iasbaba 60 day plan 2020 –economics week 5 and 6 · • heads of all financial sector regulatory...

IASBABA60DAYPLAN2020–ECONOMICSWEEK5AND6

60DAYSPROGRAMME-2020 IASBABA



Q.1)FinancialStabilityandDevelopmentCouncilischairedby

a) FinanceMinisterb) RBIgovernorc) FinanceSecretaryd) PrimeMinister

Q.1)Solution(a)FinancialStabilityandDevelopmentCouncil

• TheFSDCistheapexbodyofsectoralregulators,headedbytheFinanceMinister.• Heads of all financial sector regulatory authorities such as RBI, SEBI, IRDA, PFRDA

etc.aremembersofFSDC.• Minister of State, in charge of Department of Economic Affairs and Secretary,

MinistryofElectronics and InformationTechnologyhavebeennewlyadded tothecouncil.

Q.2)ConsiderthefollowingstatementsregardingIndia’staxcollection

1. TheshareofPersonalIncometaxhassteadilyincreasedforthelastfiveyears.2. TheshareofCorporateTax ishigherthantheshareofGoodsandServicesTax

fortheyear2019-20(RevisedEstimates)

Choosethecorrectanswerusingthecodesgivenbelow

a) 1onlyb) 2onlyc) Both1and2d) Neither1nor2

Q.2)Solution(a)Statement1 Statement2Correct IncorrectThe share of Personal Income tax hassteadilyincreasedforthelastfiveyears.

The share of Corporate Tax is lower thantheshareofGoodsandServicesTaxfortheyeas2019-20(RevisedEstimates)



Q.3)Moneyraisedthroughthesmallsavingschemes,providentfundschemesareheldin

a) ConsolidatedFundofIndiab) PublicAccountsofIndiac) ContingencyfundofIndiad) ConsolidatedFundorrespectivestates

Q.3)Solution(b)

• PublicAccountsofIndiaisestablishedunderArticle266(2)oftheConstitution.• AllpublicmoneyreceivedotherthanthoseincludedintheConsolidatedFundof

IndiaareheldinPublicAccountsofIndia.• This account mainly consists of money raised through small saving schemes,

providentfundschemesetc.• Government is just custodian of these funds. It has to repay either on the

maturitydateorwheneverclaimedbypeople.Q.4)Which of the following are considered asNon-TaxRevenue receipts of theGovernment

1. Receiptsduetodisposalofpermanentassets.2. Profitfromthecirculationofcurrencyandcoins.3. Dividendsfromthesharesheldbygovernmentsinprivateenterprises.

Whichofthestatementsgivenaboveis/arecorrect?

a) 1and2onlyb) 1and3onlyc) 2and3onlyd) Alloftheabove

Q.4)Solution(c)Option1 Option2 Option3Incorrect Correct CorrectReceipts due to disposalof permanent assets arepartofCapitalreceipts.

Currency, coinage andmint come under fiscalservices of Other non-taxreceipts.

Non-TaxRevenue -Dividends areincome from the shares held bygovernments in privateenterprises.

Non-taxRevenuereceipts

• Interestreceipts• DividendsandProfits• Currency,Coinage,Mint• Socialservices• GrantsinAidContributions• EconomicServices



CapitalReceipts• Receiptsduetodisposalofpermanentassets• RecoveryofLoansgiventoothers• Freshloansraisedbythegovernment

Q.5)Expendituresthatcreatepermanentassetsandyieldperiodicalincomearecalled

a) RevenueExpenditureb) AssetExpenditurec) CapitalExpenditured) PrimaryExpenditure

Q.5)Solution(c)

• CapitalExpendituresareexpenditureso thatcreatepermanentassetsandyieldperiodicalincome.o thataregivenoutasloanstostategovernmentsandlocalbodies.

• It is a two-way payment. It means spent money can be recovered throughperiodicalincomeand/orbythedisposalofassetscreated.

Q.6)ThetermFiscaldeficitrefersto

a) Differencebetweenthegovernment'stotalreceipts,excludingborrowing,andtotalexpenditure.

b) Differencebetweentherevenuereceiptsandtherevenueexpenditure.c) Differencebetweenthegovernment’stotalincomeandexpenditureafterexcluding

interestearningsandpayments.d) Noneoftheabove

Q.6)Solution(a)FiscalDeficit Difference between the government's total receipts, excluding

borrowing,andtotalexpenditure.

RevenueDeficit Difference between the revenue receipts and the revenueexpenditure.

PrimaryDeficit Differencebetweenthegovernment’stotalincomeandexpenditureafterexcludinginterestearningsandpayments.

FiscalDeficit

• Fiscal deficit is an economic phenomenon, where the government’s totalexpendituresurpassestherevenuegenerated.

• Fiscal deficit gives the signal to the government about the total borrowingrequirementsfromallsources.



Q.7)Considerthefollowingstatements

1. TaxBuoyancyreferstotheresponsivenessoftaxrevenuegrowthtochangesinGDP.2. Taxelasticityreferstochangesintaxrevenueinresponsetochangesinthetaxrate.



Q.7)Solution(c)Statement1 Statement2Correct CorrectTaxBuoyancyreferstotheresponsivenessoftax revenue growth to changes in GDP. TaxBuoyancy = Proportionate change in the taxrevenue/ProportionatechangeinGDP.

Tax elasticity refers to changes in taxrevenue in response to changes in the taxrate.

Q.8)GoodsandServicesTax(GST)isapplicabletowhichofthefollowingoptions

1. Servicesbyanemployeetotheemployerinrelationtohisemployment.2. Servicesbyabuilderintheconstructionofanewbuilding.3. Flavouredmilkavailableinmilkboothsandgroceryshops.



Q.8)Solution(c)Option1 Option2 Option3Incorrect Correct CorrectServices by an employeeto the employer inrelation to hisemployment do not fallunderGST.Theemployeewill,however,payincome

Construction of a newbuilding is subject to GST(beingworkscontract).

Non-flavoured milk and milkpowderareexemptfromGSTbutflavouredmilk ischargedGSTtaxunder12%slab.



taxonsalaryearned.Q.9)ConsiderthefollowingstatementsregardingDisinvestment

1. ProceedsaremaintainedseparatelyintheNationalInvestmentFund.2. Transfer of the ownership and control to the private sector is known as Strategic

Disinvestment.



Q.9)Solution(c)Statement1 Statement2Correct CorrectProceeds aremaintained separately in theNational Investment Fund. The earnings ofthe Fund were to be used for selectedCentralsocialwelfareSchemes.ThisfundiskeptoutsidetheconsolidatedfundofIndia.

Strategicdisinvestment is the transferof theownership and control of a public sectorentity to some other entity (mostly to aprivate sector entity). Unlike simpledisinvestment,strategicsaleimpliesakindofprivatization.

Q.10)Whichof the followingstatementsare recommendationsof theFRBMAct reviewcommittee

1. FormationofFiscalCounciltogiveadvicetothegovernment.2. PublicdebttoGDPratiotobeconsideredasamedium-termanchorforfiscalpolicy.3. DebtmanagementandfiscalresponsibilityActshouldreplacetheFRBMact.



Q.10)Solution(d)Statement1 Statement2 Statement3Correct Correct CorrectSetting up of a ‘fiscalcouncil’, an independent

PublicdebttoGDPratiotobe considered as a

Debt management and fiscalresponsibility Act to replace the



bodywhichwillbetaskedwith monitoring thegovernment’s fiscalannouncements for anygivenyear

medium-term anchor forfiscal policy. A debt-to-GDPratioof38.7%forthecentral government, 20%forthestategovernments

FRBMact.

Q.11)ConsiderthefollowingstatementsregardingAdvancepricingAgreement

1. ItisaProspectiveagreementbetweenataxpayerandataxauthority.2. It isusedfordeterminingthetransferpricingmethodologyandliabilities incaseof

taxpayers’internationaltransactionstoavoidfuturedisputes.



Q.11)Solution(c)Statement1 Statement2Correct CorrectIt is a Prospective agreement between ataxpayer and a tax authority. RecentlyCentralBoardofDirect taxes signedanAPAwithseveralentities.

It is used for determining the transferpricing methodology and liabilities in caseof taxpayers’ international transactions toavoid future disputes. This helps in bothbetter compliance as well as better taxmonitoring.

Q.12)Whichofthefollowingarethetermsofreferenceof theFifteenthFinanceCommission

1. AdoptionofDirectBenefitTransferbystategovernments2. Eliminationoflossesinthepowersector3. EffortmadeforexpandingGST





Q.12)Solution(d)15thFinanceCommission–Termsofreference

• EffortmadeforexpandingGST• Populationcontrolmeasures• Eliminationoflossesinthepowersector• AdoptionofDirectBenefitTransfer• GrantstoLocalbodies• Progressmadeinsanitationandsolidwastemanagement• Controlofpopulistmeasures.

Q.13)ConsiderthefollowingstatementsregardingtheFinancialInclusionIndex

1. Itratesstatesontheirperformanceonlast-milebankingserviceavailability.2. ItisreleasedbytheReservebankofIndia.



Q.13)Solution(a)Statement1 Statement2Correct IncorrectFII rates states on their performance onlast-milebankingserviceavailability.3dimensions–Access,usage&quality

It is releasedby theDepartmentofFinancialServices,MinistryofFinance.

Q.14)ConsiderthefollowingstatementsregardingBaseerosionandprofitshifting(BEPS)Project

1. TheprojectisanoutcomeofOECDtotackleBEPS.



2. India has ratified the multilateral convention to implement OECD's project oncheckingtaxevasion.



Q.14)Solution(c)Statement1 Statement2Correct CorrectThe project is an outcome of theOrganisationforEconomicCo-operationandDevelopment (OECD) / G20 to tackle BaseErosionandProfitShifting.

India was the founding member of thisproject.Indiasignedthisconventionin2016.

Q.15)WhichofthefollowingisconsideredasaPigoviantax

a) WealthTaxontherichb) Cleanenergycessoncoalc) GoodsandServicesTaxonLuxuryitemsd) Noneoftheabove

Q.15)Solution(b)PigovianTax

• A Pigovian (Pigouvian) tax is a tax assessed against private individuals orbusinessesforengaginginactivitiesthatcreateadversesideeffectsforsociety.

• These include environmental pollution, strains on public healthcare from thesale of tobacco products, and any other side effects that have an external,negativeimpact.

• The Pigovian tax is meant to discourage activities that impose a cost ofproductionontothirdpartiesandsocietyasawhole.

Q.16) Consider the following statements regarding the Basel Committee onBankingSupervision(BCBS)

1. ItisacommitteeundertheInternationalMonitoryFund(IMF).2. Basel III measures, developed by BCBS, aims to strengthen the regulation,

supervisionandriskmanagementofbanks.





Q.16)Solution(b)Statement1 Statement2Incorrect CorrectItisacommitteeunderBankforInternationalSettlements. Basel Committee on BankingSupervision (BCBS) is the primary globalstandard-setter for the prudential regulationofbanks

Basel III measures, developed by BCBS,aims to strengthen the regulation,supervision and risk management ofbanks.

Q.17)Considerthefollowingstatements

1. VoteonaccountispassedinLokSabhawithoutanydiscussion2. FullBudgetdealswithbothexpenditureandrevenuesidebutVote-on-account

dealsonlywiththeexpendituresideofthegovernment’sbudget3. Itisnotmandatoryforthegovernmenttopresentavoteonaccountinan

electionyear

Whichoftheabovestatementsarecorrect?a) 1and2onlyb) 2and3onlyc) 1and3onlyd) Alloftheabove

Q.17)Solution(d)VoteonAccountisagrantinadvancetoenablethegovernmenttocarryonuntilthevotingof demands for grants and the passing of the Appropriation Bill and Finance Bill. Thisenablesthegovernmenttofunditsexpensesforashortperiodoftimeoruntilafull-budgetispassed.Asaconvention,avote-on-account istreatedasaformalmatterandpassedbyLokSabhawithoutdiscussion.DifferencebetweenFullBudgetandVoteonAccountFull Budget dealswith both expenditure and revenue side but Vote-on-account dealsonlywiththeexpendituresideofthegovernment’sbudget.Thevote-on-account isnormallyvalid fortwomonthsbuta fullbudget isvalid for12months(afinancialyear).A vote-on-account cannot alter direct taxes since they need to be passed through afinancebill.UndertheregularBudget,freshtaxesmaybeimposedandoldonesmaygo.An interimbudget in all practical sense is a full budget butmadeby the governmentduring the last year of its term – i.e. just before the election. An interim Budget is acomplete set of accounts, including both expenditure and receipts. But it may notcontainbigpolicyproposals.



Itisnotmandatoryforthegovernmenttopresentavoteonaccountinanelectionyear.Q.18)Inter-MinisterialCommitteeonVirtualCurrencieswasheadedby

a) UdayKotakCommitteeb) NandanNilekaniCommitteec) NachiketMorCommitteed) SubhashChandraGarg

Q.18)Solution(d)

• Inter-Ministerial Committee on Virtual Currencies was headed by financesecretarySubhashChandraGarg.

• Keyrecommendationso Banonallformsofprivatecrypto-currencies.o Lookintotheintroductionofanofficialdigitalcurrencyinthecountry.o DatalocalisationrequirementsproposedinthedraftDataProtectionBill

mayneedtobeappliedcarefully.• The committee set up by Centre has also proposed a draft bill ‘Banning of

Crypto-currency&RegulationofOfficialDigitalCurrencyBill,2019’.

Q.19) Government of India has recently issued draft rules to set up New DelhiInternational Arbitration Centre (NDIAC). Consider the following statements regardingNDIAC

1. TheNDIACwillfacilitateconductingofarbitrationandconciliationinaprofessionalmanner.

2. TheNDIACActdeclarestheNDIACasaninstitutionofnationalimportance.

Choosethecorrectanswerusingthecodesgivenbelowa) 1onlyb) 2onlyc) Both1and2d) Neither1nor2

Q.19)Solution(c)



Statement1 Statement2Correct CorrectThe NDIAC will facilitate conducting ofarbitration and conciliation in aprofessional, cost-effective and timelymanner.

TheNDIACActwaspassedbytheparliamentin 2019. It declares the NDIAC as aninstitutionofnationalimportance.

• The NDIAC Act transferred the existing International Centre for Alternative

DisputeResolution(ICADR)tothecentralgovernment.• NDIACwillestablishaChamberofArbitrationwhichwillmaintainapermanent

panelofarbitrators.• NDIACmay also establish anArbitrationAcademy for training arbitrators and

conductingresearchintheareaofalternativedisputeresolution.

Q.20)ConsiderthefollowingstatementsaboutStandardDeduction

1. Itallowssalariedindividualstoclaimaflatdeductionfromincometowardsexpensesthatwouldbeincurredwithrelationtohisorheremployment

2. Thereisnoproofrequiredinordertoclaimthisdeduction3. Itwasintroducedforthefirsttimeinbudget2019

Whichoftheabovestatementsarecorrect?a) 1and2onlyb) 2and3onlyc) 1and3onlyd) Alloftheabove

Q.20)Solution(a)Statement1 Statement2 Statement3Correct Correct IncorrectIn his Budget 2018speech, Finance Ministerproposed to provide(reintroduce) a standarddeduction of Rs 40,000from salary income toemployees. Standarddeduction allows salariedindividuals to claim a flatdeduction from incometowards expenses thatwould be incurred withrelation to his or her

Thereisnoproofrequiredin order to claim thisdeduction.

Standard deduction wasintroduced for the salariedtaxpayersunderSection16oftheIncomeTaxAct in theyear1974,but later abolished with effectfrom Assessment Year 2006-07.This decision to withdrawstandard deduction by formerUnion Minister of Finance P.Chidambaram was taken on thegrounds that there laid anequivalent increase in the basicexemption limit and Section 80C



employment. deductions.Thetaxablesalaryforthesalariedemployees will come down onaccount of the standarddeduction.

Q.21) Consider the following statements regarding Pension Fund Regulatory andDevelopmentAuthority(PFRDA)

1. ItisastatutorybodyestablishedunderthePFRDAAct,2003.2. ItadministersandregulatesNationalPensionSystem(NPS).



Q.21)Solution(c)Statement1 Statement2Correct CorrectIt is a statutory body established under thePFRDA Act, 2003. It is under theadministrative controlof theDepartmentofFinancialServices,MinistryofFinance.

PFRDA is a pension regulator of India. ItadministersandregulatesNationalPensionSystem (NPS) and also administers AtalPensionYojana(APY).

Q.22) Consider the following statements regarding the National Financial ReportingAuthority(NFRA)

1. Itistobeanindependentregulatoroverseeingtheauditingprofession.2. Itwillhavepowerssimilartoacivilcourt.3. Itwillhavethepowerto investigateanycompanyregisteredundertheCompanies

Act2013.



Q.22)Solution(a)



• Audit firms have recently under the scanner for alleged lapses in variouscorporatescamssuchasPunjabNationalBankfraudcase.

• Thus the Union Cabinet has approved the proposal for the establishment ofNationalFinancialReportingAuthority(NFRA).

• CreationofNFRAwasoneofthekeychangesbroughtinbytheCompaniesAct,2013.

• NFRAwillactasanindependentregulatorfortheauditingprofession.

Statement1 Statement2 Statement3Correct Correct IncorrectNFRA is to be anindependent regulatoroverseeing the auditingprofession. It will takeover all the powers fromInstitute of CharteredAccountants of India(ICAI).

Itwill havepowers similartoacivilcourt.

It will have the power toinvestigate auditors registeredunder theCharteredAccountantsAct,1949

Q.23)Considerthefollowingpairs Committee Chairman

1. MunicipalBondsDevelopmentCommittee SujithPrasad2. PrimaryMarketAdvisoryCommittee JayanthRVarma3. SecondaryMarketAdvisoryCommittee TVMohandasPai

Whichofthepairsgivenaboveareincorrectlymatched?

a) 1and2onlyb) 3onlyc) 2and3onlyd) 1,2and3

Q.23)Solution(c)Pair1 Pair2 Pair3Correct Incorrect IncorrectItisheadedbySujithPrasadTerms of reference of theCommittee:a. To advise SEBI on issuesrelated to regulation anddevelopmentofprimaryandsecondary market of

It is headed by T VMohandasPaiTerms of reference of theCommittee:1. To advise SEBI on issuesrelated to regulation anddevelopment of primary

It is headed by Jayanth RVarmaTerms of reference of theCommittee:1. To review thedevelopments in Secondarymarket;



municipaldebtsecurities.b.ToadviseSEBIonmattersrequired to be taken up forchanges in legal frameworkto introduce simplificationand transparency in systemsand procedures in theprimary and secondarymarket.c.ToadviseSEBIonmattersrelating to regulation ofintermediaries for ensuringinvestor protection in theprimary and secondarymarket.d. To recommend SEBI onmeasurestofacilitateissuers(i.e. municipalities) forissuance of municipal debtsecurities.

marketinIndia.2.ToadviseSEBIonmattersrequired to be taken up forchanges in legal frameworkto introduce simplificationand transparency in systemsand procedures in theprimarymarket.3.ToadviseSEBIonmattersrelating to regulation ofintermediaries for ensuringinvestor protection in theprimarymarket.

2. To recommend measuresfor changes andimprovements in marketstructure in view of theimpendingchanges;3. To recommend measuresfor improvingmarket safety,efficiency, transparency andintegrity;4. To suggest measures forreducingtransactioncosts;5. To recommendchanges ifrequired in the riskmanagement / marginsystem;6.To recommendchanges ifrequired in the regulatoryframework in secondarymarket;

Q.24)ConsiderthefollowingstatementsaboutVarishthaPensionBimaYojana

1. TheLifeInsuranceCorporationof India(LIC)wouldbethe implementingbodyofthescheme

2. Itaimstoprovidesocialsecurity toelderlypersonsaged60yearsduringtheiroldage

3. Underthescheme,anassuredpensionwithguaranteedrateofreturnof8%perannumwouldbeprovidedforaperiodoftenyears

Whichoftheabovestatementsarecorrect?a) 1and2onlyb) 2and3onlyc) 3onlyd) Alloftheabove

Q.24)Solution(d)As a part of government’s commitment for financial inclusion and social security theUnion Cabinet has given its post-facto approval to launch Varishtha Pension BimaYojana.Statement1 Statement2 Statement3Correct Correct CorrectThe Life InsuranceCorporation of India (LIC)would be theimplementingbodyofthe

The scheme aims toprovide social security toelderly persons aged 60yearsduringtheiroldage.

Under the scheme, an assuredpension with guaranteed rate ofreturnof8%perannumwouldbeprovidedforaperiodoftenyears.



schemeduringthecurrentfinancialyear.

Besides,thenomineewouldhavean option for pension on amonthly / quarterly / half yearlyandannualbasis.

Q.25)ArrangethefollowingcountriesintheincreasingorderoftheirFDIequityinflowstoIndiain2018-19

1. USA2. Mauritius3. Singapore4. Netherlands

Choosethecorrectcodea) 1-4-2-3b) 4-1-3-2c) 3-2-4-1d) 4-1-2-3

Q.25)Solution(a)India’sforeigndirectinvestment(FDI)equityinflowsfellforthefirsttimeinsixyearsin2018-19withasteepdeclineinforeignfundsintelecom,pharmaceuticalsandpower.Data released by the department for promotion of industry and internal trade onTuesday showed FDI equity inflows into India declined 1% to $44.4 billion 2018-19from$44.8billioninthepreviousfiscal.FDIinflowsfell56%intelecommunicationsto$2.7billionand74%inpharmaceuticalsto$266million.Further,SingaporereplacedMauritiusasthetopsourceofforeigninvestmentwithFDI inflowstwicethat fromMauritiusduringtheyearat$16.2billion,comparedwith$8.1billionfromMauritius.Netherlands(3,870million$) followedbyUSA(3,139million$)and Japanstood fifth(2,965million$)Q.26)WhichofthefollowingpublishedtheWorldInvestmentReport2019?

a) UNCTADb) WorldEconomicForumc) WorldBankd) UNDESA

Q.26)Solution(a)TheWorldInvestmentReportsupportspolicymakersbymonitoringglobalandregionalforeign direct investment trends and documenting national and internationalinvestmentpolicydevelopments.Thepolicychapterof thisyear’sreport takesstockofeffortsbeingmade towards thereformofinternationalinvestmentagreementsandsurveysnewmeasures.



Inclusive sustainable development depends on a global policy environment that isconducivetocross-borderinvestment.WorldInvestmentReport2019providesanoverviewoftheglobalSEZ landscapeandoffers advice on how to respond to fundamental challenges for zones posed by thesustainable development imperative, the new industrial revolution and changingpatternsofinternationalproduction.Q.27)WithreferencetoIndia,thecomponentsofShadowBankingis/are

1. MoneyMarketFunds2. CreditinvestmentFund3. HedgeFunds4. NBFCs

Choosethecorrectcodea) 1,2and3onlyb) 2,3and4onlyc) 1,3,and4onlyd) Alloftheabove

Solution(d)ShadowBankinginIndianContextThe term ’shadowbankingsystem‘was firstused in2007andrefers to thebank-likefunctionsperformedbyentitiesoutsidetheregularbankingsystem.Themorecomprehensivedefinition,asadoptedbytheFinancialStabilityBoard(FSB),i.e.,‘creditintermediationinvolvingentitiesandactivities(fullyorpartially)outsidetheregularbankingsystem’hasbeengloballyaccepted.Thisdefinitionhastwoimportantcomponents:Non-bank financial entities or entities outside the banking system that engage in the‘bank like’ activities ofmaturity transformation, undertaking credit risk transfer andusingdirectorindirectfinancialleverage.Activities such as securitization, securities lending and repo transactions that act asimportant sources of funding for non-bank entities. Thus, shadow banks compriseentitieswhichconduct financial intermediationdirectly, suchas financecompaniesorNBFCs, and entities which provide finance to such entities, such as mutual funds.Globally,shadowbankingentitiescouldbecoveredunderthebroadheadsof

• MoneyMarketFunds,• CreditinvestmentFund• HedgeFunds• FinanceCompaniesacceptingdepositsordepositlikefunding• Securitiesbrokersdependentonwholesalefunding• Creditinsurers,financialguaranteeproviders• Securitisationvehicles.

TheShadowbankinginstitutionsfunctionasintermediariesbetweentheinvestorsandtheborrowers,providingcreditandgeneratingliquidityinthesystem.Althoughtheseentities do not accept traditional demanddeposits offered by banks, they do provideservices similar to what commercial banks offer. And this was one reasonwhy they



escaped regulation abroad. The shadow banking system had overtaken the regularbankingsysteminofferingloansinUSbeforethefinancialcrisiseruptedin2008.Q.28)Considerthefollowingstatementsabout‘SectorFunds’

1. SectorfundsareOpen-endedmutualfunds2. Sectorfundscarryhigherriskthanequitymutualfunds

Whichoftheabovestatementsis/arecorrect?a) 1onlyb) 2onlyc) Both1and2d) Noneoftheabove

Solution(b)Statement1 Statement2Incorrect CorrectSector funds are those mutual funds whichinvest solely inbusinesses thatoperate in aparticularindustryorsectoroftheeconomy.First statement is incorrect because sectorfundsareclosed-endfunds

Since they are closed ended funds, theyhave lack of diversification associatedwiththem, and are more risky than diversifiedequitymutualfunds.

Q.29)ConsiderthefollowingstatementsaboutParticipatoryNotesinIndia

1. Participatory Notes are issued by RBI to overseas investors to invest in theIndianstockmarket.

2. AnyentityinvestinginparticipatorynotesisnotrequiredtoregisterwithSEBI.


Solution(b)Statement1 Statement2Incorrect CorrectParticipatoryNotes are issued by registeredforeign institutional investors (FII) tooverseas investors to invest in the Indianstock market. Participatory Notes enableslarge hedge funds to carry out theiroperationswithoutdisclosingtheiridentity.

P-notes have attracted significant marketattention recently because of huge inflowof foreign funds into Indian stock marketsthroughthisroute.AnyentityinvestinginparticipatorynotesisnotrequiredtoregisterwithSEBIsinceitispurchasedfromregisteredFII’s



Q.30)Which of the following are the main legislation governing the securitiesmarketinIndia?

1. SEBIAct,19922. CompaniesAct,19563. SecuritiesContracts(Regulation)Act,19564. DepositoriesAct,1996

Choosethecorrectcodea) 1,2and3onlyb) 2,3and4onlyc) 1,3and4onlyd) Alloftheabove

Solution(d)Thefourmainlegislationsgoverning“thesecuritiesmarketsare:

1. theSEBIAct,1992whichestablishesSEBItoprotectinvestorsanddevelopandregulatesecuritiesmarket;

2. theCompaniesAct,1956,whichsetsout thecodeofconduct for thecorporatesectorinrelationtoissue,allotmentandtransferofsecurities,anddisclosurestobemadeinpublicissues;

3. theSecuritiesContracts(Regulation)Act,1956,whichprovidesforregulationoftransactionsinsecuritiesthroughcontroloverstockexchanges;and

4. the Depositories Act, 1996 which provides for electronic maintenance andtransferofownershipofdematsecurities.

Q.31) Which of the following institutions is involved in providing guaranteedclearing and settlement functions for transactions in Money, G-Secs, ForeignExchangeandDerivativemarkets?

a) ClearingCorporationofIndiaLtd.b) SEBIc) NationalStockExchanged) RBI



Q.31)Solution(a)The Clearing Corporation of India Ltd. (CCIL) was set up in April, 2001 to provideguaranteedclearingandsettlementfunctionsfortransactionsinMoney,G-Secs,ForeignExchange and Derivative markets. The introduction of guaranteed clearing andsettlement led to significant improvement in the market efficiency, transparency,liquidity and risk management/measurement practices in these market along withadded benefits like reduced settlement and operational risk, savings on settlement

costs,etc.CCIL also providesnon-guaranteedsettlement for Rupeeinterest ratederivatives and crosscurrencytransactionsthrough the CLSBank. CCIL’sadherence to thestringent principlesgoverning itsoperations as aFinancial Market

InfrastructurehasresultedinitsrecognitionasaQualifiedCentralCounterparty(QCCP)by theReserveBankof India in2014. IthasalsosetupaTradeRepository toenablefinancialinstitutionstoreporttheirtransactionsinOTCderivatives.CCIL has continuously evolved over the years with the shifting paradigms of thefinancialarenatotakeonvariousrolesinthefinancialmarket.Throughitsfullyownedsubsidiary, Clearcorp Dealing Systems Limited (CDSL), CCIL has introduced variousplatforms for electronic execution of deals in variousmarket segment. Further, CDSLhas developed, implemented andmanages the NDS-OM - the RBI owned anonymouselectronic trading system fordealing inG-Secsandalso for reportingofOTCdealsaswellastheNDS-CALLplatformwhichfacilitateselectronicdealingintheCall,Notice&TermMoneymarket.



Q.32)TheForeignInvestmentFacilitationPortalcomesundertheadministrativecontrolofwhichofthefollowingministries?

a) MinistryofFinanceb) MinistryofCommerceandIndustryc) MinistryofExternalaffairsd) MinistryofCorporateaffairs

Q.32)Solution(b)OnecaninvestinIndia-eitherunderAutomaticRoutewhichdoesnotrequireapprovalfrom RBI or under Government Route, which requires prior approval from theconcerned Ministries/Departments via a single window - Foreign InvestmentFacilitationPortal (FIFB) administeredbyDepartment forPromotionof Industry andInternalTrade(DPIIT).ForeignInvestmentFacilitationPortal

• The Foreign Investment Promotion Board (FIPB)was replaced by the ForeignInvestmentFacilitationPortal(FIFP)tospeeduptheFDIinflowandtoincreasethetransparencyintheFDIapprovalsinthecountry.FIFPreplacedFIPBinMay,2017.

• TheForeignInvestmentFacilitationPortal(FIFP)isthenewonlinesinglepointinterface of the Government of India for investors to facilitate Foreign DirectInvestment.ThisportalisbeingadministeredbytheDepartmentforPromotionofIndustryandInternalTrade(DPIIT),MinistryofCommerce&Industry.

• Thisportalwillcontinuetofacilitatethesinglewindowclearanceofapplicationswhich are through approval route. Upon receipt of the FDI application, theconcernedAdministrativeMinistry/DepartmentshallprocesstheapplicationaspertheStandardOperationProcedure(SOP).

Q.33)Considerthe followingstatementsaboutInfrastructureInvestmentTrusts(InvITs)

1. They are mutual fund like institutions which enable investments into theinfrastructure sector by pooling small sums of money from multitude ofindividualinvestors

2. TheyareregulatedbyRealEstateRegulatoryAuthority(RERA)3. InvITs can invest in infrastructure projects only through a special purpose

vehicle(SPV)

Whichoftheabovestatementsis/arecorrect?a) 1onlyb) 2and3onlyc) 1and3onlyd) 1and2only

Q.33)Solution(a)



Statement1 Statement2 Statement3Correct Incorrect IncorrectInfrastructure InvestmentTrusts (InvITs) are mutualfund like institutions thatenable investments intothe infrastructure sectorby pooling small sums ofmoney from multitude ofindividual investors fordirectly investing ininfrastructure so as toreturn a portion of theincome (after deductingexpenditures) to unitholders of InvITs, whopooledinthemoney.

TypesofInviTs

Two types of InvITs havebeen allowed, one whichisallowedtoinvestmainlyincompletedandrevenuegenerating infrastructureprojects and other whichhastheflexibilitytoinvestin completed/under-construction projects.While the former has toundertakeapublicofferofits units, the latter has toopt for a privateplacement of its units.Both the structures arerequiredtobelisted.

The InfrastructureInvestment Trusts (InvITs)for the monetisation ofselect state-runcompanies wasannounced in the budget2018-19

InvITsareregulatedbythesecuritiesmarketregulatorin India- Securities andExchange Board of India(SEBI).

SEBI notified SEBI(Infrastructure InvestmentTrusts) Regulations, 2014on September 26, 2014,providing for registrationand regulationof InvITs inIndia. The objective ofInvIT is to facilitateinvestment into theinfrastructure sector inIndia.

InvITs are very muchsimilar to the Real Estateinvestment Trusts (REITs)in structure andoperations. InvITs aremodifiedREITsdesignedtosuit the specificcircumstancesinIndia.

InvITscan invest in infrastructureprojects, either directly orthroughaspecialpurposevehicle(SPV). In case of Public PrivatePartnership (PPP) projects, suchinvestments can only be throughSPV.



Q.34)Considerthefollowingstatements1. Thebalanceof payments takes into consideration the transactionbetween the

citizensofthecountryandtherestoftheworld.2. Bigchangesinthecapitalaccountcanindicateofhowattractiveacountryisto

foreigninvestorsandcanhaveabigimpactonexchangerates.3. Capitalaccountsurplusesofacountrynecessarilyindicatetheincreasingforeign

ownershipofitsassets.

Whichoftheabovestatement/sis/arecorrect?a) 1and2onlyb) 2and3onlyc) 1and3onlyd) 2only

Q.34)Solution(b)

Statement1 Statement2 Statement3Incorrect Correct CorrectThe balance of payments(BoP) records thetransactions in goods,services and assetsbetween residents of acountry with the rest ofthe world for a specifiedtime period typically ayear. The balance ofpayments (BOP), alsoknown as balance ofinternational payments,summarizes alltransactions that acountry's individuals,companies andgovernment bodiescompletewithindividuals,companies andgovernment bodiesoutside the country.Thesetransactionsconsistof imports andexportsofgoods, services and

Thebalanceofpaymentsiscomposed of a capitalaccount and a currentaccount — though anarrowerdefinitionbreaksdown the capital accountinto a financial accountand a capital account. Inaccounting, the capitalaccount shows the networth of a business at aspecificpointintime–andis otherwise known asshareholders' equity.Changes in the balance ofpaymentscanprovidealotof clues about a country’srelative level of economichealthandfuturestability.The capital accountindicates whether acountry is importing orexporting capital. Bigchanges in the capital

Because all the transactionsrecorded in the balance ofpayments sum to zero, countrieswhich run large trade deficits(current account deficits), mustbydefinitionalsorunlargecapitalaccountsurpluses-whichmeansmorecapital isflowinginthanisgoingout,andincreasingforeignownershipofitsassets.Acountrywith a large trade surplus isexporting capital, and running acapital account deficit – whichmeans money, is flowing out ofthecountry.



capital,aswellastransferpayments such as foreignaidandremittances.

account can indicate ofhow attractive a countryistoforeigninvestorsandcan have a big impact onexchangerates.

Q.35)Considerthefollowingstatements1. IndiareceiveditshighesteverFDIinvestmentinthefinancialyear2018-192. FDIinvestmentintoIndiahasconsistentlyincreasedinthelast5years


Q.35)Solution(a)Statement1 Statement2Correct IncorrectFDIisamajordriverofeconomicgrowthanda source of non-debt finance for theeconomic development of the country. Thegovernment has put in place an investor-friendly policy on FDI, under whichinvestment up to 100 per cent is permittedon the automatic route in most sectors/activities.ThesereformshaveledtototalFDIintoIndiareaching USD 286 billion in five years from2014-15to2018-19ascomparedtoUSD189billion in theprevious five-years,hesaid.AtUSD 64.37 billion, FDI in 2018-19 is thehighest ever investment received for anyfinancialyear.

Due to a stable and predictable regulatoryregime, a growing economy and strongfundamentals, India could attract massiveamountofforeigndirectinvestmentduringthe last five years, as much as USD 239billion worth received as FDI. This periodalsowitnessed a rapid liberalization of theFDI policy allowing most FDI to comethroughtheautomaticroute.ButtheFDIhasnotincreasedconsistently.

Q.36)Net Invisibles is thedifferencebetween thevalueof exports andvalueofimportsof invisiblesofacountry inagivenperiodof time. In thiscontextwhatdoesthenon-factorincomeconstitutesof

1. Internationalearningsonlabour2. InternationalearningsonCapital3. Shipping4. Banking5. Tourism

Choosethecorrectcode



a) 1,2,3and4onlyb) 2,3,4and5onlyc) 3,4and5onlyd) Alloftheabove

Q.36)Solution(c)

Net Invisibles is the difference between the value of exports and value of imports ofinvisibles of a country in a givenperiod of time. Invisibles include services, transfersandflowsofincomethattakeplacebetweendifferentcountries.Servicestradeincludesbothfactorandnon-factorincome.Factorincomeincludesnetinternationalearningsonfactorsofproduction(likelabour, landandcapital).Non-factorincomeisnetsaleofserviceproductslikeshipping,banking,tourism,softwareservices,etc.

Q.37) The degree of 'openness of an economy' is measured by which of thefollowingfactors?

a) ExportsandimportsshareinworldGDPb) ExportsandimportsofgoodsandservicesasapercentageofGDPc) BalanceofPaymentsasapercentageofGDPd) TradebalanceasapercentageofGDP

Q.37)Solution(b)

Openness ismeasuredasExportsandImportsofgoodsandservicesofacountryasapercentageofitsGDP.So,optionbiscorrectTradebalancemeansExports-Imports,sostatementdisincorrect.Q.38) Consider the following statements regarding purchasing power parity(PPP)exchangerates:

1. If two countries have zero rate of inflation, their PPP exchange rates will beconstant

2. Thepricesofgoodswillbesame inboth thecountrieswhenconvertedatPPPexchangerate

Whichoftheabovestatementsis/areincorrect?a) 1onlyb) 2onlyc) Both1and2d) Noneoftheabove

Q.38)Solution(d)SupposeNominalExchangeRateis$1=Rs70andIndiaandUSproducesjustPizzaIndiaUSPizzaPriceRs35$1



TocalculatePPPexchangerate,weneedtocomparethepricesofabasketofgoodsinIndiawithUS.IntheabovecasebycomparingthepricesofPizzainIndiaandUS,wewillget$1=Rs35So,$1=Rs35isthePPPexchangerate.ItimplieswhateverRs35canpurchaseinIndia,$1 canpurchase inUS i.e. purchasing power of Rs 35 in India is equal to purchasingpowerof$1inUS.So,iftheinflationrateisdifferentinthecountriesthenPPPexchangeratewillchange.But if there is no inflation (prices remains same) then PPP exchange rates will beconstant.So,statement1iscorrect.Whenwe use PPP exchange ($1 = Rs 35) rate to convert the price of Pizza in US inIndiancurrencythenitisRs35inUSwhichisthesameasinIndiaalso.So,statement2isalsocorrect.Q.39)InthecontextofIndia,whatdoesthedepreciationofRupeemean?

a) Increaseinexchangeratewherethepriceofforeigncurrency(dollar)intermsofdomesticcurrency(rupees)hasincreased

b) IncreaseinexchangeratewherethepriceofIndiancurrency(dollar)intermsofforeigncurrency(rupees)hasincreased

c) DecreaseinexchangeratewherethepriceofIndiancurrency(dollar)intermsofforeigncurrency(rupees)hasincreased

d) Decreaseinexchangeratewherethepriceofforeigncurrency(dollar)intermsofdomesticcurrency(rupees)hasdecreased

Q.39)Solution(a)

Increaseinexchangerateimpliesthatthepriceofforeigncurrency(dollar)intermsofdomestic currency (rupees) has increased. This is called Depreciation of domesticcurrency(rupees)intermsofforeigncurrency(dollars).Similarly, in a flexible exchange rate regime, when the price of domestic currency(rupees)intermsofforeigncurrency(dollars)increases,itiscalledAppreciationofthedomesticcurrency(rupees)intermsofforeigncurrency(dollars).Q.40)Considerthefollowingstatement/saboutExchangetradedfund(ETF)

1. Bharath 22 is a type ofmutual fund consisting of 22 Public sector units(PSU)stocksonly

2. InvestmentsinETFsarelessliquidastheycannotbetradedonastockexchangelikedirectequityshares

3. ThegovernmentofIndiahasappointedICICIPrudentialAMCtomanageBharat22ETF

Whichoftheabovestatementsis/arecorrect?a) 1and2onlyb) 2and3onlyc) 1and3onlyd) 3only



Q.40)Solution(d)Statement1 Statement2 Statement3Incorrect Incorrect CorrectAn ETF is an open-endedmutual fund scheme withan objective to track andreflect the performance ofits underlying index. Itachieves this through apassiveinvestmentstrategyof investing in the samestocks and in the sameproportion as theyconstitute the underlyingindex.The index is collectivelycomprised of 22 stocks ofCentral Public SectorEnterprises (CPSE), PublicSector Banks and privatecompanies which areStrategic Holding ofSpecified Undertaking ofUnitTrustof India (SUUTI).The said 22 stocks arespread across six sectors(Basic Materials, Energy,Finance, FMCG, IndustrialsandUtilities).The index invests amaximumof15percent ina single stock and 20 percent in a particular sector.Weights are rebalancedannually.

Investments in ETFs arehighly liquid as they areheld through a Demataccountandcanbetradedon a stock exchange likedirect equity shares. Also,being passively managed,they have lower expenseratios in comparison toactively managed mutualfunds.The Bharat 22 ETF allowsthe Government to parkits holdings in selectedPSUs in an ETF and raisedisinvestment moneyfrom investors at one go.It tracks the speciallymade S&P BSE Bharat 22Index, managed by AsiaIndexPrivateLimited.Thisindex is made up of 22PSUstocksandwithafewprivatesectorcompanies.

The government of India hasappointed ICICI Prudential AMCto create, launch and manageBharat22ETF.

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