on behalf of the other bank. It helps domestic banks gain wider access to foreign financial markets and serve international clients without having to be physically present abroad.
• The Economic Survey (2022-23) had argued that the framework could largely reduce the “net demand for foreign exchange, the U.S. dollar in particular, for the settlement of current account related trade flows”.
• Indian exporters could get advance payments in rupees from overseas clients and in the long-term promote rupee as an international currency once the rupee settlement mechanism gains traction, the survey argued. -
Question 2 of 5
2. Question
2. Consider the following statements:
1. Fiscal stimulus becomes less effective if the government expenditure is financed by borrowings from the market.
2. Rise in interest rates in domestic markets can lead to currency depreciation.
3. During the liquidity trap situation, interest rates in the economy are extremely high, creating a liquidity problem.
How many of the above statements are correct?Correct
Answer: A
Explanation:
Statement 1 is correct: Fiscal stimulus is given to stimulate the aggregate demand in the economy. If the expansionary fiscal policy is financed by the borrowings from the market, then it results in driving up the interest rate and and makes it costly for firms to borrow. Moreover, with the government borrowing from the market, less funds are available for the private players. This makes the fiscal stimulus less effective as investment multiplier is affected.
Statement 2 is incorrect: A rise in interest rates in the domestic market make it attractive for the foreign investors. This could drive in foreign capital inflows into the domestic market, which will increase the demand for domestic currency, thus driving up its value. Thus, this results in currency appreciation and not depreciation.
Statement 3 is incorrect: During the liquidity trap situation, interest rates in the economy are extremely low and speculative demand for money is extremely high. During the situation, the monetary policy doesn’t work.Incorrect
Answer: A
Explanation:
Statement 1 is correct: Fiscal stimulus is given to stimulate the aggregate demand in the economy. If the expansionary fiscal policy is financed by the borrowings from the market, then it results in driving up the interest rate and and makes it costly for firms to borrow. Moreover, with the government borrowing from the market, less funds are available for the private players. This makes the fiscal stimulus less effective as investment multiplier is affected.
Statement 2 is incorrect: A rise in interest rates in the domestic market make it attractive for the foreign investors. This could drive in foreign capital inflows into the domestic market, which will increase the demand for domestic currency, thus driving up its value. Thus, this results in currency appreciation and not depreciation.
Statement 3 is incorrect: During the liquidity trap situation, interest rates in the economy are extremely low and speculative demand for money is extremely high. During the situation, the monetary policy doesn’t work. -
Question 3 of 5
3. Question
3. Consider the following:
1. Introduction of Estate Duty
2. Reducing the subsidies on Public Distribution System
3. Increase in Goods and Services Tax (GST)
4. Introduction of living wage
Recently, there has been a lot of debate in the country on redistribution of wealth to reduce rising inequality and alleviate poverty. Which of the above measures are likely to be taken up by the government if it intends to reduce inequality?Correct
Answer: D
Explanation:
Redistribution of wealth or the need for reducing inequality in the country has always piqued interest of policymakers. The debate on introduction of inheritance tax to reduce inequality grabbed headlines recently.
Option 1 is correct: Introduction of estate duty/inheritance tax can serve as a potent tool to prevent concentration of wealth among the top earners of the country. The generated money from taxes can be redistributed in the form of increased expenditure on social security, etc.
Option 2 is incorrect: Reducing the subsidies on the Public Distribution System can affect the food security of people who benefit from the programme. Currently, in India 81.35 crore people get subsidized food under the Pradhan Mantri Gareeb Kalyan Yojana. Reducing the subsidy could mean affected people would have to spend extra amount on food, which could have been spent on other items.
Option 3 is incorrect: Goods and Services Tax is an indirect tax which is regressive in nature and the burden of the tax falls alike on poor as well as the rich. The government is unlikely to increase the GST, if the motive is to reduce inequality.
Option 4 is correct: Introduction of living wage helps in reducing the income gap. It allows employees to earn enough income for a satisfactory standard of living and prevents them from falling into poverty. Hence, this measure can be adopted by the government to reduce inequality.Incorrect
Answer: D
Explanation:
Redistribution of wealth or the need for reducing inequality in the country has always piqued interest of policymakers. The debate on introduction of inheritance tax to reduce inequality grabbed headlines recently.
Option 1 is correct: Introduction of estate duty/inheritance tax can serve as a potent tool to prevent concentration of wealth among the top earners of the country. The generated money from taxes can be redistributed in the form of increased expenditure on social security, etc.
Option 2 is incorrect: Reducing the subsidies on the Public Distribution System can affect the food security of people who benefit from the programme. Currently, in India 81.35 crore people get subsidized food under the Pradhan Mantri Gareeb Kalyan Yojana. Reducing the subsidy could mean affected people would have to spend extra amount on food, which could have been spent on other items.
Option 3 is incorrect: Goods and Services Tax is an indirect tax which is regressive in nature and the burden of the tax falls alike on poor as well as the rich. The government is unlikely to increase the GST, if the motive is to reduce inequality.
Option 4 is correct: Introduction of living wage helps in reducing the income gap. It allows employees to earn enough income for a satisfactory standard of living and prevents them from falling into poverty. Hence, this measure can be adopted by the government to reduce inequality. -
Question 4 of 5
4. Question
4. Consider the following:
1. Higher tax-to-GDP ratio
2. Disinvestment in PSUs
3. Reduction in reliance on external commercial borrowings
How many of the above measures can help in Fiscal Consolidation?Correct
Answer: C
Explanation:
Fiscal consolidation refers to the measures taken by the government to reduce its budget deficit and control its debt levels. The government can achieve this by increasing revenue or reducing expenditure. All the three options given above are correct.
• A higher tax-to-GDP ratio signifies a strong fiscal position of the government as it shows the government’s ability to generate revenue which can be spent on public services, infrastructure, social programs, and national defense. Hence, this helps in fiscal consolidation.
• Disinvestment in PSUs can help the government raise revenue and decrease its fiscal deficit. The proceeds of the disinvestment amount can be used by the government to finance its expenditure. Thus, it helps in fiscal consolidation.
• Reducing reliance on external commercial borrowings (ECBs) can aid in fiscal consolidation efforts of the government by lower debt accumulation and help in reducing the future liability of interest payments.
Thus, all of them are correct.Incorrect
Answer: C
Explanation:
Fiscal consolidation refers to the measures taken by the government to reduce its budget deficit and control its debt levels. The government can achieve this by increasing revenue or reducing expenditure. All the three options given above are correct.
• A higher tax-to-GDP ratio signifies a strong fiscal position of the government as it shows the government’s ability to generate revenue which can be spent on public services, infrastructure, social programs, and national defense. Hence, this helps in fiscal consolidation.
• Disinvestment in PSUs can help the government raise revenue and decrease its fiscal deficit. The proceeds of the disinvestment amount can be used by the government to finance its expenditure. Thus, it helps in fiscal consolidation.
• Reducing reliance on external commercial borrowings (ECBs) can aid in fiscal consolidation efforts of the government by lower debt accumulation and help in reducing the future liability of interest payments.
Thus, all of them are correct. -
Question 5 of 5
5. Question
5. Consider the following statements about the Trade-Related Aspects of Intellectual Property Rights (TRIPS):
1. WTO members have the rights under the TRIPS Agreement to grant compulsory licences under their domestic laws.
2. The compulsory licences issued can be used only for the domestic market and not for export purposes.
Which of the statements given above is/are correct?Correct
Answer: A
Explanation:
Statement 1 is correct: Compulsory licensing is when a government allows someone else to produce a patented product or process without the consent of the patent owner or plans to use the patent protected invention itself. It is one of the flexibilities in the field of patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement. WTO members can grant compulsory licences under their domestic laws, entitling third parties to use IP rights without the consent of right holders. The Doha Declaration confirmed and clarified this right.
Statement 2 is incorrect: All WTO members are eligible to export medicines under this special compulsory licensing mechanism. As regards eligible importing members, Least Developed Countries can use it straight away.Incorrect
Answer: A
Explanation:
Statement 1 is correct: Compulsory licensing is when a government allows someone else to produce a patented product or process without the consent of the patent owner or plans to use the patent protected invention itself. It is one of the flexibilities in the field of patent protection included in the WTO’s agreement on intellectual property — the TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement. WTO members can grant compulsory licences under their domestic laws, entitling third parties to use IP rights without the consent of right holders. The Doha Declaration confirmed and clarified this right.
Statement 2 is incorrect: All WTO members are eligible to export medicines under this special compulsory licensing mechanism. As regards eligible importing members, Least Developed Countries can use it straight away.
