External Sector of Economy

41. With reference to the International Monetary and Financial Committee (

With reference to the International Monetary and Financial Committee (IMFC), consider the following statements :

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  • 1. IMFC discusses matters of concern affecting the global economy, and advises the International Monetary Fund (IMF) on the direction of its work.
  • 2. The World Bank participates as observer in IMFC’s meetings.

Which of the statements given above is/are correct?

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1 only
2 only
Both 1 and 2
Neither 1 nor 2
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The correct answer is C) Both 1 and 2. Both statements regarding the International Monetary and Financial Committee (IMFC) are correct.
– Statement 1 is correct: The IMFC is a key advisory body to the IMF’s Board of Governors. It discusses matters of common concern affecting the global economy and advises the IMF on the direction of its work, including on the evolution of the international monetary and financial system.
– Statement 2 is correct: The IMFC consists of 24 members who are Governors of the IMF (usually ministers of finance or central bank governors). The World Bank President typically attends the IMFC meetings as an observer, along with observers from other international bodies like the UN, BIS, OECD, etc.
The IMFC meets twice a year, during the Spring Meetings and the Annual Meetings of the IMF and the World Bank. It does not have formal decision-making powers but plays a vital role in guiding the IMF’s policy direction.

42. Recently, which one of the following currencies has been proposed to b

Recently, which one of the following currencies has been proposed to be added to the basket of IMF’s SDR?

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Rouble
Rand
Indian Rupee
Renminbi
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The correct answer is D) Renminbi. The Chinese currency, Renminbi (Yuan), was proposed and subsequently added to the basket of the IMF’s Special Drawing Right (SDR).
– The SDR is an international reserve asset created by the IMF to supplement the official reserves of member countries.
– The value of the SDR is based on a basket of key international currencies. Prior to 2016, the basket consisted of the US dollar, Euro, Japanese Yen, and British Pound.
– In 2015, the IMF’s Executive Board decided to include the Chinese Renminbi (RMB) in the SDR basket, effective October 1, 2016.
The inclusion of the Renminbi reflected its increased role in international trade and finance. The composition and weighting of the SDR basket are reviewed periodically by the IMF.

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43. In the context of which of the following -do-you- sometimes-find the t

In the context of which of the following -do-you- sometimes-find the terms ‘amber box, blue box and green box’ in the news?

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WTO affairs
SAARC affairs
UNFCCC affairs
India-EU negotiations on FTA
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The terms ‘amber box’, ‘blue box’, and ‘green box’ are specific classifications used within the framework of the World Trade Organization (WTO), particularly in the context of the Agreement on Agriculture (AoA).
These terms categorize different types of domestic support (subsidies) provided by governments to their agricultural sectors, based on their potential to distort trade.
* **Green Box:** Refers to subsidies that are considered to have minimal or no distorting effects on trade. These are generally allowed without limits (e.g., government services like research, disease control, infrastructure, food security stocks, direct income support to farmers decoupled from production).
* **Amber Box:** Refers to domestic support measures that are considered to distort production and trade. Members committed to reducing these subsidies from a defined baseline.
* **Blue Box:** Refers to subsidies that are linked to programmes that limit production. While they are production-limiting, they are still considered potentially trade-distorting but less so than Amber Box measures. They are exempt from reduction commitments but subject to certain criteria.
These classifications and the rules surrounding them are central to negotiations and disputes related to agricultural subsidies under the WTO. Options B, C, and D are incorrect as these specific terms are defined and used within the WTO framework.

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44. With reference to ‘IFC Masala Bonds’, sometimes seen in the news, whic

With reference to ‘IFC Masala Bonds’, sometimes seen in the news, which of the statements given below is/are correct?

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  • 1. The International Finance Corpora- tion, which offers these bonds, is an arm of the World Bank.
  • 2. They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.

Select the correct answer using the code given below.

1 only
2 only
Both 1 and 2
Neither 1 nor 2
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IFC Masala Bonds are a type of bond issued by the International Finance Corporation (IFC) or Indian entities in overseas markets. The term ‘Masala Bonds’ generally refers to rupee-denominated bonds issued outside India.
Let’s evaluate each statement:
1. **The International Finance Corporation, which offers these bonds, is an arm of the World Bank:** The World Bank Group is a family of five international organizations. The International Finance Corporation (IFC) is one of these five organizations, specifically focused on private sector development in developing countries. This statement is correct. IFC was one of the first entities to issue rupee-denominated bonds in the international market, labeling them “Masala Bonds”.
2. **They are the rupee-denominated bonds and are a source of debt financing for the public and private sector:** Masala Bonds are debt instruments denominated in Indian Rupees (INR) but issued in overseas capital markets. This allows Indian entities (both public and private sector) or multilateral agencies like IFC to raise funds from international investors in INR, thereby transferring the currency risk from the Indian issuer to the overseas investor. This statement is correct.
Issuing bonds in INR helps Indian companies hedge against currency fluctuations when borrowing from abroad. The name ‘Masala Bonds’ was given by IFC to give a local flavour, similar to how Yen-denominated bonds issued outside Japan are called ‘Samurai bonds’ or Yuan-denominated bonds outside China are called ‘Dim Sum bonds’.

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45. The problem of international liquidity is related to the non-availabil

The problem of international liquidity is related to the non-availability of

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goods and services
gold and silver
dollars and other hard currencies
exportable surplus
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The problem of international liquidity is related to the non-availability of dollars and other hard currencies.
International liquidity refers to the availability of financial assets that can be readily used to settle international transactions, primarily reserves of convertible foreign currencies (hard currencies), gold, and drawing rights with international institutions like the IMF (SDRs).
Hard currencies, such as the US Dollar, Euro, Yen, and Pound Sterling, are widely accepted in international trade and finance due to their stability and convertibility. A ‘problem of international liquidity’ arises when there is a shortage of these internationally accepted means of payment relative to the volume of international trade and financial flows, making it difficult for countries to finance balance of payments deficits.

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46. Convertibility of rupee implies

Convertibility of rupee implies

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being able to convert rupee notes into gold
allowing the value of rupee to be fixed by market forces
freely permitting the conversion of rupee to other currencies and vice versa
developing an international market for currencies in India
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The correct option is C. Convertibility of rupee implies freely permitting the conversion of rupee to other currencies and vice versa.
– Currency convertibility refers to the ease with which a domestic currency can be exchanged for foreign currencies.
– Full convertibility means the currency can be freely exchanged for any purpose (trade, services, capital flows).
– Partial convertibility imposes restrictions on certain types of transactions, usually capital account transactions.
– India currently has full current account convertibility (for trade in goods and services) and partial capital account convertibility (restrictions apply to certain capital flows).
Option A relates to the outdated Gold Standard. Option B describes a floating exchange rate system, which is distinct from convertibility, although often associated with it. Option D describes the development of financial markets, which can be facilitated by convertibility but is not its definition. Option C accurately captures the essence of currency convertibility in the modern context.

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47. The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of

The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of Sanitary and Phytosanitary Measures’ and ‘Peace Clause’ appear in the news frequently in the context of the affairs of the

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Food and Agriculture Organization
United Nations Framework Conference on Climate Change
World Trade Organization
United Nations Environment Programme
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The correct option is C. The terms ‘Agreement on Agriculture’, ‘Agreement on the Application of Sanitary and Phytosanitary Measures’, and ‘Peace Clause’ are frequently associated with the World Trade Organization (WTO).
– The World Trade Organization (WTO) is the global international organization dealing with the rules of trade between nations.
– The ‘Agreement on Agriculture’ (AoA) is a WTO agreement that came into effect in 1995, dealing with domestic support, market access, and export subsidies in agriculture.
– The ‘Agreement on the Application of Sanitary and Phytosanitary Measures’ (SPS Agreement) is another WTO agreement concerning the application of food safety and animal and plant health regulations in international trade.
– The ‘Peace Clause’ was a temporary provision within the AoA that restrained countries from challenging, through WTO dispute settlement, certain subsidies that other member states provide to their farmers, provided the subsidies comply with certain conditions.
These agreements and provisions are outcomes of the Uruguay Round of multilateral trade negotiations that led to the creation of the WTO.

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48. The ‘Fortaleza Declaration’, recently in the news, is related to the a

The ‘Fortaleza Declaration’, recently in the news, is related to the affairs of

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ASEAN
BRICS
OECD
WTO
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The ‘Fortaleza Declaration’ is related to the affairs of the BRICS group of countries.
The Fortaleza Declaration was the outcome document of the 6th BRICS summit held in Fortaleza, Brazil, in July 2014. A key achievement of this summit, as articulated in the Declaration, was the decision to establish the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA).
BRICS is an acronym for the association of five major emerging national economies: Brazil, Russia, India, China, and South Africa. The Fortaleza summit marked a significant step in strengthening institutional cooperation among BRICS members.

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49. With reference to Balance of Payments, which of the following constitu

With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?

  • 1. Balance of trade
  • 2. Foreign assets
  • 3. Balance of invisibles
  • 4. Special Drawing Rights

Select the correct answer using the code given below.

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1 only
2 and 3
1 and 3
1, 2 and 4
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The correct option is C. The Balance of Trade and Balance of Invisibles constitute the Current Account of the Balance of Payments.
The Balance of Payments (BoP) is a statement of all transactions made between entities in one country and the rest of the world over a specific period. It is divided into two main accounts: the Current Account and the Capital Account. The Current Account records transactions in goods, services, income (like remittances, interest, dividends), and current transfers (like gifts, grants).
1. Balance of Trade: Exports minus imports of *goods* (visible trade). This is a component of the current account.
2. Foreign assets: These relate to investments and reserves, which are recorded in the Capital Account or Financial Account (often considered part of the Capital Account structure).
3. Balance of Invisibles: Exports minus imports of *services* and net income and net transfers. This is a component of the current account.
4. Special Drawing Rights (SDRs): These are reserve assets held by countries with the IMF and changes in SDR holdings are typically recorded in the Capital Account or as part of reserve assets, not current transactions.
Therefore, only 1 and 3 are components of the Current Account.

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50. With reference to a grouping of countries known as BRICS, consider the

With reference to a grouping of countries known as BRICS, consider the following statements :

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  • 1. The First Summit of BRICS was held in Rio de Janeiro in 2009.
  • 2. South Africa was the last to join the BRICS grouping.

Which of the statements given above is/are correct?

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1 only
2 only
Both 1 and 2
Neither 1 nor 2
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The correct answer is B.
Statement 1 is incorrect. The first summit of BRIC (Brazil, Russia, India, China) was held in Yekaterinburg, Russia, in 2009. Rio de Janeiro hosted the fourth BRICS summit in 2012. Statement 2 is correct in the context of the original BRICS grouping (Brazil, Russia, India, China, South Africa). South Africa was invited to join in December 2010 and formally became a member on April 14, 2011, attending its first summit in Sanya, China, in 2011. Thus, South Africa was the last to join the BRIC grouping to form BRICS-5.
The term “BRIC” was coined by Goldman Sachs economist Jim O’Neill in 2001. The group’s first formal meeting was in 2006. As of January 1, 2024, BRICS expanded to include Egypt, Ethiopia, Iran, Saudi Arabia, and the UAE. However, the question likely refers to the grouping as it existed before this expansion.

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