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InterviewSolution
This section includes InterviewSolutions, each offering curated multiple-choice questions to sharpen your knowledge and support exam preparation. Choose a topic below to get started.
| 51. |
Demand deposits include (Choose the correct alternative) (a) Saving account deposits and fixed deposits (b) Saving account deposits and current account deposits (c) Current account deposits and fixed deposits (d) All types of deposits |
| Answer» (b) Saving account deposits and current account deposits | |
| 52. |
What do visible BOP transactions include ? |
| Answer» Visible items refer to items relating to trading in goods with other countries. | |
| 53. |
Demand deposite includeA. Saving account deposits and fixed depositsB. Saving account deposits and current account depositsC. Current account deposits and fixed depositsD. All types of deposits |
| Answer» Correct Answer - A | |
| 54. |
Aggregate 9emand can be increased by: (choose the correct aiternative) (a) increasing bank rate (b) selling government securities by Reserve Bank of India (c) increasing cash reserve ratio (d) none of the above |
| Answer» (d) none of the above | |
| 55. |
Who regulates money supply ?A. Government of IndiaB. Reserve Bank of IndiaC. Commerical BankD. NITI Ayog |
| Answer» Correct Answer - B | |
| 56. |
Aggregate demand can be increased byA. increasing bank rateB. selling government securities by RBIC. increasing CRRD. None of the above |
| Answer» Correct Answer - D | |
| 57. |
Credit creation by Connerical bank is determined byA. CRRB. SLRC. Initial depositsD. All the above |
| Answer» Correct Answer - D | |
| 58. |
Define externalities. Give an example of negative/positive externality and its impact on welfare. |
| Answer» Negative externalities occur when the consumption or production of a good causes a harmful effect to a third party. ... Thus, by endangering and affecting the life of the people living in the surrounding areas, it reduces the overall welfare of the society and creates negative externality. | |
| 59. |
Why does the demand for the foreign currency fall and supply rises when its price rises? Explain |
| Answer» The demand for foreign currency fall and supply rises when its price rises because domestic goods become cheaper. It induces the foreign currency to increase their imports from the domestic country. | |
| 60. |
Explain components of (a) current account and (b) capital account of BOP. |
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Answer» The main components of Current Account are: 1. Export and Import of Goods (Merchandise Transactions or Visible Trade): A major part of transactions in foreign trade is in the form of export and import of goods (visible items). Payment for import of goods is written on the negative side (debit items) and receipt from exports is shown on the positive side (credit items). Balance of these visible exports and imports is known as balance of trade (or trade balance). 2. Export and Import of Services (Invisible Trade): It includes a large variety of non- factor services (known as invisible items) sold and purchased by the residents of a country, to and from the rest of the world. Payments are either received or made to the other countries for use of these services. Services are generally of three kinds: (a) Shipping, (b) Banking, and (c) Insurance. Payments for these services are recorded on the negative side and receipts on the positive side. 3. Unilateral or Unrequited Transfers to and from abroad (One sided Transactions): Unilateral transfers include gifts, donations, personal remittances and other ‘one-way’ transactions. These refer to those receipts and payments, which take place without any service in return. Receipt of unilateral transfers from rest of the world is shown on the credit side and unilateral transfers to rest of the world on the debit side. 4. Income receipts and payments to and from abroad: It includes investment income in the form of interest, rent and profits. The main components of capital account are: 1. Borrowings and landings to and from abroad: It includes: A. All transactions relating to borrowings from abroad by private sector, government, etc. Receipts of such loans and repayment of loans by foreigners are recorded on the positive (credit) side. B. All transactions of lending to abroad by private sector and government. Lending abroad and repayment of loans to abroad is recorded as negative or debit item. 2. Investments to and from abroad: It includes: A. Investments by rest of the world in shares of Indian companies, real estate in India, etc. Such investments from abroad are recorded on the positive (credit) side as they bring in foreign exchange.B. Investments by Indian residents in shares of foreign companies, real estate abroad, etc. Such investments to abroad be recorded on the negative (debit) side as they lead to outflow of foreign exchange. 3. Change in Foreign Exchange Reserves: The foreign exchange reserves are the financial assets of the government held in the central bank. A change in reserves serves as the financing item in India’s BOP. So, any withdrawal from the reserves is recorded on the positive (credit) side and any addition to these reserves is recorded on the negative (debit) side. It must be noted that ‘change in reserves’ is recorded in the BOP account and not ‘reserves’. |
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| 61. |
Distinguish between balance of trade and balance on current account |
| Answer» BOT is the difference between the values of exports and imports of goods of a country whereas BOP is the difference between the values of exports and imports of goods, services and unilateral transfers of a country. | |
| 62. |
State the components of (a) current account, and (b) capital account of BOP |
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Answer» The current account consists of visible trade (export and import of goods), invisible trade (export and import of services), unilateral transfers, and investment income (income from factors such as land or foreign shares). The credit and debit of foreign exchange from these transactions is also recorded in the balance of current account. The resulting balance of the current account is approximated as the sum total of balance of trade. The components of the capital account include foreign investment and loans, banking and other forms of capital, as well as monetary movements or changes in the foreign exchange reserve. The capital account flow reflects factors such as commercial borrowings, banking, investments, loans, and capital. |
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| 63. |
State the components of capital account part of BOP |
| Answer» The components of the capital account include foreign investment and loans, banking and other forms of capital, as well as monetary movements or changes in the foreign exchange reserve. The capital account flow reflects factors such as commercial borrowings, banking, investments, loans, and capital. | |
| 64. |
Foreign exchange transactions. dependent on other foreign exchange transactions are calledA. Current account transactionsB. Capital account transactionsC. Autonomous transactionsD. Accommodating transactions |
| Answer» Correct Answer - D | |
| 65. |
Foreign exchange transaction dependent on other foreign exchange transactions are called: (i) current account transaction (ii) capital account transaction (iii) autonomous transaction (iii) autonomous transaction (iv) accomodating transaction |
| Answer» (iv) Accomodating transactions. | |
| 66. |
Foreign exchange transactions dependent on other foreign exchange transactions are calledA. Current account transactionsB. Capital account transactionsC. Autonomous transactionsD. Accommodating transactions |
| Answer» Correct Answer - D | |
| 67. |
Foreign exchange transactions which are independent of other transactions in the Balance of Payments Account are called:A. Current account transactionsB. Capital account transactionsC. Autonomous transactionsD. Accommodating transactions |
| Answer» Correct Answer - C | |
| 68. |
Export of machinery is recorded in the:A. credit side of capital accountB. debit sale of capital accountC. credit side of current accountD. debit side of current account |
| Answer» Correct Answer - C | |
| 69. |
Foreign exchange transactions dependent on other foreign exchange transactions are called:A. Current account transactionsB. Capital account transactionsC. Autonomous transactionsD. Accommodating transactions |
| Answer» Correct Answer - D | |
| 70. |
Gifts and remittances to abraod are recorded in theA. credit side of capital accountB. debit sale of capital accountC. credit side of current accountD. debit side of current account |
| Answer» Correct Answer - D | |
| 71. |
Define balance of trade (BOT). |
| Answer» It is the difference between value of imports and value of exports of material goods. | |
| 72. |
When will BOT show a surplus? |
| Answer» When exports of material goods exceed the import of these goods | |
| 73. |
When is there a deficit in BOT? |
| Answer» When the money value of import of material goods exceeds the export of such goods. | |
| 74. |
When receipts of foreign exchange are less than payments of foreign exchange, then BOP is:A. deficitB. surplusC. balancedD. none of these |
| Answer» Correct Answer - A | |
| 75. |
Balance of Trade equals :A. Exports less importsB. Exports of goods less imports of goodsC. Exports of services less imports of servicesD. None of the above |
| Answer» Correct Answer - B | |
| 76. |
When receipts of foreign exchange are more than payments of foreign exchange, BOP is:A. BalancedB. SurplusC. DeficitD. None of these |
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Answer» Correct Answer - B B. When receipts of foreign exchange are more than payments of foreign exchange, BOP is in Surplus. |
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| 77. |
Balance of trade is the difference betweenA. determined by profitB. above the line itemsC. undertaken to maintain BOP identityD. none of these |
| Answer» Correct Answer - C | |
| 78. |
The net value of balance of visible trade, invisible trade and of unilateral transfers isA. Balance of capital accountB. Balance of current accountC. Balance of tradeD. Balance of payments |
| Answer» Correct Answer - B | |
| 79. |
Surplus in BOP arises when:A. Autonomous Payments `gt` Autonomous ReceiptsB. Accommodating Receipts `gt` Accommodating PaymentsC. Accomodating Payments `gt` Accommodating ReceiptsD. Autonomous Receipts `gt` Autonomous Payments |
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Answer» Correct Answer - D D. Autonomous Receipts `gt` Autonomous Payments |
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| 80. |
_______ refers to the difference between exports and imports of visible items.A. Balance of paymentsB. Balance of tradeC. Both (a) and (b)D. Neither (a) nor (b) |
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Answer» Correct Answer - B B. Balance of trade refers to the difference between exports and imports of visible items. |
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| 81. |
Name three visible items of exports |
| Answer» Machinery, rice and tea. | |
| 82. |
Transactions that take place to cover deficit or surplus are called _____transactionsA. accommodatingB. autonomousC. current accountD. above the line |
| Answer» Correct Answer - A | |
| 83. |
________ transactions are undertaken to cover the deficit or surplus in autonomous transactions.A. Current accountB. Capital AccountC. AccomodatingD. None of these |
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Answer» Correct Answer - C C. Accommodating transactions are undertaken to cover the deficit or surplus in autonomous transactions. |
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| 84. |
Identify the following items are visible items or invisinble items: i) Exports of machines. ii) import of TV sets from Japan. iii) Banking services in England iv) Exportof tea to Sri Lanka. |
| Answer» Visible items: i), (ii), (iv), Invisible itmes, (iii) | |
| 85. |
Classify the following transactions in current account or capital account: i) Purchase of shares of ITC by Microsoft. ii) Borrowing from IMF. iii) Repayment of loan by Indian government taken from Germany. iv) Remittance from abroad. v) Purchase of land in USA |
| Answer» Current account: (iv), Capital account: (i), (ii), (iii) and (v) | |
| 86. |
Are the following entered (i) on the credit side or the debit side and (ii) in the current account or capital account in the Balance of Payments account? You must give reason for your answer. (a) Investment from abroad (b) Transfer of funds to relative abroad. |
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Answer» (i) Investments from abroad are recoreded on the credit side because these brings in foreign exchange. The transaction is recorded in capital account because it increases foreign exchange liability. (ii) Transfer of funds to relatives abroad is recorded on the debit side because it leads to outflow of foreign exchange It is recorded in the current account because this does not create any foreign exchange asset |
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| 87. |
What is meant by Current Account Deficit (CAD) and Current Account Surplus (CAS)? State their significance. |
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Answer» Correct Answer - Current Account Deficit (CAD) is a situation that arises when the receipts on current account are less than the payments on current account. In simple words, Current Account Deficit (CAD) arises when the value of exports of goods and services is less than the value of imports of goods and services. Current Account surplus (CAS) is a situation that arises when the receipts on current account is more than the payments on current account. In simple words, Current Account Surplus (CAS) arises when the value of exports of goods and services is more than the value of imports of goods and services. CAD signifies that the nation is a borrower from rest of the world, whereas, CAS signifies that the nation is a lender to the rest of the world. Current Account Deficit (CAD) is a situation that arises when the receipts on current account are less than the payments on current account. In simple words, Current Account Deficit (CAD) arises when the value of exports of goods and services is less than the value of imports of goods and services. Current Account surplus (CAS) is a situation that arises when the receipts on current account is more than the payments on current account. In simple words, Current Account Surplus (CAS) arises when the value of exports of goods and services is more than the value of imports of goods and services.CAD signifies that the nation is a borrower from rest of the world, whereas, CAS signifies that the nation is a lender to the rest of the world. |
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| 88. |
Are the following entered (i) on the credit side or the debit side and (ii) in the current account or capital account in the Balance of Payments account? You must give reason for your answer. (a) Investments from abroad. (b) Transfer of funds to relatives abroad. (c ) Imports of machinery. |
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Answer» Correct Answer - (a) Investments from abroad: It is recorded in capital account because it creates a liability to pay foreign exchange. It is recorded on credit side because it leads to inflow of foreign exchange. (b) Transfer of funds to relatives abroad: It is recorded in the current account because it does not change any liability or an asset. It is recorded on debit side because it leads to outflow of foreign exchange. (c ) Imports of machinery: It is recorded as visible items in the current account because it does not change any liability or an asset. It is recorded on debit side because it leads to outflow of foreign exchange. (a) Investments from abroad: It is recorded in capital account because it creates a liability to pay foreign exchange. It is recorded on credit side because it leads to inflow of foreign exchange. (b) Transfer of funds to relatives abroad: It is recorded in the current account because it does not change any liability or an asset. It is recorded on debit side because it leads to outflow of foreign exchange. (c ) Imports of machinery: It is recorded as visible items in the current account because it does not change any liability or an asset. It is recorded on debit side because it leads to outflow of foreign exchange. |
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| 89. |
State whether the following transactions will be recorded on the debit side or credit side of BOP. i) Loan from World Bank to cover deficit of BOP. ii) Indian government repays loan taken from World Bank. iii) Purchase of shares of Reilance by an American resident. iv) Export of coffee to Japan. v) Import of machines from USA. |
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Answer» Transactions relating to inflow of foreign exchange will be recorded on the credit side and outflows of foreign exchange on the debit side in balance of payment. Debit side (ii), (v), Credit side, (i), (iii), (iv). |
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| 90. |
Repayment of loan by Government of India to the World Bank____________________ |
| Answer» Correct Answer - Debit | |
| 91. |
Unilateral transfer made to abroad will be recorded as a debit item of BOP on account account . |
| Answer» True. It leads to outflow of foreign exchange. | |
| 92. |
State whether the following transactions will be recorded on debit or credit side of BOP. (i) Loan from IMF to cover deficit of BOP. (ii) Indian Government repays loan taken from IMF. (iii) Purchase of shares of Infosys by a Japanese resident. (iv) Export of jute to Sri Lanka. Acquisition of a foreign company by Tata. (vi) Purchase of toys from China. |
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Answer» Correct Answer - Transactions relating to inflow of foreign exchange will be recorded on the credit side and outflow of foreign exchange on the debit side. Debit Side: (ii), (v), (vi); Credit Side: (i), (iii), (iv). Transactions relating to inflow of foreign exchange will be recorded on the credit side and outflow of foreign exchange on the debit side. Debit Side: (ii), (v), (vi); Credit Side: (i), (iii), (iv). |
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| 93. |
Current account of BOP recordsA. Exports and import of goodsB. Exports and import of servicesC. Unilateral transfers from and to foreignersD. All of these |
| Answer» Correct Answer - D | |
| 94. |
Which of the following items is entered on the credit side of BOP account?A. Investment from abroadB. Import of goodsC. Gifts paid to foreignersD. Repayment of foreign loan |
| Answer» Correct Answer - A | |
| 95. |
Actual real GDP is represented on some point of the PP curve. True or False ? Explain |
| Answer» False as PP only tells the potential of the economy. | |
| 96. |
When real national income increases, the PP curve shifts rightwards. True or False ? Explain |
| Answer» False as PPC shows just the potential of the economy. | |
| 97. |
Supply of a product is perfectly price-inelastic. Its demand 'decreases'. This leads to fall in real national income. Other things remaining unchange. True or False ? Explain |
| Answer» Real national income measures GDP in real terms or only in terms of goods and services and not the prices. When the supply is perfectly inelastic, with a fall in demand only the price level will not the quantity demanded or supplied in the economy. Hence the given statement is false. | |
| 98. |
Distinguish between autonomous and accommodating transactions of balance of payments account. OR Distinguish between the autonomous transactions and the accommodating transactions in the Balance of Payments. What is the significance of this distinction? |
| Answer» ~Autonomous items refer to those international economic transactions, which take place due to some economic motive such as profit maximization. Accommodating items refer to the transactions that are undertaken to cover deficit or surplus in autonomous transactions.~Significance of Distinction: the deficit/surplus in Balance of Payments (BOP) is determined by autonomous transactions only. BOP is said to be in deficit when autonomous receipts fall short of autonomous payments. | |
| 99. |
If value of exports of country is Rs 11000 crore and value of imports is Rs 20000 crore, what will be balance of trade? |
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Answer» Balance of trade= Exports - Imports = Rs 11000 crore - Rs 20000 crore=(-) Rs 9000 crore. It means that there is deficit of Rs 9000 crore. |
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| 100. |
The price of US dollar has fallen from Rs 65 to Rs 62. Has the Indian currency depreciated or appreciated? |
| Answer» The Indian currency has appreciated. | |