 Hello everyone, in this lecture we are going to discuss previous year questions related to economics. The idea is not to give you the answer key or even explanation that you might have already, but mainly to give you an approach to appear for this examination. Because in recent year you might have noticed that the UPSC is changing the pattern and where calculative risk is almost necessary, you have to take some risk and some of the questions. And remember that undoubtedly these approach or elimination method will be applied not in every question, but wherever possible that will try to do that. So let us start, consider the first statement of this question. Look in this question I am assuming that the student who is appearing in this examination they do not have much idea or even you have a zero idea. But still you should attempt this question in the examination or not or you should just leave this question that we are going to see. Look at the first statement they are saying the value of Indio Sri Lanka trade has consistently increased in the last decade. There are two three words here consistently increased and in the last decade it means they are talking about the 10 years and trade when they talk about it means export and import between India and Sri Lanka. Look Sri Lanka is not a big partner of India in export and import. So it has consistently increased in the last decade it has very less chance to be correct. So you can eliminate option A statement one and if you eliminate one it means that you are eliminating A and D. Now you are left only with B and C and in B and C there is only one need to be correct because two only or three only. So see the second statement that says textile and textile article constitute an important item of the trade between India and Bangladesh. Remember look it is not only between India and Bangladesh, but the textile article is an very important item for Bangladesh in export. Almost 75% of the Bangladesh export comes from the textile only. But even if you don't know this you must have heard or you have gone through the newspaper that textile is one of the most important article for Bangladesh. So the statement second has the highest probability here to be correct. But look at the statement three also in the last five years Nepal has been the largest trading partner of India in South Asia. In South Asia the country like the Bangladesh, Afghanistan, Nepal all are there. And where Bangladesh is then it has a very less probability that Nepal will have the largest trading partner of India because the Bangladesh is a booming economy Bangladesh has having the booming economy in the last few years that you must have heard it. So the third statement has a very less probability to be correct. So you can eliminate third also you are in with only two and that is the correct statement. So you can notice one thing here that even if you do not have the exact information that which is the largest export partner import partner and all still you must attempt this this question just going through elimination method and whatever you have learned in the preparation coming to the second statement. Look this is just a knowledge based question. It means that if you know the what is called flow chart of current account and capital account or balance payment then you will be able to understand it. So they're asking about which of the following constitute capital account. Look in balance of payment. They are three main thing the component of it. No one is the current account and all there is capital account and then the forex detail that if you just remember this table then it is very easy to you can click it or you can take the screens out if you want if you remember this table then you will never be able to miss the question related to capital account or current account. Look at this question again under current account you must remember one thing they are visible and invisible under invisible they are the services then the income and then the transfer. When they talk about transfer it also talk about the remittances. It is a private transfer. It means the someone suppose is living in US or the UK. They are sending money to the person who is living in India. Right. That is private remittances. That is the part of current account. So the statement third has to be incorrect because the transfer is under current account not capital account. So wherever three you can eliminate it. So three is in the A 3 g and C and 3 g and D. So all are eliminated. You are only left with option B and that is your correct statement. So you can notice again one thing that even if you have a little idea you can just stop this question by going through elimination. Community the question three balance of payment which of the following constitute the current account in this they're asking about the current account look balance of trade whenever you talk about balance of trade look under BUP what we have seen there are two things mainly two thing current account and capital account under current account we have a goods mainly the visible items and invisible item invisible. We talk about the goods means whatever goods is being traded between two country right or among other countries India is having the trade. So either the export import of goods is called balance of trade. It means if your export is more than your balance of trade is positive. If your export import is more than your balance of trade is negative. So balance of trade is part of current account. There is there is no doubt about it. First is correct second statement leave the second statement come to the third balance of invisible look I have already told you current account consist visible and invisible. So one and three has to be there right because that is what it constitutes and there is nothing more than that under invisible. There are three four items but you just remember even the basics that current account constitute visible and invisible. Then you can easily understand that the balance of trade is talking about the visible and balance of invisible means it is talking about invisible thing like services and all. So these two must be under current account. Now look at the option before coming to the second statement or the fourth statement one in three must be there. So only one option here where there is one and three. There is no other option where the both one and three exist. So you can easily understand that the C will be your correct statement. Now if you go through the foreign assets undoubtedly that is the part of capital account and a special drawing that not exactly the part of capital account but under the what is called the forex it will come. So anyways the answer will be one and three. Coming to the question number four. This is very interesting question right the visit by foreign nationals to witness the common wealth games in India amounted to look if any foreigners are coming to India leave about they are coming to watch common wealth game even in general if the people from other country they are visiting your country where you will put that money like under balance of payment answer will be export how it is so look suppose that as we have seen under BOP the our flow chart said it is the current account then the capital account mainly under current account we have a visible and invisible as we have seen look suppose if the foreigner is coming in your country what they will be utilizing in this country means what we are offering to them means we will be giving them hospitality right we will be providing them the room the food services and all and for all these they will be paying money to us right so when we are providing services to them they are giving money instead it means we are exporting our service to them and they are paying money so that is why the visiting the foreign nationals or the tourism is known as the invisible export right because we are providing money we are providing services to them and they are providing money to us so under this under BOP under current account it will come under invisible and under service things because we are providing services and we are getting money the answer will be the export it is very interesting question coming to this closed this is a very easy question closed economy and economy in which generally closed economy simply means that where the export or import do not take places neither export nor import look the other options if you see the money supply is fully controlled that will not consider as a closed economy because even if you are closing it suppose you are fully controlling it you are talking about your own country itself you are not talking about the other country deficit financing only export no it is not so if a country where there is neither export nor import that is called closed economy coming to this agreement on agriculture agreement on application of sanitary and phyto sanitary measures and peace clause appearing in the news frequently the contest of the affairs of under international organization you have gone through several organization in which you know it very well it is related to WTO now what is this agreement of agriculture look suppose that any country gives subsidy to the farmers right so suppose if India gives subsidy to any particular product state wheat itself or no say sugar itself because sugar was in the news sugar export of subsidy on sugar was in news because the WTO asked India to explain that why the you are giving much more subsidy because the country like Australia and some other country they have complained against India that India is giving much more subsidy on sugar suppose if India gives higher subsidy on any of the commodity in international market the price of that commodity will be less what will happen that it will do that somehow the trade will not be distorting it will be there because you are giving extra advantage to your own country by giving subsidy to the product so that is not good that's why WTO came with some of the what is called agreement that how much subsidy you can provide how much subsidy under agreement on agriculture the subs you know what is called they are two three terms like the blue box the green box then the ember box they have taken so that you can put some commodity into that and then the subsidy can be given or not can be given that is the agreement on agriculture agreement on application of sanitary and phyto-sanitary measures that talks about the what is called suppose if a country is using some something or producing something by degrading the environment and all right or you are not maintaining the what is called international measurement of any product suppose that you are making honey as a honey was also in the news and you are selling something but in that honey honey is not pure you are putting some more much more sugar into it then that is the agreement on application of sanitary and phyto-sanitary measures it means you cannot violate the norms of making products or you cannot violate environment either these are and peace clause it is talking about that if certain developing country or underdeveloped country can somehow violate not exactly violate but they can have some easy going on the mail what is called on agreement or agriculture or by on giving subsidies because they are developing country and if they need it they can give under peace clause on certain conditions so this is related to WTO the answer will be the C coming to the next the same question ember box blue box and green box is related to which one I have already told you it is the WTO of food these are the factual question does not require much more knowledge you just remember and you first all this again the fact the quantity of imported edible oil is more than the domestic production of edible oil in the last five years right that is true more than 60 percent we have what is called imported it so that's true the government does not impose any custom duty and all imported edible oils in a specific case no government impose exercise do sorry custom duty on it custom duty means the duty that is taken on the import of the product so it does it so only one will be correct second is not correct coming to the next agriculture community imported by India which of the following account for the highest import accounts for the highest import in terms of value in the last year look in this these questions are actually very much factual and you will find it in the India yearbook also in the economic survey but the last economic survey they have not talked about this but in India in the India yearbook it has taken it vegetable oil is the answer and it not necessarily that whatever the data is this year that will continue the next year that's why you need to study India yearbook selectively where these data are given the India is important highest which of the product highest which of the product minimum and all so that if they are being asked you can solve the certainly it has changed so it's not necessarily that which one is done the number one number two that will remain same everywhere that is why you study so but in this question the answer is D coming to the next this again the fact largest exporter of rice that is India right no India is the largest exporter of rice in the world balance of payment of the country systematically caught up look this is one of the question that was controversial right when no but at the end whatever UPC provide the answer key we have to what is called follow that why it was the controversial answer because all of the option among all ABCD not a single option is giving the right statement exactly what is the meaning of balance of payment whenever we talk about balance of payment it simply means the transaction between residents of one country to the residents of another country whatever transaction is being placed it means suppose that if a country a is sending money something or some money is coming from the country a to country b country b will write in their balance of payment account as a plus if some money is going from the country b to country a country b will write in the minus right they will deduct it but it is between the transaction between residents of one country to residents of another country that statement is not given in any of the statement but let's see it what is the problem look option B and the option D is easily eliminated because that is nonsensical there is nothing related to the confusion between A and C the fastest statement is talking about all import and export transaction of a country during a given period normally here look when we have seen the what is called flowchart of BOP we have seen under the current account there was a visible and invisible under visible we talk that whatever goods are being transported or the trade between one country to another that is called balance of trade not balance of payment so it is talking about all import and export transaction but yeah there is one thing here it is not talking about import and exports of goods only right it's not mentioned but still it is not talking about other factors so whenever we talk only it's important export transaction it is rightly or it can be said it is talking about balance of trade not the balance of payment but still we'll see the C of option C also economic transition between the government of one country to another what is the problem in this look as we have already discussed that the this is the transition between residents of one country to another not the government between two government but again the problem is what is residence right or individual whenever you talk about individual who is written individually in the country all the people that we are also the family also the business also the government in a state is an individual so overall even the transaction between two residents of one country to another can be considered as the transition between two government it is not necessarily that every individual is doing the transaction so it can be considered as well but UPSC has taken option A as a correct statement now why is more suitable that is why while solving the previous year question we learned one thing that sometimes it depends on the interpretation of question center and secondly that which of the following is the most accurate option it not necessarily that must be accurate right or must be correct but the most suitable option so a seems the most suitable because it is talking about the transaction of one country in a given not period all important export so a can be taken undoubtedly UPSC has taken A as an answer so A is your correct answer coming to the next with reference to the international trade of India at present which are the following statement is correct again look in this question that there are so many a statement you might feel confusing all but remember whenever there are three for a statement you always apply one formula you need to find which statement must be correct or which statement must not be correct if you're able to find any of them then it is easy to go through it now again in this for a statement suppose if you are not sure about one statement try to find one or two a statement that is must be correct the first statement saying India's merchandise export look whenever they talk about merchandise export it simply means they are talking about goods only not services in all so merchandise sport are less than its merchandise import is it true or not it is true because India has the balance of trade deficit for last several years so India's merchandise export are less than import that is true so first has to be correct it means now you just eliminate B and C you lived with only one and two or one three and four now it is still not giving us the main what is called complete picture look at the statement second India's import of iron and steel chemicals fertilizers and machinery have decreased in the recent years now this statement required must have knowledge because in the recent years it has decreased or not consistently because you're not talking about it madly suppose if you don't know this statement so just leave this statement for a time being and come to the statement three India's export of services are more than its import of services look India is a service economy right our now the contribution of service in India GDP is more than 55 percent about 55 percent India's and service economy also if you see India's FDI and all the in services we are doing fine right India's export of services are more than import of services that's true because we are service providing nation so third statement must be correct right so what we have found the statement one must be correct statement third must be correct and we have only one option that is one three and four it has it has three suppose that even you are not sure about third statement come to the statement for India suffers from over all trade current account deficit that's true because it is always in the news and if you are a UPS sprint you must be reading newspaper in all and you know that India is suffering from the trade means balance of trade deficit and also current account deficit in the last 17 to 18 years India has suffered current account deficit continuously except one quarter right in the last year one quarter India's current account deficit was much little better right miss plus but that is just a quarter not year to year wise so in the last 17 18 years India has the current account deficit and you must be doing that so it means fourth statement also must be correct now look with a statement one even if you know one of the statement about three or four that must be correct you will be only choosing this because with one only one statement where three is also there for is also there a statement D will be or option D is the correct statement now what we have learned in this it's not about knowing just the fact what is this that even if you don't know that iron steel chemical fertilizer and machinery has decreased in recent years still you can solve this question with just going through some basic knowledge that you have earned though for your information it has not actually decreased even it has increased a little bit right coming to the next question import covered like which of the following best described you simply if you know look this particular option or this particular person you should only attempt if you know this terminology otherwise you should leave it why because this is a term that you need to know you cannot just get confused in the dimension import covered simply means that look suppose if a country and what is the import suppose that country India is importing oil right from Russia if you're importing oil you need to give money to them right and if you do not have money suppose that today you have important one liter of oil I'm just a small example for compliance suppose you have important one liter of oil you need to have money to give them because you are buying it so for how many days you can buy it right if you have supposed for next 10 is if you have money so that for the next 10 days you can buy that will be considered import cover that you can buy it for how long so this is for understanding in technical term that in how long you can buy right that is what in the in the month wise it is considered your option is it is the number of month of import that could be paid by countries international region so whatever international region you have that must be sufficient enough to buy all the import that we do and if you do not have and will have a balance of payment crisis remember in 1991 crisis India have the international reserves only for the next 15 days right if you otherwise if we do you know would not have taken loan from IMF and the Bank of England then India would not have more than 15 days import cover it for all petrol pump would have been dried enough that is the state D is your option state current state which consider the following is in which of the government which the government can take which of the above extent can help in reducing the current account deficit as the current account deficit we have just stopped and in current account deficit we have a visible items it means the goods transaction and then in invisible item in which they are the services then the income the factor income and then the transfer amount like the private remittances these are there so what are the Exxon government can take to reduce it because as we have just learned we have a current account deficit in the last 17 18 years devaluing the domestic currency will that help or not look simply understanding current account deficit means we have more import and less export so import is larger than export that is current account deficit so if you want to reduce it it simply means that how can you increase export so what are the ways you can increase export it means if you export will be higher your current account deficit will be lowered as simple as that so devaluating the currency if you devaluate your currency it means suppose that in international market your currency right now just for example 1 dollar is equivalent to 50 rupees right now and if you devaluating it it means 1 dollar will be equivalent to 100 rupees right now that is the devaluation right so if you are doing the devaluation what will happen the intern in the international market our product you know what is called the price of the product will be much less so if the price will be less import will be higher it will help reduce the current account deficit to 50 it is correct reducing the export subsidy now can this be the state or not no because look if you reduce the export subsidy the price of our product will be higher in the international market so if our price will be higher because you are reducing the subsidy sorry so the company who is selling the product they have to increase the price just to manage the subsidy that you have reduced so price will be higher our export will be less then we have what we have learned if our export will be less it will increase the current account deficit the second will be incorrect adopting suitable policy which attract greater FDI and more fund format higher look here some student can get confused what we have learned under balance of payment that under capital account the FDI and FII comes FDI and FII does not come under current account it is talking about current account deficit it is not talking about capital so you might think some of the person some of the student can think that because FDI and FII is related to capital account it may be incorrect statement because we are talking about current account deficit but look it is talking about reducing account deficit suppose adopting suitable policy which attract FDI so FDI is directly related to the current account but indirect sorry FDI is directly to the capital account but indirectly to the current account how it is so under FII if more money is coming to India and who is taking that money or where this money is being invested that money is coming to the companies of India so suppose if more money will be coming in any of the company in India then the production of the company will increase if the production will be increasing then we will have a more export so indirectly it will increase our export also so it will be correct statement so 1 and 3 will be correct now look at the what is called statement again if you don't know if you know the 2 so 2 if you eliminate it and only 3 and 1 and 3 so no not only 3 but the first will also answer will be 1 and 3 which is the following would include FDI in India look again in this this is the very easy question to attempt if you know it otherwise it can get confused FDI and FPI are two component FPI is also called FII means foreign institutional investment or foreign portfolio investment FDI is foreign direct investment so it simply means they are asking you which of the following would include in FDI and the fourth statement is talking about portfolio investment so the statement itself is given it is not FDI it is FPI so fourth must be incorrect just eliminate 4 so 4 is here 4 is here now 1 and 3 or 1, 2 and 3 it means 1 and 3 must be correct because it is in the both options just go through the elimination 1 and 3 in C also 1 and 3 in D also what about the statement 2 if you just sure about the statement 2 you will easily be able to solve this question so they are talking about majority foreign equity holding in Indian company is it FDI or not it is FDI majority foreign suppose I just take the example of Flipkart that is a very famous example of FDI in Flipkart there are more than 80% equity belong to the Walmart now because Walmart has bought the more than 80% share of the FDI of the Flipkart so if the majority foreign equity is being held by foreign company that is still be considered as FDI so second statement is correct so answer will be all 1, 2 sorry what is called 1, 2 and 3 though for your understanding let me explain the other statement also subsidiaries of company in India that's true because look in India if any FDI any company is coming they are buying the shares either in the company directly or in the subsidiaries of company also that is also considered as FDI second statement we have already explained third company is exclusively financed by foreign company that is true because they are financing it means they are buying shares so that will also be considered 1, 2 and 3 will be your correct statement 2 will not be that sorry the fourth statement apart from 4 all are correct coming to the next statement it's reference to the FDI in India whichever the following is considered it's major characteristic before coming to the question let me tell you one thing in this station actually we are solving question topic wise because we have taken one topic and from that topic whatever the UPC has asked we are solving it as you can notice from the last 3 or 4 question is related to FDI or you have solved question to balance the family related so this is also help you to solve question topic wise so whatever topic you are right now going through you will be able to understand what are the questions or which type of questions are coming from that topic coming to the question with reference to FDI whichever the following considered major characteristic remember one thing though difference between FDI and FII is still not very much clear India has adopted the definition given by OECD earlier it was much more conclusion but still 2 major characteristics of FDI you can consider one that the under FDI if the investment is more than 10% if the investment is less than 10% that will be considered FII if the investment is more than 10% it is considered as FDI that is the basic difference although there are some conditions in that also but we will stick to that and second under FDI the not only money but the management also comes it means you can see them suppose that their technology also comes they comes with that under FII you only invest money that is the third thing you need to understand that under FDI you buy shares of the company you don't give them debt suppose that if you are paying buying shares that is the share and also called debenture in which you are just giving money to the company and they are paying some interest to you but no under FDI you don't do that you just give you do not give debt but you are buying shares that is FDI but under FII you are investing money into them so FDI is not a debt thing FII is so now see that options look the it is the investment through capital instrument essentially listed company no it is essentially a non listed company right and in listed they are options they are 10% and above we leave that second it is largely non debt creating capital flow what we have learned is it true or not FDI is a non debt because when you are investing or any company from the foreign country is investing money in India through FDI that is not a debt suppose that Walmart has bought Flipkart 80% share if the Flipkart is completely destroyed right that was completely bankrupt then what will happen Flipkart will give money back to them no because then simply means that the Walmart will be in the loss so that is not a debt they are buying shares it means buying the company itself or some of the portion of the company so FDI is not a debt you can easily understand this is largely non debt creating capital flow so BU will be your answer and other options if you see investment which involve debt services no it is not a debt services it is opposite to the B so undoubtedly this will be incorrect this will be incorrect it is investment made by foreign institutional investment though that is called FII not FDI so it will also incorrect this is an easy question if you just understand the definition difference between these two which are the following is not the most likely major of government RBI to stop the slide of Indian rupees the option is not most likely also you need to focus on not as well look they are asking you that which of the step RBI or government will not take if the rupees value is depreciating sliding just coming to the statement D following an expansionary monetary policy what is expansionary monetary policy expansionary monetary policy we have a quantity of tools like the what is called SLR, CRR right no CRR then the repo rate reverse repo rate etc. etc. we have the so many tools so expansionary will be called it means RBI is decreasing the rate that is expansionary because both 4% right now right and if the RBI decrease the CRR to 2% it is expansionary monetary policy why it is expansionary because then there will be much more money into the market right and economy will expand that is why it is expansionary now if the Indian rupee value is already low right and if you do the expansionary monetary policy it means you are putting more money into the market do you think that the Indian currency will depreciate it no it will again depreciate because it is a very basic thing to understand if there is something anything in the market that is the availability of that is much more their value will be less that is very simple of that right as you know why the good diamond is much more valuable than water that is the basic example given by every economist because the availability availability of diamond is very rare that's why but availability of water is much more so their value is depreciating so if you want what is the following expansionary monetary policy it means you are putting much more money into the market if you are putting money into the market it simply degrade the value of it so even the government is not going to take it answer will be D but if you see other statement also curbing import of non-essential good and promoting exports no that is not necessarily that is nothing to do with that encouraging Indian borrowers you should rupee denominated masala bond this is an easy condition related to external competition these are not something you know related to even slide of rupee so these will not be D will be your answer coming to the next PPP exchange rates are calculated by comparing the same baskets of goods look that's true how we do the PPP suppose just for example right now when we understand that the one dollar right now is approximately 80 rupees right the value of 80 rupees approximately it may be a little higher and lower today but this is not the PPP of India while doing PPP we took the lots of commodity of the same basket suppose that if the price of say one burger or one Coca Cola is two dollar in US right and India it is suppose that 10 rupees right now just one Coca Cola is priced 10 rupees in India and two dollar in US so while deciding PPP what we do we divide 10 by 2 and it will be 5 rupees it means one dollar is equivalent to 5 rupees but that is just a one commodity while doing calculating PPP we do not just take one commodity but the major commodity and then we finalize it but it's true that is the same basket of goods and services so first is correct in terms of PPP dollar India is the sixth largest economy no it is the third largest economy after the China in US right the remember under PPP China is on top then the US and then the India but under other GDP and all that US is on top so that is also important second is correct first is not sorry second is not correct first is correct because India is the third largest economy so only one will be the correct statement coming to the next which of the following groups of item is including India's foreign exchange reserve so under foreign exchange reserve there are four main items number one is undoubtedly foreign currency it means the dollar and all that you have number two what will be the two number two is the SDR SDR is the currency not exactly the currency but the denomination given by the IMF that is the and then the fourth is the trans value of India in the IMF right so these four are the forex reserve now see where it is all three or four so foreign currency asset that is true a special drawing that is true and loans from foreign country no loans is not there we have already seen there are only four three foreign currency asset that is true gold holding that is true SDR that is true so second is correct and then because second is correct we are not going to the third and fourth the view will be answered the problem of international liquidity is related to non availability of look when we talk about liquidity is the meaning of liquidity in the international market or even in domestic market liquidity same thing means the easily extensible right and international market which is the currency which is easily extensible undoubtedly dollar or the other hard currency hard currency simply means the currency demanded by the most of the economy or that is easily extensible or have the maximum liquidity in the international market so if the problem of international liquidity is related to non availability that's true they are talking about that so if there is a less availability of dollar or the other hard currency that is the problem of international liquidity so answer will be C convertibility of rupee look that is very easy to understand convertibility of rupee simply means that how easily you can convert your rupee into any international currency that is the convertibility of rupee means are you allowed to convert your rupee Indian rupee into the US dollar or in Japanese yen or not so that is the definition means are you free or not any India it is 100% free means current account convertibility is 100% but capital account convertibility is partial you just remember that under current account it is 100% what is called convertible means if you want to convert your currency you can easily do it so the answer will be freely permitting the conversion of rupee to other currency and vice versa to any other currency that is if you are allowed or not that is a just a difference if another global financial crisis happens in the near future that is about to happen now it is expected that the global the classes coming up some of the economy seeing most likely to give some immunity to India not depending on sort what we have learned in the past also in 1991 financial crisis what is the meaning of sort and buying buying means that you have taken the less than one year that is for sort and more counter means more than one year it means if a country has borrowed money for less than one year it means it has to be paid within one year that is a short term borrowing in India in the 1990s for short term borrowing was more than the forex reserve that we have all the interaction is here means our forex reserve was about one billion dollar and our short term borrowing was 1.2 billion dollar suppose even if we have given entire forex reserve still we had some what is called short term borrowing there so we have learned it that our short term borrowing must be less because there is a pressure to give it back right in a long term borrowing suppose you have taken long term loan from the you know World Bank and all that you have to pay after 20 years so that is fine you can manage it but if it is a short term borrowing then within one year you have to pay it back and if you are not able to do it then there will be crisis so undoubtedly first is true that in coming financial if there is a crisis is coming you must be immune that you must not have more forex foreign sort sorry short term borrowing opening up more foreign back look it is little confusing statement why it will help you can say that if the foreign banks are here it may bring money and all in financial crisis it is not going to help you directly in either way so this statement does not make much sense maintaining full account convertibility first what is the meaning of full account capital sorry full capital account converting under capital account what are the component if you remember it right under capital account there was a FDI FII also right so first talk about FDI FII only in FDI FII if there are 100% convertibility fully full convertibility means 100% convertibility so suppose if the FII can be converted 100% from India to US it will create volatility in India that is why it is still not allowed right in India capital account convertibility is not allowed because it will create volatility right and remember one thing which country is the ideal place to invest more money undoubtedly US or some but a country like India or other developing country they do not have a stable economy so in that economy the investor would like to invest less so if there will be 100% convertibility then the capital flight will be there from India to other country and that will create problems for the country it will not help in solving crisis even it will be bad in the crisis because in the crisis time the investors are looking for the economy that will not affect much more so third statement will not be correct only one will be correct in this consider the following statement tight monetary policy of UL Federal Reserve would lead to capital flight that is true look first thing when you talk about capital flight what is the meaning of capital flight capital flight means suppose this is US as it is talking about US and this is India right so if money is coming sorry outflowing from India to US that is considered as capital flight from India right or not only to US for any economy it means there is outflow of money from India to other country and if it is coming to India that is depending so capital flight means the outflow of money now it is saying tight monetary policy of US Federal Reserve would lead to capital flight not it will die and tight monetary policy of UL means what increasing the interest rate for example suppose in India reported reserve reported if they are increasing it it means they are tightening monetary policy so if US Federal Reserve increase it how it will lead to capital flight from India look suppose if they are tightening the interest rate it means there will be less availability of dollar in the market right and that market in the US market will become much more valuable for the investment because they will get much more interest in state right so if the US market is tightening it means there are less money in the market investor are investing in those market because they will get higher interest rate so that will lead capital flight from India to other country now in this question look even in the last year also in 2020, 2022 itself I think in last year also they have asked one question related to the capital flight and there is a confusion among the question solver that it is not clearly mentioned it is capital flight from India to other country or from other country to India right but we are considering it in the Indian contest so this has to be correct statement because it is the capital will be flighting from India to US because of the interest rate they will be getting much more so first issue remains correct capital flight may increase the interest cost of firms with existing is external commercial borrowing look so external sorry external commercial borrowing means what external commercial borrowing simply means that the bonds issued in the foreign currency right so if the foreign currency in the bonds and is being issued the capital flight may increase the interest that we have also already talked in the first statement that why the capital flight will take place because interest rate will be higher there right so the capital flight may increase the interest cost of firms with existing ECB because they have already issued it right and if the interest rate is increasing that would be the correct one the second is also correct third is devaluation of domestic currency decrease the currencies associated with ECB look as I told you ECB means that the issuance in the foreign currency right and if you are devaluating the domestic currency how it will affect the foreign currency right so it is not going to affect foreign currency directly because you are devaluating your own currency devaluating means you are devaluing you know what is called decreasing the value of your own currency sorry in comparison to the other foreign currency the third statement is not correct only one and two will be correct coming to the next payment bank is being allowed look in these are very very much in news in recent time right which of the following is correct before coming to this let me see that the earlier question you can solve with the elimination or not because I forgot to tell you that in the beginning I told you the all the questions that is difficult not all but most of the difficult question that is being asked by UPS in our days always give you a hint right if you know little bit information you are going to solve this question look this question that we have already solved if you are somehow correct that the domestic currency will not decrease the currency eliminate all the option wherever three is there so this can be limited this can be limited this can be limited only by knowing option three statement three right and then you can solve again in this payment bank is being allowed look payment bank cannot undertake lending activity payment bank can see the statement second payment bank can issue both credit card and debit card no they cannot issue credit card they can only issue debit card second statement is incorrect now wherever second just eliminated you are only left with one and three so as simple as that when Raghuram Rajan was the RBI governor at that time only after a few years there was a small finance bank and payment bank was issued payment bank like the Airtel bank the GU that you have all the they have launched the payment bank so they are allowed to issue the debit card but not the credit card so second statement is not correct and first in second mobile telephone company I have already told you that is the Airtel and all that is on and controlled by residents are eligible to promote payment bank that is true payment bank cannot undertake lending activity that is true also means they cannot give you loan right they can take the deposit but not loan BU will be correct a small finance bank I have already told you that was launched to supply a small business it's true a small business unit that look to establish payment bank and a small financial bank main goal is to do the financial inclusion financial inclusion is also somehow providing or you know expanding the businesses those to supply credit to a small business unit a small finance bank was not that is true to supply credit to a small and marginal farmer is also true to encourage young entrepreneurs to set up business particular in rural area look this statement sometimes in UPSC if you are not 100 percent sure do not take it this is true that this small financial bank will help the small business unit will help the small and marginal farmer but it is not necessarily that it will help the it will encourage young entrepreneur and particularly in rural area it is not mentioned anywhere right though indirectly it will help them suppose that you are a young entrepreneur means if you are doing some startup and you are going to take the loan under a small finance bank they will give you but this particular bank was not established for this particular purpose that is the main thing you are getting loan for under this you are a young entrepreneur you are being financed by small and finance bank that is different thing but does this bank was established for that purpose no that is not the thing so that is why third statement is less suitable in examination there is probability that you can click it as a correct one but because it will encourage it undoubtedly it will encourage it because there is one bank that will give you the loan but it will also but not particularly in rural area that is also one thing it is also in urban areas as well in rural area as well not specifically for rural area so this statement should be limited only one and two will be the correct one next which is the following you have the highest here in the disturbance of K2 agricultural activity remember one thing this type of question two three times UPC has asked so you need to understand one thing it means they are asking you which of the organization give maximum loan to the agricultural sector agricultural life sector which organization and that will give you macro finance institution suppose even if they take another statement like the NABART suppose that what will be your answer suppose you think that it could be NABART because it is asking about the agricultural activities or some cooperative bank regional rural bank but no that's not remember one thing which bank has the maximum money that is the commercial bank that is one thing second thing that all commercial bank in India they are labeled or they are compelled to provide 40% of all credit in the priority sector lending remember that 40% of entire credit it means any commercial bank they are giving 100 rupees as a loan in that 100 rupees 40% or 40 rupees must be in the priority sector the priority sector consists of agriculture education and etc maximum loans should be given under agriculture how because I say bank see the what is called estate bank 1 lakh rupees 100 crore rupees loan in that 40% must be given in the priority sector and it simply means that the money is going in the agriculture sector as well and they need to maintain the norms of RBI so 20 commercial bank because of this particular norms not other organization because they don't have that much money as simple as that and simply even if the Navad will be there don't get confused because Navad does not directly give loan to the what is called to the anybody if you are going to the Navad and taking loan no you are not getting it suppose you are going to the RBI and ask the loan RBI does not give you loan right so Navad is a refinancing company it means Navad gives loan to the regional rural bank Navad give loan to the cooperative bank and then the regional rural bank is giving you the loan so that is why also the anyways Navad is not here just for your extra information I was giving the answer will be A because this is the foreign liquidity assets this is also this is an easy question which simply means we have also talked earlier that it has an easily exchangeable in the market what is called trade so which can easily exchange it means suppose if you are going to the shop after this watching this you want to you are expected to give the current you cannot give them any other opportunity that you have even that is much more valuable because that is not liquid so statement because that has the maximum liquidity so it is four three or four one right after currency look demand deposit with the bank and then the saving deposit and the time deposit demand deposit means what demand deposit simply means that the deposit that you have put it in the bank that is payable on demand it means suppose if you are going right now you have a saving bank account you are going to the ATM and trying to withdraw the money bank has to give it back to you because that is the demand deposit so whenever you are demanding the money bank is liable to pay that money at that moment it is called demand deposit undoubtedly it has the liquidity because you can ask and you get it so it has it means that no fixed deposit or recurring deposit that fixed for five years or seven years so you cannot take that money whenever you want undoubtedly it will have a less liquidity so two will come later on here they are asking saving deposit look saving deposit is the part of demand deposit right but not exactly the demand all the saving deposit is the demand deposit but not all the demand deposit is the saving deposit remember one thing even you have a saving deposit banks are asking for the minimum you know payment maintain that must be suppose five thousand rupees or two thousand that must be maintained so that money is coming under what is the reserve money right you cannot just take it back so after currency it will be the demand deposit then the saving deposit and then the time deposit so after four it will be one and then three and then two remember one thing suppose if you are confused between demand and saving right because you think that saving deposit also demand deposit so after four three can come here right and then but remember here in this what is the problem in the statement or in the option B the one statement means the demand deposit with the bank is taken after the second statement means the time deposit but that will not be because always demand deposit will have a higher liquidity than the time deposit because time deposit will be you can take the money after certain years so your answer will be four one three two B is your answer with reference to the governments of public sector banking India consider the following statement capital fusion in the public sector bank by the government India has steadily increased in the last year no no it is not a thumb rule but most of the cases out of 10 you can say seven year times if they're asking you that consistently increase in the last decade or decrease in the last year it has a less chance to be corrected but remember one thing it is not a thumb rule it does not apply everywhere right some things maybe they're India suppose that no in the last few years if they ask you in agriculture that India's production is increasing undoubtedly it is increasing every year right so the point is it is not correct every time but most of them it is correct and capital infusion to the public sector bank by public sector bank by the government it means that suppose the government is putting money into the public sector bank and that has steadily increased in the last year every year why government will put money even government need money right they can put money whenever suppose if some bank is in the crisis there is a possibility of going bankrupt as it happened in the US right now in that case government can put money but it has increased in the last decade it has less probabilities so first is first you can eliminate even if you don't know exact data that is what I mean so first is not correct to put the public sector bank in order merger of association associate banks with presented state bank have been affected look this is was probably asked in 2018 in 2017 the five associate bank of India also won you know MBM Mahila bank was merged in the SBI so that is true so second is not correct sharemen of public sector bank are selected by banks board of bureau but now it is not the banks board of bureau it is the financial institution bureau that has you know replaced banks board of bureau remember that earlier they have asked this bank board of bureau but now the bank bureau board of bureau is replaced by the financial institution bureau remember one thing why it has replaced because there was anomalies first what is bank board bureau the job of the bank bureau was to select what is called not the exactly select but the you know what is called why the first selected and then the give the just give the these nomination to the government and then the government will finally finally do that so they are selected by but not appointed by the finally appointed appointment will be taken by the government but they were doing it recently in Delhi High Court itself there was one allies one the insurance company I'll complain against the bank board bureau they said that there is anomalies in the what is the selection of the chairmen they were selecting in the wrong manner and the court has find it correctly so they have abolished it but anyways when the question was at that time bank board bureau was the right statement which of the following is not included in the asset of the commercial bank asset simply when we talk about any of the financial institution there is two side of it one is asset and another is the liability the liability simply means the money that you have that need to be paid it back that is a liability means you have taken suppose that 20 rupees for a friend friend on debt undoubtedly have to pay it back that is your liability so which one will be right of the they are asking which is not included in asset it means liability so look the second estimate deposit it means suppose this is the bank a state bank of India and this is you I mean you have put it 500 rupees in a state bank of India this is your deposit is this the asset of the bank no it is the liability of the bank because it has to pay it back right so second will be B will be your correct statement that is the following statement in terms of short term trade delivery to the agriculture sector district cooperative bank deliver more credit in comparison to several commercial bank and regional rural bank I have just told you that the maximum money is given by commercial bank right not you know so any of the organization either district central cooperative bank or even Abad will have them more the first will not be correct one of the most important function of dcb is to provide funds to the primary agriculture representatives that is true second statement will be correct first is not correct in terms of interest coverage ratio in firm look what is interest coverage ratio suppose that if you are a bank owner suppose that you are a chairman of a bank and there are 50 people in line they want to take a loan from you right how you have to take the person what is your preferences which one you are going to give them which one you are not going to give them interest coverage ratio simply means any company any organization they are good enough to pay the loan back to you or the interest right suppose that you have given there is a company A and there is a state bank of India state bank of India has given earlier loan to the company A right and they have paid continuously every month they interest also the prime what is called the main amount they have given it little part right so interest coverage ratio of the company A is very good simply means that any company which interest coverage ratio is good they are a good customer for the bank to take a loan as that is the meaning of interest coverage ratio now see the statement it helps in understanding the present risk firm that a bank is going to give loan obviously right because if you understand what is if the rating of company A will be less right suppose there are two company A, B, C and the interest coverage ratio of A is higher and B is very less which company you are going to guess give the loan undoubtedly A so it gives you an idea that how much risk you are going to take the first is correct it helps in evaluating the emerging risk of the firm the bank that is the same statement almost similar that is also correct and third higher a borrowing firm's level of interest coverage ratio the worst stability no I'm told you the higher rating it means they have an ability to pay it higher it is the lower the RBI act as a banker's bank that we learned is a very basic question which of the following is correct in this other bank retain their deposit with RBI that's true look simply understand bankers bank buy bankers bank as we people have a bank like a state bank of India Punjab national bank or whatever simply the all bank have a their bank that is RBI like so whatever relation we have with the bank similarly bank have the what is called RBI so other bank can retain their deposit with RBI that's true under the what is called reserve report like SGF is presently so they can do it first is correct RBI lend fund to the commercial bank in time only that's obviously that is why they're they're called land of large the RBI advices commercial bank of monetary but that's also true one two and three and remember one thing in some of the places they have not given this all three as correct but this all three are correct and said RBI regulate in commercial bank in matters of liquidity assets that is true look suppose that in SLR they maintain it now how much SLR they need to maintain so they what is called regulate them branch expansion that is true merger of the bank that is true and the winding of the bank that is true so all a statement means they are regulating all the factors that is given in the statement these are easy easy questions so microfinance is the provision of financial services to people of low-income group this include both the consumer and semi-flight the service is rendered under microfinance that is true microfinance simply means they have given the that is given in the statement sorry in the statement of the question itself it is a provision of financial service people of the low-income group that's true so what are the services is being provided under microfinance credit facility obviously look if you are not giving low in money to the low-income group then what kind of facilities is credit facility there are facilities there these are just you know one liners if you know then you know if you don't know and there is nothing confusion no suppose that you can say okay providing facility or not but they provide it if you then you understand come to the next basic term lead banking scheme look in 1969 you know the lead banking scheme was lost it is also called service area approach you know service area what is happening under the banking sector reforms some of the exams were being taken by it under lead banking scheme a particular bank were given a particular district that you would monitor that district and handle it it means suppose that if in India entire India need to have a financial inclusion so suppose in a state bank of India they have given a particular district or a particular state that this district all the financial inclusion or related to the financial and everything that need to be done by you that is a lead banking scheme so see the statement individual banks would adopt particular district for investment intensive development is true see will be answered recently Nithya Hoga has started something similar to this priority sector lending by bank in India constitute the lending of that we have already discussed agriculture micro small enterprises weak section education etc it means all of them always correct look as we are already discussing we have lacking financial inclusion that is why the Jandhan Yojana was launched in India we have it we are lacking the financial inclusion so banking correspondence their job is to visit door in door door to door and tell them what are the facilities being provided and if you want to open the bank account they can open right then only not only open it they can provide other services also so what are the services bank sati or the banking correspondence can provide that is the question it enables the beneficiary to draw the rest of CDs and social security benefit in their village that is true it enables the beneficiary the rural area to make depository withdrawal that is true so both are correct in this core banking solution look earlier now in the early days suppose you open now you have a bank account in your own village or in on district then all thing means that you are the customer of a brand that is the meaning right but now you become not the customer of a bank brands but a customer of a bank wherever you are you can you know what is called take the money from there you can use their TM that is the core banks so they're asking it is a networking of banks branches which enable customer to operate their account from any branch of the bank in network regardless of open their account that is true it is an effort to increase RBI control of our commercial bank no look RBI is not controlling any bank under this right that is not the thing it is a detailed procedure which a bank with huge none problem the city taken over no like which are the following links all their team this is one liner this is a NPCI it also what is called take care of the rupee card and etc linking all a team in India that is done by the NPCI NPCI is a very very important organization in the banking sector so you go through the all the work of NPCI it also suppose that UP payment you regulate it that is not RBI so remember that and it is because recent directive related to the storage of payment system look what is the meaning of storage of payment system data or the data dictate here suppose that there is a company named Google Pay right and on if you are doing some transition through Google Pay Google Pay is an Indian company right so now you have all the information you have put it on the Google Pay your financial information is also there your account number also there and Google Pay has the office in India as well as in other country right they might have office in the U.S. in other country as well so all the information that you have given to the Google Pay can they store that information in U.S. or not right so India storage of payment system data that is data dictated that say that no you can only store information in India only you cannot take the information outside the India that is the meaning so the first statement they shall ensure the entire data related to the payment system operated by them are stored in a system only in India that is true they shall ensure that the system are owned and operated by public sector no not necessarily as you can see the Google Pay is not the public sector second is not correct they shall submit the consolidated system audit report to the CAG no that is also not true it is nothing related to the CAG so only one will be a correct statement service area approach I have told you it is a lead bank scheme right earlier it is an easy one teaser loan by the commercial bank what is teaser loan teaser loan means when suppose if you take a teaser loan in the beginning in few years they give you less interest rate you have to pay less interest rate but when the year pass by the interest rate is much bigger that is teaser loan what is the offering the teaser loan are considered to be an aspect of subprime lending that is true subprime lending means the lending where the chances of recovery is less right they are called subprime and if you are lending to them that is subprime lending it means suppose that giving money again to the Vijaya market or the Nira Modi it simply means subprime lending that you are going to affect it so teaser loan because in the beginning you are giving them less interest rate there some people can come and take the loan but later on when the interest rate will be increasing they may not be paying it and it can be the subprime lending so first statement is correct in India the teaser loan are mostly given to the inexperienced not necessarily in the experience entrepreneur that can be given to anyone so second is not correct only one will be correct coming to the next a scheme for sustainable structuring estate look when you talk about structuring or restructuring it simply means that you can restructure the loan suppose that if a company any company or any individual have taken the loan and they are not able to pay the pay back the loan then company the bank can tell you that fine if you are not able to pay back loan to me then you just restructuring suppose the they can reduce the what is called per month EMI that you have to pay or something that is restructuring but what is this particular scheme a scheme for sustainable restructuring or restructuring estate it is for the big company more than the 50 crore loan taken right that loan can be restructuring in a way that sub equity can be taken from that company suppose if it is the reliance company they have taken the loan under this scheme if they are not giving back money then the bank can take some of the equity from it right that is what the so it is a scheme of RBI for reworking the financial structure of big corporate committees facing genuine difficulty we will be your answer what was the purpose of inter-curator agreement signed by the Indian bank look inter-curator agreement it is also called custodium lending it means suppose that when you take a loan you take a loan from a state bank of India right or any of the one bank but if more more than one bank coming together and giving you the loan that is called inter-curator agreement right four and five banks or even more than that they come and give you a loan that is the inter-curator agreement or custodial lending so our answer will be D to aim at faster dissolution of a state asset of 50 crore or more which are under custodial lending basal accord 3 this is an easy question right basal third basal accord came after the 2007-8 friencée crisis that you know what should be your CAR how much retirement you need to make that is there basal is the name of a city in the Switzerland that is why it is called basal basal 1, 2 and 3 accord are there what are this basal how a banking sector ability deal with the financial stress and improve over that look if you know only basal little bit you can solve this question easily because our statements are completely nonsensical as you can see it is a national strategy for conservation and sustainable political diversity it is talking about greenhouse emission transfer technology from the nonsensical only the B statement is correct consider the following statement capital adequacy ratio CAR simply means it is also called capital to asset capital adequacy ratio it means that suppose if you are giving a loan if a bank is giving loan of 100 rupees they need to maintain certain percentage so that the if in case of NPA and all they have some security over there that is the capital adequacy ratio is the amount that bank has to maintain in the forms of their own funds to offset any loans that bank occur in the account holders fail to repay the dues that is true under basal 3 it is 8% in India it is mainly the 9% for most of the bank first statement true CAR is decided by each individual bank no it is not by the bank but in the country like India it is RBI in other country also the central bank they decided second is not correct if you eliminate second right now the this will not be this will not be you know only one is correct in this not neither will not be venture capital this is the easy question venture capital simply means money given to the startup people people who is doing the startup that is the capital investing in the startup that is right so a long term startup capital provided by new order of interest that is true IFC Masala bond right it is the Indian rupee denominated bond right launched by the IFC that is what is called IFC sometime which of the statement is correct IFC which offers these bond is an arm of world bank that is true they are the rupee denominated bank bonds are so subject financing in public private sector that is true so both the statement and this will be the correct statement consider the following statement RBI manages and services manages and services government of India security but not a state government no that is not true RBI manages both the state government and the central government so the first statement is not correct if you admit these one you will left it three and two and three that is true the state government issued by the government of India and there are government India issued reasonable also the cash management bill the state government issued you know what is called dated security second statement correct reasonable offers are issued are discounted from per value that is true it means discounted from per value means that if you are buying treasury bill you will be not paid any interest but discounted from per value suppose if the value of you will be given 90 percent discount but you are giving that treasury bill back to it you will be getting 100 rupees so that is what they are that is what is also called zero coupon interest right because there are no interest and so the following is by the foreign portfolio investors who want to be part of without registering directly right that is a part this is just a term you need to know mean suppose if a person in the US want to invest in Indian company right but they don't want to be part of this you know process of coming to the registering themselves in the stock market etc and all what they can do they can visit any of the company in US they have the what is called registration in India and they are doing transactions and this company will provide the participatory note to that individual they are not coming directly in India but they are coming through this company and not that is the participatory note do you will be answered because this is the following statement commercial paper is the short term unsecured promise you know that is to look even in this question if you know two statements you will be able to solve commercial this much knowledge you need if you are preparing for the now see the suppose if you don't know about the second statement certificate of deposit a long term instrument or not suppose if you don't know it is short term and long term it is a short term call money is a short term finance used to inter-bancalize that is true look call money it is called for you remembrance just to remember it call money simply means you get the money on call you call it you get it it means you call money only for the 24 hours that is the short term only see a statement where there is so option c 1 and 3 because certificate deposit is not a long term it is a short term so second is not correct and zero coupon bond are the interest bearing short term bond we have just talked about that zero coupon bond you do not get any interest but it is the what is called you get the discounted value so only a statement 1 and 3 will be correct non-financial debt includes right look there are two kind of debts in by some of the definitions one is the financial and non-financial financial debt simply means that if you are taking a debt to give that they you know what is called loan to someone suppose that in case there is a nabard right and then there are rrb and then suppose sorry rrb and then they are individual so rrb is taken loan from the nabard right nabard and then rrb is giving loan to you so when rrb itself is taking the debt that is a financial debt because they will be giving that money to loan to someone and non-financial means that you are taking a loan for your own personal use so what are the things that can be housing loan owned by household obviously because that is your what is called non-financial you are doing it for yourself that is true amounts of outstanding on credit card that is true that is your own loan right because credit card you are not giving someone else treasury bill look treasury bill can be taken by some of the companies this is also non-financial buying it later on on discount you will get some money so all three will be the non-financial in a given year official poverty lines are higher in some state than in other states what are the reason because you know poverty line is in India there is one poverty line under the Suresh Tandoor committee we have already learned it but in some states the poverty line is higher in some state is lower why so because look suppose that leave the poverty line if you have to leave in Delhi and if you have to leave in some of the rural area what do you think where will be the cost of living will be much more in Delhi why because there is inflation here it means even if you have to take a you know what is called a room or rent or you have to buy something in a in Delhi there will be much more costly but in rural area in villages there will be cost of living less it means there is much more inflation in Delhi compared to the rural area so in a state wise also if suppose that in some of the state the price is a little higher then the poverty line will be higher because the buying of the product also remember one thing in India poverty line is decided on expenditure basis right on monthly expenditure so when you are buying things you have to pay it more in some of the states than in other states so on that level that is why in different states the price level poverty line is different so wherever the option that will go so price level vary from state in its that's why the B will be your answer benefit from the Mahatma Gandhi who are the eligible right eligible just remember that under Manderega any individual in respect of yourself even the Mukesa money wants to do the job under Manderega they can do it but if he has to be in the rural areas remember one thing so any individual above 18 year of age if they are deciding in rural areas they want to do the job and they are willing to do you know what is your manual work then they can get a job any individual respective of their salary or the income or anything any BPL and all that's not required so I don't remember only schedule cost no I told you member of below poverty line no and I remember household all backward community no any household that's true anyone can be the member disguised unemployment generally means look disguised unemployment simply means that the more people employed in a job that required less people right and those people who looks employed but they are not employed that is simply meaning of it suppose that even there is a shop right in this shop if one person sits on the on the shop and the income of the shop is 100 rupees right I think the five more people working here the fine income will be 100 rupees itself so it looks like all six people are employed because they are sitting on the shop they are doing some business or they looks employed but they are not employed why because the marginal productivity marginal means adding one more unit so even there are five more unit in this the final what is called final outcome is same that is called disguised unemployment so the answer will be marginal productivity of labor is zero as per the industrial employment standing orders rules 2018 it look when this rule comes it allow the company to make a contract or the fixed contract with the employee so that later on they cannot violate or they cannot go to the court look I need this I have this right and all that is what it is its rules for the fixed term employment are implemented it becomes easier for the companies to lay off workers that is true because suppose when you are joining a company they have you have to sign a contract in which the fixed term is written that okay this much time you have to give and all I can what is called fire you later not it is not written fire you but this is for that term you are employed here for one year for six months for two years then it is easier for the company to what is called fire the employee later on that's true no notice of termination employment shall be necessary undoubtedly because the notice is already signed in the beginning of the job itself so both are corrected this with reference to Indian economy because it is the following statement this is the question from now on there are very important questions that is this question is from last itself and there is some controversy in this question as well an increase in need nominal effect exchange rate indicate the appreciation of rupee look first understand what is need and reading as we have discussed earlier that the what is the suppose they are one dollar is equivalent to 80 rupees right now it is not our exchange rate right it is just against one dollar when you decide exchange rate in the international market we do not have only one currency pose if in terms of dollar our currency is depreciating but for all other currency just for take a hypothetical city sale against the euro against the yen against the chinese revenue from all other currency against it if Indian dollar is appreciating we cannot say that our currency is depreciating so under not here we take the basket of 40 currency 40 major currency of the world remember that earlier it was only 36 currency but now it is a 40 currency so all 40 currency we take the geometric mean and then we find it now if the value of need is increasing right an increase in nominal it will indicate the appreciation of rupee look why there are some confusion in this question because we can calculate in two ways one is dollar by rupee another is rupee by dollar while calculating PPP we gone through rupee by dollar on the R you know in the RBI website it is explicitly written it is written that the increase in need will have a what is called indicate the appreciation of rupee it means that the RBI is taking dollar by rupee in terms of exchange rate so if you are taking that then simply remember that not only you know in the need but read also if there are increase in it it means that there is a appreciation of rupee right so if the need is increasing our currency value in the international market is increasing so first statement is correct second statement increase in read indicates an improvement in trade competitiveness no remember I have told you that either need or read if it is increasing it means our currency is appreciating our currency value is appreciating so if our currency value will be higher in the international market our export will be less because the price of Indian commodity will be high in the international market if the price will be higher suppose that if India's read is increasing right and say it suppose that any product says the toothpaste you are saying anything you are selling in the US market so because it is increasing the price of the toothpaste in US will be higher but other countries toothpaste that is being sold in that that currency no what the product the price will be same so what will happen then the our trade competitiveness will be less not increase second statement will be because it will not be improvement but our trade competitiveness will be lower second is not correct an increasing trend in domestic inflation to in other countries is likely to cause an increase in diversity between nearer read obviously because look real difference between nearer read is that first thing the nearer take the basket of 40 currency and take the geometric mean and read is the same thing adjusted with inflation that's the like we study the gtpr current price and constant price it is just adjusted with inflation and then we find out the read now if there is a different divergent suppose that if in India the increasing trend in domestic inflation in India inflation is rising but in other country inflation is not rising then undoubtedly the nearer read will be higher because when we calculate near we take the 40 major currency but there there is no inflation and India in read we are calculating adjusting inflation and if India inflation is rising the divergence will be much more so three will be correct now suppose if you know only two statement and you are little confused under three right so just eliminate two left with only one and three so as I told you earlier that whenever UPS is asking a difficult question in most of the time they are giving you an indication that this question can be solved by going through elimination method or some of the you applied it with reference to Indian economy consider the following statement if inflation is too high RBI is likely to buy government security look suppose that in one side there is RBI and another side there is a market right and when are again look when the inflation is high it means the money is more in the hand of the people there are lots of people also company organization suppose that if it is you right now you have hundred rupees in your pocket you will be buying less product if you have one thousand rupees you will be buying more product if you are buying more product and production is also not rising at the same time the inflation will be there so it means it simply means what if there is more money into the market the inflation will be there and if RBI has to control it they need to take some money from the market right to them now come to this if RBI is buying the government security suppose there are some security here government security you are holding it and RBI is buying it from you so with that with what they will buy they will give you money instead so government security is going in the hand of RBI and money is coming to the market so inflation will be higher because we have just learned that if there are much more money inflation will be higher they will not buy it but sell it because if they sell it then what will happen the government security will be coming to the market and money will be going into the hand of RBI so in that case the first statement is not correct if the rupee is rapidly depreciating RBI is likely to sell dollar in the market that is true because look if rupee is depreciating right it means suppose that this is the Indian market right in here in this they are dollar and they are they are rupee and rupee value is depreciating means the value of rupee is going less so if rupee's value is going less and the dollar value is going high what RBI will try to do they will try to they suppose there is a RBI they will try to take some dollar from the market sorry some you know what is called RBI likely to sell dollars from the market not the taking it because look if anything that is more in the market their value will be less suppose if there is a you know value of rupee is depreciating and the value of dollar is appreciating then RBI will put dollar into the market what will happen if there are much more dollar in the market then the value of dollar will be less and rupee's value will be high so that statement will be correct right if interest rate in the USA of Europe european where to fall that is likely to induce RBI to buy it has a two logic one RBI will interfere in the case if the rupee is depreciating or appreciating suppose that interest rate in USA or european annual is falling right interest rate is falling then in that case what will happen there will be much dollar in the market and rupee will start appreciating it and if there are too much appreciation of the rupee in that case our export will be less and it will harm our exports so in that case RBI will buy dollar the three is also correct but again come to the our elimination method if you just know the first statement that is the easiest statement among all three right so if you know the first statement is not correct just eliminate first you are left with B second and third so that is how you should attempt inflation index bonds this is easy one inflation index bond simply means a bond that is adjusted with inflation right so go through a statement that government can reduce the coupon rate on its borrowing by way of IIB they can reduce because look suppose if you are buying any bond from the government right on that is inflation adjusted if inflation is rising it then they will give you that much interest rate so you you don't have any effect of the inflation so if that is undoubtedly that is a good bond to buy it because even there is inflation you are you will be getting much more money so in that case don't you think RBI can reduce the and what is called coupon rate they can do it because they are giving you other benefit so first statement is correct IIB provide protection to the investor from uncertainty that is true I have already told you interest received as well as capital gains and I have not it is taxable because look there is a capital game tax because there is a capital gain on that there will be capital gain tax so third is not correct one and two is correct with reference to the expenditure made by an organization or company which are the following statement correct acquiring new technology capital expenditure that is true look whenever you have to define or differentiate between capital expenditure and revenue expenditure you just remember one thumb rule that revenue expenditure is a day to day expenditure of the government that neither create any asset that also do not reduce any liability it means by that expenditure suppose if a government is buying any big tank from the other country or big some equipment from other country that is a capital expenditure because there is an asset creation but if government is giving you the salary that is the revenue expenditure day to day expenditure that is not creating any asset as simple as that acquiring new technology as I told you when they are buying new technology it will help in production it is for the longer period it is a capital expenditure because there is an asset creation first is correct debt financing is considered as capital expenditure here half of this statement is true right while equity financing is considered revenue expenditure no debt financing is capital expenditure because in that case there is a reduction in liability but equity financing it means that buying shares of the company so if you are buying shares right you know that is what is called considering the other asset creation so that is also the capital expenditure not the revenue expenditure the second is incorrect only one is correct with reference to Indian economy consider the following statement a share of the household financing saving goes towards government body that is true suppose that you are investing something in you know what is called PR provident fund that is a government is borrowing from you some of the money you know you are buying Kisan Vikas Patra from the post office account that is a government that is borrowing from you right so first is true that is your saving but government is borrowing it because later part they have to pay it back data security issue that the market related in auction from a large component of internet that is true or almost 90 percent right no so both are correct in this one extra information I will give you that when you talk about only internal debt or suppose that Indian government is taking money from the outside that is the external debt and if they are taking from the inside only like from the RBI and all that is internal debt India's internal debt is much more higher than the external that is something extra you can remember because here's the following statement in India credit rating agency are regulated by RBI no credit rating agency are regulated by CB so first statement is incorrect now if you just remove the first statement you left it only two and three even in earlier statement also no anyways so that will be but again see the other statement the rating agency popularly known and ICRA is a public limited company that is true right it was it is in the Guru Gham I think so second statement is correct brick work rating is an Indian credit agency that is true it is you know what is sponsored by the Canada Bank so third statement is also correct two and three though look even suppose that because these agencies are not very popular you are so you may not be knowing the name of these agency or may not be sure about it that the you know what is your ICRA or the brick work rating you might not be knowing it but the first statement was very easy to guess that the credit rating agency is not regulated by RBI it is the CB they do it if you eliminate it you just left it two and three and that will be it then board bureau which of the following statement are correct the government of RBI is the chairman look it is not necessarily the government of RBI government of sorry governor of RBI can be the chairman but not necessarily it can be selected by the what is called bureau and then the decide decision will be taken so first is not correct again go through the elimination you just left it two and three so you can notice it but anyways see this statement recommended the selection of head of the public sector bank that's true not only the public sector bank but also the insurance sector BVP helped in the public sector bank in developing a strategic in capital rising point that is true two and three is correct convertible bond look which of the following is correct convertible bond simply means a bond that can be converted in equity right that is convertible bond there is an option to exchange the bond for equity convertible bond pay lower interested that's true so because why because you have a chance to convert it if you want to convert your bond into the equity you have it so chances are there will be low interested because their flexibility it contains the option to convert to equity afford the bond holder a degree of indexation to rising consumer that is true right now sorry indexation again means connecting you with the inflation like suppose they can what is called connected with the CPI or WPI and all so that is also true the both will be connected this the governor of RBI is appointed by the central government that's true the certain provision the constitution of India give the central government the right to issue direction to the RBI public interest remember one thing in this question lots of people made mistake look under RBI act 1934 under section 7 section 7 of RBI act 1934 RBI act 1934 that gives the power to the government that they can issue the direction to the RBI in public interest it means they can interfere in the RBI affairs right but not the constitution of India so constitution of India here is not a right term RBI and remember one thing this section 7 of RBI has never even applied in India I think one or two year back it was in the news that government were suppose few years back I'm not sure in which year government was about to implement section 7 it means they can I don't know what is interfere in the RBI affairs but they didn't do it even at that time the second is not correct because of the constitution of India it is not the constitution but section 7 of RBI governor of RBI draw his power from RBI act that is true so 1 and 3 will be correct state again go through the elimination second is not correct just eliminate second you are left with 1 and 3 so remember look at all these questions these are difficult questions but still just by elimination you can solve it both FDI and FII are related to investment in the country which under the following statement best represent and import important difference between the two look FII helps bring better management no I have told you earlier that it is FDI that brings skills and technology not FDI FII only come with the money so first is not correct FII helps in increasing capital availability in general while FDI only target a specific sector that is sector that is true FII gives you the money into market and FDI targets sectors at which sector they are going to invest second is correct now you are not supposed to go there FDI only into secondary market no that is not true FII consider to be more stable no FII sorry FII FII is not more stable because there is investment it is very volatile in nature FDI is what is called there is I is missing that is stable which are the following best reflect indirect transfer look indirect transfer when we talk it simply means that a foreign company transfers here such as suppose that a company of US right they have the some shares in Indian company right in Indian company now if they want to transfer this share that will be considered indirect transfer right they are transferring the share of the Indian company to other so the foreign company transfers here since the share derived their substantial value from asset located in India so D will be your answer describe the green washing look green washing here simply means the like just like a brain washing you know sometimes when the people do the brain washing they talk about they give you wrong information just to leave you in a wrong way so simply green washing it means a company what they do they try to convince you that their company is producing environmental friendly product and all right so the suppose see the first statement conveying a false impression that a company's produce products are eco-friendly that is a green washing it means they are just manipulate or they give you wrong information for the people that this is eco-friendly but that is not true so that's all from the today's PYQ I hope it is beneficial to you all and if you follow the approach that we have discussed it might be helpful in your examination that's all from my side that's all thank you everyone