 Hello everyone. So welcome to Shankaray's Academy's series of discussions on various previous year questions. We have divided into various subjects. You have already seen on YouTube videos that have been uploaded on other subjects. So this is a continuation of that. So today we will be discussing core economics. The subject of economics itself we are dividing into two. One, we are only based on the concepts that are associated with economics. There are eight areas into which we will segregate core economics and we will be discussing those. Subsequently, there will also be another video on the general side of economics which is how the Indian economy has progressed over the years and questions that are based on that area that will be discussed separately. So today in our session we will be dealing with questions from 2016 to 2022. So that's a period of seven years that we'll be discussing. So there are a total of 87 questions that we'll be discussing as well. So there is already a video in existence on YouTube which talks about various techniques in order to arrive at specific answers even if you don't quite know the entire area that is being questioned in. Today's focus would be slightly different. So I've taken almost all the questions in during this period of years that we have mentioned over here. Almost all the questions are there. So there's, as I told you, a total of 87 questions. So the focus is on understanding the answer to all of those questions, specifically the concept-oriented one. Wherever we can arrive at an answer through elimination techniques, I'll mention those as well. We'll start with the topic of money. Money, inflation, banking is one set. So we will have to look at it together, one after the other. Money, less number of questions, inflation, slightly more number of questions and ultimately banking has a lot of questions, especially from the period 2016 to 2019, a lot of questions from the area. We'll start with money. Consider the following statements. The governor of Reserve Bank of India is appointed by the central government. It's factual, it's basic knowledge, it is, especially if you have been following the issues that was there when Ujit Patel was the governor and subsequently the current governor was appointed by the government again. So that's something that you would know. The governor is appointed by the central government. Certain provisions of the constitution of India give the central government the right to issue directions to the RBI in public interest. On the face of it, it seems like a correct statement. However, the error here is constitution of India doesn't give those provisions. Certain provisions in the RBI Act give the central government the right to issue directions to RBI in public interest. So the relationship between RBI and the central government is not given by the constitution of India. It is given by the RBI Act, by an act of the parliament that it is there. So that is what makes it wrong. Many people miss this particular part of the question that it is not the constitution, it is the RBI Act. Second statement is wrong. If you know second statement is wrong, only one answer is left. The governor of RBI draws his power from the RBI Act and even if you didn't focus on the word constitution of India, the moment you see RBI Act, it should awaken you. They'll say, okay, fine, we have to focus on where the power is coming from RBI Act. So look at the previous statement again. There it's a constitution that alertness should always be there. When you read the second statement to begin with, you might not focus on constitution of India. But when the third statement says that the power is drawn from the RBI Act, that should be a matter that should awaken you to that point in the second statement. The answer is 27 C. Moving to 28. The money multiplier in the economy increases with which one of the following increase in CRR. More money is kept with the bank itself, less money given out as loan. Money multiplier tends to go down. When does money multiplier increase? When does money multiply to a greater extent? As more loans are given, money multiplies to a greater extent. CRR increases, SLR increases, money are available to give loans goes down. So A and B are not part of the answer, are not the answer. Increase in banking habits of the people, increase in population of the country. Population increase may or may not have an impact on it because what matters is not how many people are there, what matters is how many people are using the banking system. C is the answer over here. This answer everyone in the year 2021, everyone should have answered this question because this exact question is given without a change in the options. The exact question is given in a couple of couple of years 2019, they have asked this question. We will see as we go on. So the answer here is C, 28, C, 29. If you withdraw 1 lakh in cash, 1 lakh rupees in cash from your demand deposit account at your bank, the immediate effect on aggregate money supply in the economy will be. Now aggregate money supply, this is a question on monetary aggregates, application level question. On the face of it, it is a tough question to answer. But if you are someone who knows the concept of monetary aggregates, this question becomes easier for you to answer. So there is M0, but M0 is not aggregate money supply. We have M1, M2 and M3. M3 is what is referred to as aggregate money supply. Total money supply in the economy, which should ideally be equal to the GDP of the country. M0 is the total printed currency in the economy. So question is not about M0. What is the classification of M1, M2 and M3? M1 refers to money, which is either, which is in the country, but which is not accessible for a bank. Bank cannot use it for lending purposes, which means M1 doesn't contribute much towards multiplication at all. What is inside M1? Cash in the hands of public, cash in the hands of RBI, money which comes into the bank, but the bank cannot use it in the form of demand deposits. That is what is in M1. M2 means slightly more liquidity for the banks from the bank's perspective. So this is again an area which confuses a lot of people. UPC has asked a question, M1, M2, M3, which is more liquid. It's a very ambiguous question and the answer was M1 is more liquid because people have access to it. But again, I have a bit of an issue with that understanding because liquidity is a matter of perspective. If you deposit 1 lakh rupees in a bank as demand deposit, it is liquid money for you, but it is not liquid for a bank because bank cannot use it to give out loans because you might come and ask for it any time. So liquidity depends on who are you talking about. So from the public's perspective, demand deposit is a liquid money. Whereas from the bank's perspective, the demand deposit is not liquid money. Term deposit becomes liquid money for them. So look at it from the bank's perspective. M1 is money which is not liquid for them because they cannot give out loans. M2 is more liquid, M1 plus more liquid money and M3 is M2 plus more liquid money, which is easily accessible money. That's how we classify. So here the question is, if you withdraw rupees 1 lakh in cash from your demand deposit account, demand deposit account is a part of M1. So demand deposit account is a part of M1 and withdraw cash, withdraw in the form of cash. So which means what? You're taking this money and you're keeping it as cash in the hands of public. So what we are noticing is that from one heading inside M1, we are taking the money and keeping it another heading inside M1. When does money, overall money supply change, if you take money from M3 and put it inside M2 or M2 is put inside M1 or fresh money is created and it goes into M1 or M2 or M3, let's say there is 1 lakh rupees over here, which the bank has given out as loan or you have gone and taken that money and deposited it somewhere else. So the money would be in multiple places. So there could be a chance of increase in multiplication. Or if the bank is going and depositing this money in the hands of RBA, money itself is taken out of circulation, then there could be a possibility of decrease. Here it is just change of heading within the same category, which means the end result is it leaves the money, overall money unchanged. From M1, one category of M1 to another category of M1, which is not going to affect the overall calculation at all. So the end result is that there will be no change in the overall money supply in the economy. It looks like a very complicated question, but if you are someone who understands the concept of monetary aggregates and money multiplication, you would know that taking the money from, say keeping it as cash or putting it in the bank in the form of demand deposits, which you can access through cart, there is no difference at all in the overall money supply in the economy. So it is a higher level of question where you have to apply the knowledge that you have. Repeat of the question that I was talking about earlier, money multiplier in an economy increases, which is one of the following. Increase in CRR, increase in SLR, increase in population, increase in banking habits of the population. They have just changed the order. B has become CC, has become B. Answer in this case is B. There is no doubt about it. If you have prepared for the exam in 2021, you should obviously have looked at previous year questions and known the answers to that, which means the earlier question, there is no way you should have missed it, because the UPC itself has given you the answer to that question already. Repeat question. So 31, which one of the following statements currently describes the meaning of legal tender money? So again, we have to understand the concept over here. It is a concept based, it is a knowledge question. Simply know the definition of legal tender, you will be able to answer. Conventionally, legal tender is understood as legally accepted form of payment, which means legally you can use this to make payment. But if you look at that, then check will also be legally accepted. Check is also legally accepted, it is not illegal. What makes legal tender unique is that the government has passed an order in such a way that not only can you legally use it for payment, the one who is receiving it cannot say no to it. There is a compulsion on the part of the receiver to accept the money if it is legal tender. If it has legal tender status, you pay certain money, you owe someone say 1000 rupees, you give them 1000 rupees no, they can say no to it, because 1000 rupees no doesn't have legal tender status. India doesn't have 1000 rupees no at the moment. So 1000 rupees no is not legal tender. You give a check, they may say no to it. You pay using card, they may say no to it. But if you pay in cash in two 500 rupees notes, they have to accept it because it's legal tender money. The money which a creditor is under compulsion to accept in settlement of his claims, V is the answer over here. Everything else, there are say money in defray legal fees that is not legal tender that is just to confuse you with the word legal. The bank money in the form of checks, drafts, there is no compulsion to accept it. It is not, it's legal but it's not legal tender. It is not by definition what is called as legal tender. There is nothing illegal about it. But bank money gets its validity from the bank, not from the government. And D, the metallic money in circulation in the country, metallic money may be legal tender but that is not what is the definition of legal tender. So B is the most appropriate answer in this case. D is also legal tender but that is not the correct description of what is legal tender. It is not that only metallic money is legal tender. So D cannot be the answer, B has to be the answer. So 31, B, 32. The last question inside money, with reference to Bitcoins, sometimes seen in the news, which of the following statements is or are correct? Bitcoins are tracked by the central banks of the countries. They are not even simply cryptocurrency. In 2016, the question is specifically about Bitcoins. They are tracked by the central banks. If you knew anything about cryptocurrencies at that point of time or if you know anything about it now also, the full advantage which cryptocurrency provides or Bitcoins provide, which other currencies legal tender money or Fiat money doesn't not Fiat legal tender, Fiat money, which Fiat money doesn't provide is that Fiat money is entirely controlled by the central bank. They are tracked, every single transaction can be traced as long as it happens digitally. But Bitcoins cannot be traced because there is no centralized authority. There is no issuing authority. It is based on a computer program that the coins have generated mining through solving of puzzles is how it is done. So the management of the entire system is done by the people who are using it. It's almost like the gold system that we were using in the past. Where did gold get its value from? Eventually, there came a situation where currency had the punch mark of the ruling authority and all those things. But originally, where did gold get its value from? People themselves started accepting that, okay, we find this to be valuable. We find this to be attractive. We'll use this as a medium of transaction. Bitcoin is a situation like that. And gold, you can mine the more you get, the more gold that is available as currency. Similarly, Bitcoins, you mine it, the more you get, the more that is available. There is an end to how much of gold is available physically. There is an end to how much of Bitcoin is available. There are already it's been programmed in such a way that a limited number of Bitcoins is there. It will come to an end in the end. Okay, so it is not tracked by central banks is one of the advantages which makes people go for Bitcoins because their transactions can be or not interfered with by the government or by any authority. Okay, so one is definitely wrong. So if one is wrong, you immediately remove the answers two and two and three or three only, which means you don't have to worry about three. Okay, so whether you know online payments can be sent without either side knowing the identity of the other or not, doesn't matter. It can be sent. That's another thing. So three is definitely part of the answer because the only options left both have three. The question is about second. Anyone with a Bitcoin address can send and receive Bitcoins from anyone else with a Bitcoin address. They can because there is no controlling these transactions. Among the two people they can send and receive. Okay, no restrictions there because there is no one to restrict. So the answer is B two and three only. So that is with respect to money. We are done with the chapter of money. We'll go for inflation. So more number of questions here. I'm not wrong about 12 or 13 questions over here. With reference to the Indian economy, what are the advantages of inflation index bonds? Very recent question. Governments can reduce the coupon rates on its borrowing by way of inflation index bonds. Coupon rates are the interest rate that is offered. Okay, now how do inflation index bonds work? It's different from the conventional concept of inflation adjustment. So previously, the government used to had issued one in the past, the concept of inflation adjustment. What they did is they would give the principle to be fixed and they'll say, let's say I lend 1000 rupees to the government. The government says, I'll give you 4% plus inflation, whatever is the rate of inflation or for inflation adjustment a certain value or they say 2% plus whatever is the inflation rate. So they'll give us that. So the interest rate used to get adjusted according to inflation in the economy. Okay, but that is not the concept which government follows with respect to inflation index bonds at the present. So what they do is they won't adjust the interest rates at all. The interest rate is fixed. Okay, it will be a comparatively smaller rate. Let's say something like 4% that is a fixed rate that won't change at all. What will change is periodically they'll keep changing the value of the principle. They'll do inflation adjustment of the principle. You gave 1000 rupees. Let's say last year you gave this year what is the value of 1000 rupees. So if 1000 rupees is equal to 1000, let's say 150 rupees this year, assume that. Okay, so whatever you could buy for 1000 rupees last year, you need 1050 rupees to buy. So there is an inflation adjustment done for the principle amount whereas the interest will remain the same. So one principle is protected from inflation. Second, because the interest is provided on top of the new sum, the interest will not be on, say for 4% will not be on 1000 rupees. In the second year, if the principle is readjusted to 1050, the interest will be on 1050, not 1000 which means while the interest rate will remain the same, the calculation of the interest is on the new principle not the old principle. And finally when you withdraw the money, the principle will be adjusted for inflation periodically and you will get a bigger sum both in terms of principle and every year when you get the interest or every six months when you get the interest, the interest would also be calculated on a higher principle. So interest is also protected from inflation. So that is how it works. Government can reduce the coupon rates. Yes, because it provides the inflation protection, the government can reduce the coupon rate. The coupon rate is nothing but the interest rate. The government can reduce the interest rate. Usually if the government have to give let's say 6% as a returner. Because you say what if there is inflation, it's a fixed rate of interest. Here the government is saying we are adjusting the principle according to inflation, so we'll offer only 4%. That is a see, government is providing us protection from inflation. What is the gain that they have? They have gain in the form of a fixed coupon rate, which would be lower than what would be the coupon rate otherwise. So the first statement is correct over here. IABs provide protection to investors from uncertainty regarding inflation, which is true. The name itself says inflation index bonds. See if you know anything else or not, your second statement you have to you have to know. Logic says inflation index to bonds provides protection from inflation. Correct. So how can you consider that to be wrong? If you cannot, if you know the two is definitely correct, so you eliminate this option. Then the last one, interest received as well as capital gains and IABs are not taxable. See if they had at least said interest gained is not taxable, maybe there is some logic to it. But why should tax gains be provided? Is it like a social security measure to provide tax gains on this? No. Inflation adjustment is to help the one who is lending the money. Already that is the assistance that is providing. Why should the government provide any kind of tax rebate on this? So there is no tax rebate either on interest or capital gains. So 3 is wrong. So if 3 is wrong, your options only one left is A. 1 and 2 only is correct. So if you can make a bit of a guess about the third one, let's say you don't know one, even then you can make a guess about the third one saying that tax benefits for inflation index bonds, which is not a social welfare measure or anything like that, doesn't make any sense. If the question had been, is there a tax benefit on small savings or say for infrastructure investment funds, then it makes sense to assume that there may be some tax benefit. Here there is nothing like that. So 3, you can rule out based on some logic. 1 and 2 remains the answer. But always remember when you make such guesses, sometimes your guess can go wrong. Probability will work out over here. Some cases your guesses will work, some cases your guesses will go wrong. You can only hope that you are guessing more correct than you are guessing wrong. So always rely on knowing the answer, but there is always an expressed option which is logically guessing. In this case, you can apply logic. If you are thinking of the right logic at the right time, it will work here at one page. So 33, the answer is A. 34. In India, which one of the following is responsible for maintaining price stability by controlling inflation, the function, objectives of RB itself is to maintain price stability. 2016 onwards, controlling inflation has become their primary responsibility as well through the Monetary Policy Committee, Reserve Bank of India as the answer. No guessing about this. It should be known. 34 D, 35. Which among the following steps is most likely to be taken at the time of an economic recession. Economic recession means what? No production. Production is not happening to a desired extent. So the government has to find a way to boost production, increase income in the hands of the people. So cutting tax rates, it is a logical step to do. Accompanied by increase in interest rate. Increase in interest rate means what? Borrowing becomes costlier. People will not produce. So one part of it is correct. Second part of it is wrong. Increase in expenditure on public projects seems like the correct answer, but we'll come back to it. Increase in tax rates doesn't make any sense at all. Accompanied by reduction in interest rate. This part is correct. This part is wrong. So this is wrong. Reduction of expenditure on public projects. Why? Do we have high inflation? No. Our intention itself is to make more and more production happen. So reduction in expenditure doesn't make sense. So the ultimate answer is increase in expenditure on public projects with the expectation that first of all it will provide income into the hands of people who are working over there. Second, it could bring about crowding in effect. Government spends public on public projects. It may invite others to come into investment. So expectation is crowding in effect. So the answer here is 35 B. Moving to 36. Consider the following statements. Other things remaining unchanged. Market demand for a good might increase if logic is law of demand. Not part of our general understanding of or general topics that we learn in economics, but just like the opportunity cost question, this is a technical kind of question. But this is on the lines of something that you should be able to answer based on common knowledge. Everything is remaining unchanged. So in economics, what do they mean by other things remaining unchanged? The demand of a commodity can be affected by many things. Income of a person can be a factor. Taste and preferences of a people can be a factor. So all those things are remaining unchanged. So other things means what? Other than 1, 2, 3, 4 that they have given over here. Other than 1, 2, 3, 4 nothing else is changing. That is how you have to understand. So forget about other things. Just focus on 1, 2, 3, 4. You don't have to make assumptions of what will happen if something else happens beyond these four. That's not necessary what the question itself says. Other things remaining unchanged. Market demand for a good might increase if one price of it substitutes increases. So you know what is a concept of substitute. So I have a pen in hand. I have a pencil in hand. So if not a pen, I could probably use a pencil. They are not perfectly substitutable, but I can, it does the same work. Both are used to write. So if not a pen, I could use a pencil. So if the price of pencil rises, I am more likely to buy a pen. Because why would I buy that which is costly? So the price of a substitute increases, I might, those who are using pencil will now start using probably pen because pencil is becoming more expensive than what they want. So price of a substitute increases, it can increase the demand of this particular commodity, which is under consideration. So first one is definitely part of the answer. So we can eliminate B. Second, price of its compliment. Now substitute and compliment are again economic terms. Substitute means one instead of other. Compliment means you cannot use one without the other. For example, you buy a car, you buy fuel. Fuel is a compliment for it. And maybe for some people, let's say milk and sugar. So you consume milk, some people might say I consume milk without sugar, but generally, so milk and sugar, sugar can be considered as a compliment. So all of these are what we call as compliment or maybe a better thing, pen and ink. If ink is becoming very expensive, you cannot use a pen. So when ink is becoming expensive, the demand for pen itself will drop. So price of a compliment increases, the demand for the commodity will go down because you cannot use this commodity without that and that is becoming very expensive. So two is not part of the answer. Price of compliment increases, the demand will go down. So two cannot be answered. So two is removed from here. So we don't have to worry about four. And four is known. If the price of a commodity falls, the demand will increase. Someone gives a discount, we might end up buying things which we don't even want. So four is definitely a part of the answer. The only question is three a part of the answer or not. The good is an inferior good and income of the consumer increases. So in this case, they are saying income is increasing, but the commodity is an inferior good. What is the example of an inferior good? No, I don't want to offend anyone who uses any commodity over here. But let us say you have very low income. So you rely on the rise that is available from the ration stores. But your income increases, if you consider the ration rise to be of a lower quality, you would say when my income is increasing, why should I buy that? I will go and buy something else. So something else is what is the commodity that we are talking about. So the particular good that we are talking about is an inferior good. My income increases, I will not buy the inferior good over here. So the ration rise is the commodity that we are talking about. We will buy less of it at the income increases. Or let us say we were previously consuming kerosene. Now we have LPG. Now because we have more income, we can afford LPG. As a result, I might not go for kerosene. I might replace it with a higher value item. Even if my income increases, rather than buying more of kerosene, I might buy less of kerosene. So the good is an inferior good means I don't want it anymore. I was consuming it because I didn't have a choice. Now I have more income, I won't consume it. So the demand will go down. So 3 is not part of the answer. The answer is A. The answer is A, 1 and 4 only. 37, which of the following is likely to be the most inflationary in its effects? When will inflation go up? Simple answer is when money supply increases, that is one of the factors which can cause inflation. All of these are examples where money supply is going up. Repayment of public debt, money supply goes up. Borrowing from public to finance, budget deficit, money supply is ultimately going up because to some extent, borrowing from banks to finance, public deficit, budget deficit, these two you will find a commonality. There is money already in existence in the hands of public. There is money already in existence in the hands of banks. So already existing money is taken and given back. So overall impact on money supply may be very less. Maybe a slight level of multiplication may happen, but beyond that the scope is very less because existing money is used for coming reintroduced into the economy. And repayment of public debt itself means what? Already you had the money, you wanted the money, so your money was taken and your money was given back. So its impact on money supply in the economy is very less if at all there is any. But creation of new money to finance budget deficit means what you are creating new money using which you are introducing or you are paying for a deficit that you have. Usually new money should be created for creating goods and services, for buying creation of goods and services, manufacturer of goods and services. Here budget deficit is what is being financed. It may not result in production of goods and services, which means extra money, same set of goods and services, inflation is likely to happen. All four can be considered as inflationary, but which is likely to be the most inflationary in its effect, creation of new money D is the most inflationary. So 37 D. Also there is something else that you can think of here. You can say B and C cannot be, one cannot be the answer while the other is not. So you say B is the answer, obviously, why not C? C is the answer, why not B? That rules it out. Repayment of public debt is one creation of new money. You will have to make a choice. If you apply a little bit of your knowledge of money supply and all those things, you would know that D is the answer. So that is 37, 38. With reference to Indian economy, demand pool inflation can be caused or increased by which of the following? Demand pool inflation means money supply increases. So under which of the following can money supply increase? That is how the question has been reinterpreted. Demand pool means money supply is causing increase in prices. Expansionary policy, money supply increases. Fiscal stimulus, money supply increases. Inflation indexed wages, there is inflation happening. Accordingly, wages increased. So no excess wages given, only inflation indexed wages are given. That is not demand pool in nature. When more than inflation income, more than inflation is provided, that can cause demand pool inflation, but not inflation indexing of wages. Higher purchasing power means more income in the hands of people. Higher purchasing power is there. So keep that in mind. Higher purchasing power is provided by higher income. More than, see, I have 1000 rupees, I can buy 1000 rupees worth of goods and services. I have 1500 rupees. I can buy what 1500, but if enough goods and services are not there, I might end up buying the same commodities at 1500. So it can cause inflation by giving more demanding power. Rising interest rates will make you borrow less money. So it is not part of the answer. So 1, 2 and 4 is the answer. A is the answer. So always try to simplify the question. Demand pool inflation means what? Increase in money supply causing inflation. So which of the following measures can increase money supply in the economy? That is how you have to look at it. Moving to 39. If the RB decides to adopt an expansionist monetary policy, money supply increases, it decides to increase the money supply. What would it not do? Cut and optimize SLR. SLR goes down, less money needs to be kept with the bank, more money will go outside. So that is a measure that it would do. So 1 cannot be a part of the answer. What would it not do? It would not cut to SLR, which means that cutting SLR is not part of the answer. You have already arrived at the answer. Only one possible answer, two only. But the trick here is in this country shing aspect, if you want to increase the money supply, they are not asking what would you do? They are asking what would you not do? So how does our mind work? We read that question, we say, okay, so expansionist monetary policy would not do. We are ready with it. Cut and optimize SLR. Okay, money supply will increase. We will think, okay, correct. So one is correct, one will be an expansionist policy. Not do is something that we tend to miss out on. So the challenge is, unlike the usual what is not the correct answer, this not do question is a higher level of complexity while sitting in the exam hall and answering. Because you read it, you say, okay, expansionist, this is what should be done. But what should not be done means the opposite is what they are asking for. That is the trick over here. Increase in MSF will mean less money will go out. It is not an expansionist. It is a contraction policy. Cut and bank and report it. So these two will not be there. Most likely people who make a mistake would end up marking one and three as the answer because of this challenge that is there. The answer is to only 39. D is the correct answer. Okay, so D is the correct answer. 40. Which of the following factors or policies were affecting the price of rise in India in the recent past? So what determines or what affects the rise of price? MSP determines or affects the price of price because the government helps in determining what price it is being sold at. Government's trading, government itself involved, government stockpiling, subsidies given to consumers. Can you rule out any of these as factors which affect the price of rise? All of this have a role in determining the price of any commodity for that matter, not just rice. Rice is just a word that they have given here because these four are applicable in the case of rice. But all four here are factors which influence the price of any commodity. So D is the answer over here. Moving on to 41. Consider the following statements. The weightage of food in CPI is higher than in WPA. Now it might look like a factual thing, but there is a little bit of guessing work that you can do over here. You're talking about the price index. Two separate baskets of goods and services in the case of wholesale price index is only goods. Two separate baskets. In which basket do you think there will be a higher priority for food item? Logically, people consume food. That becomes a greater role. In fact, if you know a little bit of fact, you know that wholesale price index is the bigger dominant entity inside manufacturing item is the dominant component inside wholesale price index. But the question is not about which is the highest. The question is the weightage of food is higher in which of the two factually. Food constitutes around 40% in CPI whereas primary articles constitute about 22% or something in WPA, somewhere close to that. So that's factual. Even logically, you can say consumer price index, food will have a greater role to play because people spend more money on food. So that is a greater weightage. So by that logic, first statement is correct. WPA does not capture change in price of services. CPI does factual thing. If you know it, you can answer. If not, you can't guess. RB has now adopted WPA as its key measure of inflation and to decide on changing the key policy rates. This was true till 2015, 2016 onwards with the introduction of monetary policy committee with an all India consumer price index called a CPI combined. We have moved from WPA to CPI. Third statement is wrong. Third statement is wrong. It leaves with one and two. So if you know third is wrong, you can at least eliminate two options. You don't have to worry about two, which is a factual thing and you can apply a guess and probably answer A as the answer. Possibly, you can make those guesses. 42, which of the following statements is or are correct regarding MPC monetary policy committee, 2016 came into effect, 2017 UPS disaster question. It decides RBIs benchmark interest rates. Correct. It is a 12 member body, including the governor of RBA entries reconstituted every year. It is not reconstituted every year. It is not a 12 member body. It is a six member body. It functions under the chairmanship of union finance minister. No, it includes the governor of RBI. It is monetary policy committee. Monetary policy is RBA's committee. The finance minister is there. Finance minister will have to be the chairperson. Then RBA governor will have less of a role to play in that. It will essentially be a government body then, which is not true. So three is wrong. Two is wrong. Answer is A, one only. Very generic question. That year current affairs, most people should have been able to write this. By eliminating three, you have eliminated two options. So the question is, do you know the second one or not? So six member body is what is the error over there. And reconstituted every year is also not correct. That ends the discussion on inflation. We are moving to the third part. I told you it is a set of three money inflation and banking. So the last part in that set is what we are going to discuss right now. Banking. Banking has quite a lot of questions. There are 18 questions, but you will notice that most of the questions are 2019 and backwards. 2020, 2021, 2022, comparatively lesser number of questions have come from the area of banking because NPA as an issue is not as big a role, doesn't play as big a role in today's conversation in India as it did prior to 2019. Start with 43. With reference to Bangkok Bureau, which of the following statements are correct. The governor of RB is the chairman of BBB. 2022 question, something that we should have known, you should have known from the past itself. It is not the RBH chairman. Sorry, RBH governor was the chairman. It's a separate person who was appointed. There were some issues originally when it was created. I'm not going into the issues going into that discussion now, but the first statement is wrong. If you know the first statement is wrong, automatically you are only left with one option, two and three. Let's look at the other ones. BBB recommends for selection of heads of PSPs. Yes, BBB helps the public sector banks in developing strategies and capitalizing plans. Yes, that is the objective itself. There is a subsequent question regarding BBB, which we will be looking at as well. So the second point becomes very important with respect to that particular question. So that is 43, 44. With reference to urban corporate banks in India, consider the following statements. Now, this is a very, again, current affairs, very specific kind of a question. And a lot of people may not have known when they attended the exam this particular. Those who have studied this area in detail, they might remember, but there is a particular key that you can focus on, which will help you answer this. So they are supervised and regulated by local boards set up by the state governments. They can issue equity shares and preference shares. They were brought into the purview of Banking Regulations Act through an amendment in 1966. That's a very long time ago. So let us say you don't know any of these things, but there is still a little bit of logic that you can apply. It is supervised by local both set because it's a cooperative entity. It makes sense. There is the registrar of cooperative societies who might play a role there. Okay, the state government itself regulated by, so supervision is different, regulation is different. Banks in India are regulated by the sub-bank of India as simple as that, be it urban cooperative bank, if it has a name bank with it, RRB, regional rural banks or cooperative banks or schedule commercial banks, all of them. The supervision role, sometimes there is dual supervision that happens. An abode plays a role in regulating RRBs, state government plays a role in supervising, but supervising and regulation. There is a role which is played by the RBA itself. To say that they are supervised and regulated by local both set up by the state government is wrong. The regulation is ultimately in the hands of the reserve bank of India. The first statement, if you know that one is wrong, so you are left with only one option, two and three only, 44 B. So these are the key things that you have to look for. Other than that finding specific things, if you know it, you can answer otherwise stuff to guess. 45, in India, the central bank's function as the lender of last resort usually refers to which of the following. If you know the functions of reserve bank of India, you would know that the function as lender of last resort comes along with another term. RB acts as a banker to the banks, but only as a lender of last resort. That is a complete function. RBA acts as a banker to the banks, but only as a lender of last resort. If you know that, the answer is evident. Lending to trade and industry bodies does nothing to do with lending of last resort. So industry bodies cannot go to RB and say, I tried everywhere, you have to give me loan. No. RB will ask, I don't even regulate you, why are you coming and asking me? So no. Providing liquidity to banks having a temporary crisis, yes, because that is what is lending of last resort. And the bank is desperate, it tried everywhere, it couldn't get the money under the MSF facility, Marshal Standing facility, you can go to the RB and say, please lend me some money or I'll give it back the next morning. So that is what is lender of last resort, the MSF facility that is there. So second is correct. Lending the government to finance budgetary deficits that is not lender, that is RB's role as a banker to the government, not a banker to the banks. That too, RB provides only loans under ways and means advances for a 90-day duration. So that is not lender of last resort. So the answer is B2 only. Then we have moving on 46. What is the importance of the term interest coverage ratio for firm in India? This is current affairs, but you can make some guesses out of it. So interest coverage ratio, so there is interest. To cover the interest, do you have enough money or not? That is interest coverage ratio. So the total interest obligations, there is, if you know the factual thing, so there is the total earnings of the bank. So the higher a borrowing firm's level of interest coverage ratio, the worst is its ability to service its debt. So even if you don't know this formula, if you know this formula, it's very easy because numerator is greater means it's good. More and more money is available to pay the interest. It is a good indicator. Higher the interest coverage ratio, the better is its ability to service its debt. But even in general, think of the word interest coverage ratio to cover for the interest. The more I have to cover for the interest, the better it is. So the higher a firm's interest coverage ratio, the better it is. It's a logic that you can apply. Sometimes the opposite may work out, like in the case of incremental capital output ratio. But there the name itself makes it evident, capital output ratio. So more capital required for generating an output. So in such cases, the reverse will be true. But in this case, the higher the ICR, the better is the ability to service the debt. So third one is wrong. If you know third one is wrong, remove these two. The only question is, is it one, two only or one and two? So two is definitely correct. It helps in evaluating the emerging risk of a firm that a bank is going to give loan to emerging risk, future risk. But not just the future in the present, is the bank in a good situation or not? Does it have enough money to pay for its interest at present and in future? So interest coverage ratio helps in understanding the present as well as the emerging risk of the firm. The answer is 46A1 and 2. It is not very easy to guess. Maybe you can eliminate three at most. But to choose between one and two, you should have some idea. So logical answer to guess among A and B is A. But again, it's easy to sit here and say it's easy to guess A. You'll have to think the right thing at the right moment in the exam hall to be able to know. So it's better to know these terms because it was in the news is why this is asked. So current affairs learning is very important in that case. Service area approach, something that should be standard knowledge for everyone because lead bank scheme has been a landmark scheme. It was 50 years since the launch of lead bank scheme in 2019. 1969, they launched 2019 was the 50th anniversary. So it is about the lead bank scheme. So the answer is service area approach. To serve a particular area, the lead bank had to give a sort of strategy as to how, what they are going to do, what is the approach that they are going to take. That is what is the service area approach. So 47B, again factual, no guessing, nothing can be guessed over here. Because anything here, MGNRG could be service area, if you are guessing, integrated rule development could also apply. So if you don't know, you can't answer this. 48, which of the following is not included in the assets of a commercial bank in India? This is something which you can apply the knowledge and answer. What is not included inside assets of a bank? What is asset? Asset is something which is the potential to earn money. When you give a loan, you earn money. When you take a deposit, you pay. When you take a deposit, you are effectively taking a loan. Loan is a liability. Assets, liabilities, they are opposites. So instead of looking at the question as which of the following is not an asset, you can look at it as which of the following is a liability of a bank. Any deposit that they take is a liability. So that leaves it with only one answer, the deposits. Deposits are the liabilities of a bank. This is application. This is something that is expected of everyone to write. It's not current affairs place. It is your knowledge and the application of the knowledge that is important. 49, what was the purpose of inter-creditor agreement signed by Indian banks and financial institutions recently? Current affairs of that time, inter-creditor agreement. So between the organizations which are giving loans, there is an agreement. Look at the options. Lesson in the Government of India's Perennial Button Office on fiscal deficit. Crediting or inter-creditor means among the creditors, who are the creditors? Banks have the creditors. Among them, the agreement, it has nothing to do with fiscal deficit and current account deficit. To support infrastructure projects, very difficult to assume that to be right. Let's look at the other options also. To act as an independent regulator in case of applications of loans for loans could be possibly to aim at faster resolution of stressed assets of 50 crore or more which are under consortium lending. Actually, if you know, you would know that is what was the agreement for because the issue that was happening was a lot of times, let's say, five banks are involved in the process to resolve. So five banks together have given a large-scale loan. The four banks have agreed saying, this is the strategy that we are going to use. The other bank whose exposure is actually very small. Only maybe five percent exposure, they may say, sorry, I don't agree with your resolution. I want the full money. I want a change in plan. So because there was never an agreement between them, they could not resolve. So they signed an agreement which says that if two-thirds of the banks with exposure or banks with two-thirds of exposure to the loan, if they agree on a strategy, they will go ahead with the strategy. So that is the interpreter agreement. So to aim at faster resolution of stressed assets of 50 crore or more which are under consortium lending, the 50 crore and all this is not important over here. To aim for faster resolution of loans under consortium lending. Consortium means a group of banks have given loan. Because there is a group of loan banks, you need to have an interpreter agreement. So at most, you can eliminate A, but B to some extent, between C and D, it's difficult if you don't know because agreement could mean anything. So you need to know to answer this factual thing. So current affairs based, 49, D over here, 50. I told you, Bank Boards Bureau, there was a question. Chairman of public sector banks are appointed by the government no doubt, but they are selected or at least the recommendations that are provided by the Bank Boards Bureau. So that is the role of setting up a Bank Boards Bureau. So the answer is Bank Boards Bureau. Error that you could make, if you know, RBA will not be a part of your answer. Possibly you could think union is your finance because appointment is by the government, but selection is what they are asked. Selection is not appointment. Selection is by the Bank Boards Bureau. 50A is the answer. 51, Reserve Bank of India's storage of payment data system, popularly known as data dictation. Command the payment system providers that again, if you have been following the news of that time or if you had been at that time, you know a big issue was that even now to some extent, but the issue seems to be resolved. A lot of our data, the bank accounts and all those things and information were stored in servers which are located outside India because it was cheaper over there or whatever was the reason. So the data dictates said they shall ensure that the entire data relating to payment system operated by them are stored in a system only in India. Let's say something like Amazon or Flipkart itself, they are operating out of India, but any payment system related data has to be stored in India only. So that is the data dictates. They shall ensure that the systems are owned and operated by PES public enterprises in an era of privatization highly unlikely, although it is about user data, but there is no such public enterprise or no such condition. That will be too much of interference in the working of a firm. They shall submit the consolidated system audit report to the CAG by the end of the calendar year. They are not a public organization for them to do all those things. So that is also not true. The answer here is A, one only. So there is a little bit of guessing which is involved. To some extent, you can logically guess two and three are wrong. To some extent probably, one, if you know it, you know that is correct. Or logically also it makes sense for one to be correct. Two and three are a little difficult to eliminate for some, but for some you might eliminate it correctly. So it depends on what you are thinking at that moment, not a lot of scope for elimination as such here. But if you think on the right lines, possible. 52, merchant discount rate. Again, at that time it was just with after the demonetization with greater digital transactions to encourage digital transactions. There was a condition that MDRs would be merchant discount rates would be waived off for a period of time and all those things. So when we go to a store, we buy a commodity and we pay using card. So the merchant who is the one who is selling it, because the bank is facilitating the payment for them, so the merchant has to pay a certain fees for the service that is provided because the card payments are facilitated, they are getting a customer. So there might be a situation where store says, sorry, we do not accept card and the customer may walk out because it is inconvenient without a card for a lot of people these days. So the merchant, in order to facilitate their business, the bank is providing so many facilities, the merchant has to pay for it, that is merchant discount rate. So there are three parties involved in this merchant discount rate. The merchant pays a fee which will be divided among the one who is providing the point of sale service, the payment service, the bank into which the money is going, which is the merchant's bank and the bank whose money is being used for payment, the buyer's bank. So there are three parties to it. So first of all, it is not an incentive. If you know that although the name says discount, which is what is the misleading word, although the name says discount, it is not an incentive. So if you know it is not an incentive, you will rule out option A and D. The amount paid by banks to their customers when they use debit card for financial transactions, banks to customers, why would they? The charge to a merchant by a bank for accepting payments. So that is what is merchant discount rate C. Very difficult to guess if you know, otherwise you might be misled by the term discount and you might think only A and D could be answered. If you don't know anything, you will straightaway rule out B and C saying that discount means incentive. So A or D has to be answered. So you might end up marking A or D. So which is why guessing is very tricky in these kinds of things. If you don't know, better not to answer these. 53, consider the following statements about capital adequacy ratio. It is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account holders fail to repay dues. That is the definition of what is capital adequacy ratio that is correct. But capital adequacy ratio is given to banks by the Reserve Bank of India. It is not decided by individual banks. Again, you need to know that to answer it. But even without knowing that, you can guess the first one because the name says capital adequacy ratio. Banks have to maintain. So sufficient funds have to be there in the hands of banks to offset any loss. So adequate capital. In that way, you can probably guess the first statement as a proper definition. The second one, you need to know the rules regarding that. So the answer here is 53A. 54, with reference to the governments of public sector banking in India, consider the following statements. Capital infusion into public sector banks where the government of India has steadily increased in the last decade. So this word steadily increased again. We had seen that previously. So steadily increased means what government is becoming more and more involved in banking activities. But what we are observing is that even in 2018, the government's intention has always been to step out of it as much as possible. The government does infuse capital under the interim scheme for banking and all those things. When a bank is in trouble, when they are not able to meet their adequacy ratios and all those things. So occasionally, they did infuse capital, but not steadily increasing, which means every year they are increasing highly unlikely. So the first statement is wrong over here. To put the public sector banks in order, the merger of associate banks with parent SBA has been affected or affected. So should be affected, not affected. So 2 is correct over here. So 2 only is the correct answer. 2017 that happened 2018, the question about the mergers. So 55, what is the purpose of setting up of small finance banks in India? To supply credit to small businesses is generic. So that is correct. To supply credit to small and small and marshal farmers is also correct because it's generic. To encourage young entrepreneurs to set a business, particularly in rural areas. Now you could argue that that is also correct. But what is the purpose of setting up? If the third statement has to be correct, there has to be some provision inside small finance banks. It says that a certain proportion of the loans that they give should be given to people under the age of 25 or 30 or 30 or something like that. Unless that is there, you cannot claim that the purpose is to encourage young entrepreneurs. If it simply is to say to encourage entrepreneurs to set up business, then also it makes sense. But to say to encourage young entrepreneurs to set up businesses is very specific. There has to be a provision corresponding to that. So 1 and 2 are the more generic kind of statements. So 1 and 2 is the answer. 3 is very specific and there is no such specific provision inside the reason for setting up small finance banks. So 55, A is the answer. 56, most likely consequence of implementing UPI. So look at it, mobile wallets will not be necessary for online payments, which is true. Because if you have GPay, which is a UPI interface, you don't have to store your money in a wallet like in Paytm or Amazon Pay wallet or something like that. You can directly pay from your bank account. So that is what it removes the need for mobile wallets. So A is correct. But let's look at most likely consequence. Digital currency will totally replace physical currency, absolute statement. FD inflows will drastically increase absolute statement. You can rule out those. Direct transfer of subsidies to poor people will become very effective. With greater digitization and greater penetration of banking systems, this will happen. But does UPI have a role to play? To some extent maybe. So you have to choose between A and D. So A and D, what is the immediate consequence that we are likely to witness? Mobile wallets not being necessary is more likely. But usually we go for answer in D because that is the more government kind of an answer. Government benefit and all those things, that is not the reason here. It is a purely banking related benefit that wallets will not be necessary. So A is the answer, not D. And direct transfer of subsidies will be poor. If you simply have to the poor, will become better if you simply have a bank account. It is not necessary that UPI has to be there. It can be useful, but that is not the answer over here. Most likely consequences A. That is 56, 57. Which of the following statements best describes S4A? The scheme doesn't even exist anymore. It took 2017 current affairs. Look at the words scheme for the sustainable structuring of stressed assets. If you know that stressed asset refers to, let's say NPS, then you would know that one is not part of the answer. But if you don't know what a stressed asset, you might think of ecological stress on the area that might come in and all those things. So A, if you know it is related to a banking sector or if you know it is related to NPS, A cannot be the answer. C cannot be the answer. So it has to be B or D. But B is a law that the government has enacted. It's an act that the government has enacted. So that is a government measure. But S4A is a scheme of the RBA for reworking financial structure. S4A is different. Insulincy and bankruptcy code is different. Both would be for the same purpose, but they are two different things. So B is the answer over here, not D. So if you know it is an RBA scheme and not a government scheme, you would know B is the answer. It's not a little tough between B and D. 58, the establishment and payment banks is allowed in India, which is correct regarding this. Mobile telephone companies, supermarket chains that are owned and controlled by residents are eligible to be promoters of Payments Bank. Airtel Payments Bank, if you're aware, 2016 licenses were just about to be given or just about given. But in the present, you can say this is correct. Payments Bank can issue both credit and debit cards. Payment banks cannot undertake lending activities. What is the logic here? Two and three cannot be correct at the same time. Because if a payment bank cannot undertake lending activity, how can they issue credit cards? So two and three cannot be correct at the same time. If you have two inside it, you cannot have three inside it as well. So that is removed. You know one is correct. So if you know one is correct, so C is eliminated. It's between one and two and one and three. The uniqueness of Payments Bank is that they can accept deposits up to 1 lakh, but they cannot give loans. So they are not allowed to issue credit cards either. So the answer is one and three. So this is wrong as well. So B1 and 3 is the correct answer. You can eliminate to some extent, but not a lot. Again, you need to know to answer. Okay, 59. The term core banking solution, sometimes seen in the news, which of the following statements best describes this term? It is a network of a bank's branches and enables customers to operate their accounts from any branch of the bank on its network, regardless of where they're open their accounts from. This is correct. This is a generically correct statement about what is core banking solution. It's an effort to increase RBS control over commercial banks through computerization. RBS is trying to give more freedom to the banks liberalization so that as a general answer cannot be correct. It is a detailed process. Sorry, it is a detailed procedure by which a bank with huge NPAs will be taken over by another bank. No answer is A1 only. But again, you need to know what is CBS. You cannot randomly guess. You can at least say, okay, 2 cannot be correct because that is not the pathway in which India is moving. So if you know 2 cannot be correct, you can eliminate these two. So 1 has to be correct. So if 1 has to be correct, how can 3 be correct? These are two separate processes. In that way, you can probably arrive at A as the correct answer. Okay. So guessing can be done over here. If you go on the premise that RBA will not want to control banks more and more. But if you think that banks are in so much trouble, so RBA is attempting to control them, then you cannot, if you think that way, then you cannot make guess. So you will have to think the right thing. Again, that is a trick. It's not a trick that can be learned. It's that moment what we, maybe in a way you could say depending on what we think at that moment. Okay. 60, what is or are purpose or purposes of MCLR announced by RBA? 2016 at that time it was current affairs. We have now sort of brought in a parallel system called as external benchmarking of loans. So this is still there, but it's older news. Guidelines to him help improve transparency and methodology followed by banks for determining interest rate. Correct? We were using a system called as base rate, which had multiple formulas which could be used by the banks. MCLR narrowed it down to just one formula to make it more transparent in how banks were determining interest rates. Helps in bringing about a fair interest rate for both borrower as well as lender. So this is also a correct statement. Both one and two are correct. Again, it is not something which was very difficult to answer at that point of time. If you had heard of MCLR, you would know what the benefit of MCLR was at that point of time even now. So what are the benefits of external benchmarking of loans right now? Very similar, more transparent mechanism of more transparent than MCLR. And it helps in giving better rates, more market-aligned rates to the customers. So easy, your external benchmark based loans are better than MCLR for these purposes. So constant improvements keep happening. So 60 answer is C. With that, we are done with the banking sector as well, banking questions as well. So the one segment that I told you about your money, inflation and banking, that set of questions is done. We have only two more areas to cover. One is external sector, one is financial markets. So external sector has a lot of questions, 22 questions, whereas financial market only has five questions towards the end. So the focus here is on external sector. So we will start with external sector now. With reference to the Indian economy, consider the following statements. An increase in near indicates the NER, nominal effective exchange rate indicates the appreciation of rupee. An increase in real effective exchange rate indicates an improvement in the trade competitiveness. Then an increasing trend in domestic inflation related to inflation in other countries is likely to cause an increase in divergence between near and rear. So if you don't know what is near and rear in detail, you will find it hard to answer this question. But there is still something that we can use to eliminate options that probably increase our chances of getting it right because there is a logic over here. Let's look at the third statement first. An increase in trend in domestic inflation relative to inflation in other countries is likely to cause an increase in divergence between near and rear. The first thing that we need to understand is whenever you find the word in the context of economics, nominal versus real. What is the difference between them? Not difference in subtraction. Difference between the two terminologies is nominal does not consider inflation. Real takes into account inflation, removes the effect of inflation. So the difference between them is inflation. This one does not consider inflation, this removes the inflation that is real. So an increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increase in divergence between near and rear. Now take another place where you have the concept of nominal and real, nominal GDP, real GDP. If there is high level of inflation, the divergence between them will be very high. If there is very less, if there is no inflation at all, nominal and real GDP if there is no inflation at all. So isn't it logical to say that an increasing trend in domestic inflation relative to inflation in other countries, which means here there is more inflation than in somewhere else? And why are two countries coming into the picture? Because we are talking about effective exchange rate between two currencies is likely to cause an increasing divergence between near and rear, which is true because there is inflation coming in, there is greater divergence between two countries. Why are they talking about divergence is because if you look at the formula for rear, rear is equal to near into domestic inflation divided by foreign inflation, that particular countries. So if both the countries inflation is happening by the same extent, near and near, rear will be very close to each other. So it is not just about domestic inflation, it is about the foreign inflation also, which is why the two are being compared. If domestic inflation is greater than foreign inflation, the divergence will become greater. So this is the concept that we need to know. So the third statement logically is correct, which means A is eliminated. Now the question is one and two, between one and two, is both one and two correct? That is again something that we can discuss because let's say we don't know what is appreciation and we don't know what is depreciation when it comes to near. But we know one thing. Other than inflation, near and rear will move very similarly because both are same concepts. The only difference between them is inflation. The gap will widen, but if near is going up, rear will also go up. The gap may be wider because of inflation, but if near is going up, rear will also go up. If near is going down, rear will also go down. Now an increase in near indicates appreciation of rupee. Let's assume that to be true. Let's assume that to be true. So near is appreciation. Now if you know the concepts of appreciation and depreciation, just simple terms 1 dollar is equal to rupees 50 is becoming 1 dollar is equal to rupees 100. Let's extreme. This is depreciation of Indian rupee. So Indian rupee is depreciating. Now is this depreciation good for exports or bad for exports? Previously when I exported, I was exporting something and earning 1 dollar. It was fetching only 50 rupees. Now as an exporter, when I export something for 1 dollar, I'm getting 100 rupees. Which means I am benefiting as an exporter. Previously also I was getting 1 dollar. Now also I'm getting 1 dollar. But because the Indian rupee is depreciated, the 1 dollar is fetching me 100 rupees today. Whereas previously it was fetching 50 rupees. So I'll be more incentivized to produce an export. So exporters are incentivized by depreciation of rupee, not appreciation of rupee. Now keep this in mind. The same logic applies here. An increase in near indicates appreciation. Let us say that is true. An increase in rear. So increase in near has happened. Increase in rear is happening now. I told you other than inflation, both will work very similarly. An increase in rear indicates an improvement in trade competitiveness. When are you more competitive with respect to trade? When your exports are increasing and your imports are decreasing. Now if near increase is resulting in appreciation, then rear is also appreciating. Rear increase is also indicating appreciation of rupee. Appreciation of rupee will result in Indian trade becoming less competitive. When do we become more competitive? When our currency is depreciating because depreciating currency encourages exports, discourages imports. So if the first statement is true, second statement cannot be true. So 1 and 2 both cannot be part of the same answer. So D is removed. Now we'll have to choose between 1 and 2. Which is again a challenge. All this discussion just to eliminate those two options. Without knowing, we won't be able to guess. Usually we say when rupee value from 50 is the dollar's value, 50 is becoming 100. This is increase. Increase is depreciation is what we say. With respect to when 1 dollar is equal to 50 becomes 1 dollar is equal to 100. The amount that you have to pay for a dollar is increasing. So dollar is appreciating but rupee is depreciating is what we say. Whenever we see an increase from 50 to 60 to 70 to 80, we talk about it as depreciation. But rear and near is not mentioned like this. The same formula can be written as 1 rupee is equal to 1 by 50 dollar or in simpler case, let's say 1 dollar is equal to 1 rupee has become 1 dollar is equal to 2 rupees. So that equation, sorry, that equation you will write it as 1 rupee is equal to 1 dollar has become 1 rupee is equal to half a dollar. Now when near and rear are calculated, this is not how it is written. It is written this way. So what is happening? So if near is increasing, it means that 1 rupee is equal to and I know near is not with respect to dollar. For convenience, I am talking about in terms of dollar. If 1 rupee is equal to 1 dollar has become 1 rupee is equal to 2 dollars, it means that rupee is appreciating. So near is represented as 1 rupee is equal to how much in terms of many other currencies, it is written that way. So that is how it is written. So your normal currency is written in terms of the foreign currency because Indian currency is weaker. But when it comes to near and rear, the representation itself is in terms of 1 rupee is equal to how much of it. So an increase will indicate appreciation, a decrease will indicate depreciation. So the first statement is correct. I am not going into explaining and teaching what is near. But in simple terms, you do this for instead of one currency, you do it for, so there are different baskets. There is a basket of six currencies, a basket of 40 currencies, you take those 40 currencies, you do this for each currency, you give a different weightage for each currency and finally you arrive at one value which is called as normal effective exchange rate. It is Indian rupees value in comparison not just one currency, in comparison to a basket of 40 currencies at present. That is what is near. So I am not going into the detail of it. The answer here is factually speaking, first statement is correct, second statement is wrong. So the answer is C1 and 3 only. So that is the answer to the 61st. A lot of effort goes in to ultimately narrow it down to still we will have to make a guess. So if you don't know this, better to leave and move on. But again, how many questions can you leave like that becomes a question. Moving on to 62. The other questions won't require so much of discussion, but you will see. With reference to the Indian economy, consider the following statements. If the inflation is too high, RB is likely to buy government securities. So inflation is too high means what? There is already excess money supply in the economy. When RB buys government securities, what is likely to happen? RB will supply money. Buying securities means they are giving money. Further increase the money supply. So if inflation is too high, RB is likely to buy government securities is wrong. So if one is wrong, the only answer is B. You don't need to know anything. Actually I put it under the heading of external sector because statements 2 and 3 are both about external sector. But you don't need to know external sector. You just need to know the RB is say open market operation to answer this question. First statement you eliminate 2 and 3 are the possible answers. Let's look at the second and third statement as well. If rupee is rapidly depreciating, which means what? When would your currency depreciate? When the demand for foreign currency is greater than the supply of foreign currency, that is when domestic currency will depreciate. More people are asking for the foreign currency than is available. So how to prevent the depreciation? RB will take foreign currency from its reserves and sell it in the market. So second statement is correct. RB will try to increase the supply of foreign currency in the market. Then if the interest rates in the US or European Union were to fall, that is likely to induce RB to buy dollars. So what will happen? If interest rates are high in the foreign country, tempted by the higher interest rates, investors from here will leave to the foreign destination. But if interest rates there are falling, which is what is the conventional norm. So you will find investors coming into India. So there will be excess supply of foreign currency in India. So excess supply will have to be met with my RB purchasing those dollars. Otherwise Indian currency will appreciate too much to prevent that appreciation. Excessive appreciation is bad for exports. To prevent that excessive appreciation, RB would be induced to buy dollars. So second and third statements are the two ends of the spectrum, both are correct. So 62 answer is B, 63. Which one was the following situations? Best reflects indirect transfers often talked about in media recently with respect to, with reference to India. This is something which was current affairs. It's not conventionally part of classroom discussions or anything. So indirect transfers, it may not be relevant going forward either. So what is the concept of indirect transfers? It came into the news because of the whole Vodafone issue and that retrospective taxation that India had imposed. So just taking the example of Vodafone itself. So there is a company called as Vodafone, which is registered in a foreign country, a parent company, which is registered in the foreign country. There is a company called as Hutch, which was what Vodafone was previously. So there is this Hutch, which is registered again in a foreign country. Let's say factually speaking, this is registered in Cayman Islands. This is registered in Netherlands. Then there is in India, we have a company called as Hutch India, an Indian version of Hutch. So there is a global Hutch. This is Hutch global, let's say. This is Hutch India. So who owns Hutch India? Hutch global owns Hutch India. Vodafone goes and buys from Hutch global, Hutch India. So an Indian company is bought by Vodafone in a foreign country. So the transaction is happening on an Indian entity abroad. The transaction is happening abroad, but ultimately Vodafone becomes the owner of Hutch India and it becomes Vodafone India. So this is what happens. This is what is called as indirect transfer. So a foreign company, in this case, Hutch global transfers the shares to another foreign company. And such shares derive their substantial value from assets located in India. The shares derive their value from Hutch India, which is located in India. This process is what is called as indirect transfer. So D is the answer. What is indirect transfer? They didn't go into any other questions of what happened, what is the retrospective taxation, all those things. Simply, what is indirect transfer? When a deal is happening between two entities who are located abroad on an asset which is located in India, the question is, can this be taxed or not? Till 2012, the taxation didn't make it explicit that this could be taxed. India changed this law in 2012 saying that they could be taxed. But the problem that we faced is we made it retrospective. From 1960s it was made applicable. So these transactions used to place prior to 2012 also came under the ambit and that became a whole issue. So that is the indirect transfers question on that. Moving on to 1964, which of the above statements are correct? Tight monetary policy of Federal Reserve could lead to capital 5. We just discussed that in the previous question. In fact, in the same year, there are two questions which are on a very similar line. Look at this. If interest rates in RBI were to fall, falling interest rates and expansionary policies being followed is what it means. So RBI is likely to buy dollars because capital inflow would happen. The opposite is given over here. In the same year, tight monetary policy means US Federal is raising interest rates could result in existing investors going to their home country or USA. So it could result in capital flight from India. So the first statement is correct. Capital flight may increase the cost of firms with existing, sorry, may increase the interest cost of firms with existing external commercial borrowings. See, when the government borrows, they will try as much as possible to borrow at a fixed interest rate. But when commercial borrowings happen, more often than not, the interest rates are flexible. When we go to a bank to borrow for a housing loan or a vehicle loan, all those things, most often it is flexible interest rate. So commercial borrowing happens on flexible interest rate. So when there is a capital flight, there is a shortage of foreign funds available. When there is a shortage of foreign funds, interest rate goes up. So it may increase the interest cost of firms. Not that it will, but it may increase. So you can't deny that. So the second statement is also correct. Devaluation of domestic currency decreases the currency risk associated with ECBs. Devaluation means what? 1 dollar is equal to rupees 50, becomes 1 dollar is equal to, I am taking an extreme example, rupees 100. So previously, if you had to repay 1 dollar, external commercial borrowing happens in foreign currency. If you had to repay 1 dollar, we only had to earn 50 rupees. Now because of devaluation, to repay the same 1 dollar, you have to earn 100 rupees. So it increases the currency risk associated with external commercial borrowing. To repay, whenever we have to repay, it's better to have a highly valued currency. Highly valued is this is highly valued currency. This is lowly valued currency because depreciation has happened. Depreation is bad for external commercial borrowings. So the third statement is wrong. Only the first two statements are correct. That's 64. 65. Consider the following. This is 2021. Which of the above can be included in FDI? Now this is a bit of a challenging question because look at it, bonds. Bonds, we say this portfolio investment. Foreign institutional investment, we know this portfolio investment. GDRs are also issued in the share market. Portfolio investment. Non-resident external deposits in banks by non-residents. That is definitely not an investment at all. It is a loan. So what is FBA over here? You don't have an option of none of the above. So we'll have to re-understand. Which of the above can be included? Which means you have to say under some circumstances cannot be included. Let's look at it once again. There is only one option here which we can completely eliminate because if a non-resident is depositing money in their bank account in India, it becomes a loan for India. Not an investment. It becomes a loan. It is not a part of the current account. It is not remittances. It is NRA deposits. So NRA deposits money in an Indian bank. It is a liability for a bank. If the NRA deposits in relatives account, it is a liability for the bank, but internal liability. An NRA deposits in their own account. It is a liability. It's an external liability. So this is not foreign direct investment. It is a loan. It is part of capital account, but it is loan. So four cannot be part of the answer. Definitely. The question is, is it only GDR, global deposit? Or is it one, two and three? Now, if you know the rules of investment, you know that if FII, foreign institutional investment or foreign portfolio investment becomes 10% or more, then the foreign portfolio investment will be retreated, will be reclassified as foreign direct investment. So which means what twos can be under. It can be with certain conditions. It can be treated as foreign direct investment. So two has to be a part of the answer. So we have to go for A. And what is the explanation for the others? Foreign currency, convertible bonds. What can they be converted into? Bonds can be converted to shares. So if they are converted to shares, it could be treated as direct investment. Especially if it is not in the form of shares which are frequently traded or if it is the value is greater than 10%, then it can be treated as foreign direct investment. Similarly, if those shares can be, then it's only logical to assume that GDRs can also be depending on the proportion. So any investment that comes in the share market, if it crosses the, breaches the mark of 10% age, it can be classified as direct investments. So the answer here, best answer that is available is A, 1, 2 and 3. Because if 3 can be, then obviously 1 and 2 can also be. So A is the answer over here. But you can go for this by eliminating 4 first of all and then looking at the condition of foreign portfolio investment, the 10% condition that is there, there was this Mayaram committee recommendation based on which it was decided. Okay. Moving to 66, consider the following statements. The effect of devaluation, so it improves the competitiveness of domestic exports in the foreign markets is a possible answer because we just saw devaluation or depreciated currency encourages exports. So that's one possible answer. Increases the foreign value of domestic currency. Foreign value of domestic currency is actually decreased, devaluation itself means decrease in the value of domestic currency. So this is definitely wrong. Decreases the foreign value of domestic currency is correct. So 2 is eliminated from options. So the only question is, is it 1 only or 3 only? You don't have 1 and 3. If it was there, we might actually choose it. So either 1 only or 3 only improves trade balance. Now, both of these may happen. But the question is, what necessarily happens? Which means what is the first step? So what happens 1 dollar is equal to again 1 dollar is equal to rupees 50 has become 1 dollar is equal to rupees 100. Okay. First thing that will happen is that a commodity which we were previously selling at 1 dollar. Let's say a pen in the international market is equal to 1 dollar. We can now sell the same pen at half a dollar. Why can we sell it at half a dollar? Because the value, Indian rupee value has been devalued. So previously an Indian exporter had to sell it at 1 dollar to get the 50 rupees. Now to get the same 50 rupees, they can sell it at half a dollar. Which means the price of the commodity falls, law of demand stays, when the price falls, the demand will increase. So our exports can be made competitive. So it can, that is the first level. It can make the competitiveness of domestic exports because it can result in reduction in price of the commodity. So the first statement is definitely correct. It is definitely equal to half a dollar. But the question, the second question that comes in is, does it actually result in increase in exports? There is no guarantee. It can encourage exports, but does India have the capability to export more? Maybe we don't have. What of raw materials are not available? What of the exporters are not able to export more? It makes the export more attractive. That is what the first statement says. The third statement what it means is that it will actually result in increase in exports and decrease in imports. It may not happen because even if your Indian currency becomes devalued and imports become costly, importers may continue importing because import might be of an essential commodity. This is the reason why even though we have depreciating currency, we continue to import more and more. That is why continuous depreciation happens. Otherwise the trade cycle will fall over, depreciation will eventually result in appreciation. So improving trade balance is a possible scenario, theoretically. But what is necessarily going to happen? The first step is what is necessarily going to happen? So A, 1 only. Eliminating it to just 1 and 3 is easy, but choosing 1 is a little tricky. Moving on, gold tranche refers to reserve tranche. Gold tranche is not a term that I have myself seen in the context of IMF, but they have used it. But reserve tranche makes it very obvious. It is reserve tranche position, RTP, one of the forex components, IMF. It is a facility provided by IMF. So reserve tranches, we have a quota, which is the membership fee. 25% of that quota, we have to pay in foreign currency. That is considered as reserve tranche position, which we can borrow interest-free whenever we need that money. So it is a credit system for all its member countries, the diameter of profits. So that is the answer over here. No eliminations, nothing, you know it. You can answer if not, leave it and move on. 68, if another global financial crisis happens in the near future, which of the following policies or actions or policies are most likely to give some immunity to India? So how to protect ourselves from global financial crisis? Not depending on short-term, foreign borrowings because if you have short-term borrowings, this is something in earlier question that I discussed with respect to government borrowings being long-term or short-term and very, very early question. So not depending on short-term foreign borrowings means we don't have to immediately repick, which means the crisis will not affect us immediately. So this is definitely a good thing to happen. It is likely to give some immunity to India, not depending on short-term foreign borrowings. Opening up to more foreign banks, global crisis can enter India. Imagine if Credit Suci or Silicon Valley Bank had branches in India. So the global crisis would be in India also because that is what is currently happening. That's why I'm taking those examples. So two is definitely not something to be done, so which eliminates these two. And if one is correct, three cannot be correct. So A is the answer. Maintaining full capital account convertibility means we might get a lot of inflow of money into the capital account, but it might also result in sudden outflow. Capital flight may happen. So that is not part of the answer. Answer is A, one only. That's 68. 69. With reference to foreign direct investment in India, which one of the following is considered its major characteristic? So the question is essentially defined for this FDI. If you look at the options, it's an investment through capital instruments essentially in a listed company. This could be true if you're talking about greater than the 10% limit. So possible. It is largely non-debt creating capital flow. It is investment which involves debt servicing, which is not true because debt servicing means loan repayment. It is or interest payments on that. It is the investment made by foreign institutional investors in GSEX that is definitely not because there's no investment in the company which is coming in. Of one and two, you have to choose the more generic answer. It is the investment through capital instruments. So FDI versus FBI. This would be FBI if you have to classify. So non-debt creating inflow is a more generic definition of it. So B is what is the answer over here. So in 2020, there was no confusion. You look at it, you would immediately say, first is FBI, second is FDA. It was easy to answer. But in the context of the other question which UPC asked subsequently, so this particular question, now it raises question, what is FDI? What is FDI? Because you look at it on the face of it, everything looks like FBI. Where is FDI coming? So then you go into the details of it, some conditions can be included and all those things come in, which raises the confusion. But when in 2020, this particular question came, there was no doubt it was directly B as the answer. Anyway, moving on, 70 with reference to trade related investment measures, which of the following statements is or are correct? See if you don't know, very difficult to answer and many minute differences also, there is one very important key. If you know about terms, you know that it is an investment, it is an agreement only for goods. And if you know that, if you know that, then even if you don't know one and three, you can still arrive at the answer. They apply to investment measures related to both, related to trade in both goods and services. If you know it is wrong, who's wrong means you are only left with one answer. You don't need to know one and three. You can still answer the correct answer as C. So there are always, which is why I told you earlier, mentioned this earlier as well. We can never be sure that we can prepare entirely, but whatever we prepare, if we know the basics of it and basics of terms means it is only applicable for goods is one of the basic knowledge of it. So if you know that, then two can be eliminated. If two is eliminated, you don't need to know one and three, you can arrive at the answer as C. So 70, that is the answer. 71, consider the following statements. The value of, this is like a trend based question, what has happened over the last decade. The value of Indochilanka trade has consistently increased in the last decade. Consistently increases the key point and Sri Lanka is a country which has been over the decade. They have been having a flux, a lot of internal swipe and all those things over the years. Now they are having other external crisis also. So doubtful statement. Consistently increase is very difficult to assume to be true. Textile and textile articles constitute an important item of trade between India and Bangladesh. Cotton, very important part, jute, very important part. So two is possibly correct and they don't say consistently increase in all this. Consistently important part, that's all that they say. In the last five years, Nepal has been the largest trading partner of India in South Asia. I think recently or some time back Bangladesh became the second biggest economy in South Asia. I think overtaking Pakistan which raises a question, is Nepal really that bigger trading partner or does Bangladesh have a role to play there? Bangladesh, if you look at the countries with which we trade, export, import from Bangladesh is present in the trading scenario. So Nepal being the largest trading partner is a little difficult to believe. So these are logics. If you know factually, you would know the answer is two only. But some logic can be applied here. Okay, lucky it will turn out to be true. The answer here is B, two only. Only the second statement is correct. Only the second statement is generic. This is an absolute. This is an absolute, consistently increasing. So absolutes, there are always doubts about absolutes. Okay, so 71 is done, 72. Factual, which among the following, among the following which is the largest exporter of rise in the world in the last five years, another trend-based question, answer is India. So what we need to know with respect to this is, what do you need to learn? You should know what are the items in which India is a leading producer. India might be in second position or third position in certain things. Who is the leader in those items? All those things are very important things as observations. When economic survey is published, what to learn in economic survey, these are the observations that we have to take from economic survey. What are commodities in which India is doing exceptionally well when it comes to exports and what are the major import items of India? You will see a following question in the same year. This is 2019, right? In 2019 itself, you will see a very similar question. We'll get to it. Then next question, consider the following statements. Most of India's external debt is owed by governmental entities. One of the biggest advantages that India at present has, which might protect us from sovereign debt crisis, external sovereign debt crisis, is that government's dependence on foreign loans are very, very minimal. Very small, less than 10% or maybe even less than close to 5%, that's all of government's debt is from external sources. Most of government's debt, more than 90% is from internal sources. So to say most of India's external debt is owed by government entities is wrong. External commercial borrowing is the highest. Bank deposits, NRIs depositing money is the second and third comes governmental entities. So the first statement is wrong. Again, if you have analyzed the budget and all those, you will know this to be wrong or even take the external sector debt, there is a separate chart with survey provides, analyze it, you will know. All of India's external debt is denominated in US dollars. If you've heard of something called as masala bonds, you would know that is external debt in Indian currency. We borrow in other currencies also. So all of India's external debt, most of India's external debt, yes, because highest contribution of external debt or highest external debt is in the form of US dollars followed by repeatedly denominated debt. So extreme statement, neither of the statements is correct. 73, 74. In the context of India, which of the following factors is or are contributors to reducing the risk of a currency crisis? Currency crisis should not be there, currency has to be stable. That is the idea. Foreign currency earnings of India's IT sector, as you earn more foreign currency, there is more stability because if there is excess demand, we can use this currency to meet the excess demand. If there is excess supply or we can of course take it more under control. So this is something that will definitely help in reducing the risk of currency crisis. Increasing the government expenditure, increasing the government expenditure means more money is supplied. As more money is supplied, people have more money in their hands. As a result, people can go and demand more of foreign currency. So it is a measure that may result in a further currency crisis. Excess money supply could be a factor which results in that. So not a correct answer. Remittances from Indians abroad increases the supply of foreign currency. So the idea is this, to bring stability in the value of currency, supply should be encouraged because RB can control the supply. If they want, they can take away the foreign currency if necessary and reduce the demand. So this will further increase the demand. Second option will further increase the demand for foreign currency can. So that is not an answer. These two 1 and 3 will result in or can result in increase in inflow supply of foreign currency. So that is what is the answer. 74 B, 75. Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of Indian stock market without registering themselves directly or anonymous investment is in the form of participatory notes. So one who wants to invest in the Indian market but not directly without revealing who they are, without registering with SEBI, they will go to a foreign investor and say, please invest on my behalf without telling my name. So the foreign investor will issue a proof of this money that you are participating in this process. So participatory note. Then foreign investor will bring the money to India. SEBI will ask who is investing this money. They will say, I issued a participatory note. It's anonymous investment. I am investing on behalf of some person. So that is participatory note. There are accusations that a lot of black money laundering happens through participatory note, terror financing can happen through participatory note. So that is because of the anonymity that is involved. So that is why it is a topic or it is an area which is widely criticized or discussed in the news. That is why it was in the question also. So it is current affairs of that particular period. It is still relevant but not so much in discussion these days. PPP exchange rates are calculated by comparing the prices of same basket of goods and services in different countries. It's actually correct because same basket, different country, what is the price, the exchange rate is arrived at that way. That is what is the definition of purchasing power priority in PPP dollars. India has the sixth largest economy in the world. See, UPC doesn't usually ask number based questions as in what is India's rank, what is India's question that UPC doesn't ask. So there is some logic here also. This is not the UPC's intention. Sixth largest at that time, in terms of your normal exchange rate, one dollar is equal to at that time 50, 60 or 70 rupees, whatever it was, 65 rupees. So in terms of that, India was the sixth largest, normal market exchange rate. In terms of PPP, India was the third largest. In terms of PPP, India still continues to be the third largest. In terms of usual exchange rate, India is the fifth largest right now. So it is not knowing the number, it is understanding in terms of PPP or in terms of the normal exchange rate, which is the one where we are at. And if you know a little bit about PPP, even if you don't know the rank, we can say something. One dollar is equal to rupees 80 is what is our current exchange rate, let's say. In terms of PPP, it would be something like one dollar is equal to 22 rupees or 25 rupees. Let's round it as 20. Now, if you are converting India's GDP is, let's say, let's assume 240 trillion rupees or lakh crore rupees. You are dividing it by 80, you will get a value of 3 lakh crore. In terms of dollars or 3 trillion dollars, you divide the same 240 by 20, you will get a much higher value, which will be how much? Now, 12 lakh crore. So in terms of PPP, India's GDP would be much, much higher, so many times, 4 times higher. Which means that in usual terms, if India is in 6th surface position in PPP, it is likely that we are higher, it is likely. Some logic can also be applied to assume that you need to have some prior knowledge, you need to know these exchange rates. You need to know that India's 6th largest or 5th largest in terms of normal, but if you know all those things, it is likely that you would know second statement is wrong, but you can apply some logic as well. But at least the base of it, first statement you know for sure is correct. So either one or third is correct. In this case, the second statement is wrong, so the answer is A1 only. 77, which is what I told you, a very similar question from earlier. So we had a question, which was question number 72, 2019. In the same 2019, they have asked a question, 77, which is among the Agricultural Commodities imported, that is about export, price exporter, is about among the Agricultural Commodities imported by India, which are the following accounts for the highest imports in terms of value in the last five years. So in terms of value, spices are valuable, no doubt, fruits are valuable, pulses are valuable, but oil, the value tends to be high. India is a large consumer of oil, in terms of value, it was vegetable oil. A lot of these things we import, pulses we export, we import also, fresh fruits we export, we import also, spices we export, maybe we import also, I am not sure, but vegetable oil is definitely, we are an importer and that was highest at that point of time at least, that is how that is what the data said. Again, this is what you observe from economic survey analysis. So 77, the answer is D, 78. Which one of the following is not the most likely measure the government or the RBI takes to stop the slide of Indian rupee. So we have to stop the slide of Indian rupee, some measures have to be taken, that is not the answer. What should it not do? So the question is, what should the government do or the RBI do to further let the currency depreciate? Slide means depreciate, drop in value. So what should the government do to further aid depreciation or how can Indian currency depreciate further? Which means the demand for foreign currency should further be encouraged or the supply of foreign currency should be discouraged, that is the answer. Curving imports of non-essential goods supply will be, the demand will be reduced. So this is not the answer. Encouraging Indian borrowers to issue rupee denominated masala bonds that reduces the demand for foreign currency. Okay, wait, that is something that we need to discuss further because encouraging Indian borrowers to issue rupee denominated masala bonds means that in some way, rupee denominated bonds will, okay, it will actually increase the supply. So that is definitely not, it's a rupee denominated but what is going to come in as foreign currency? It will increase the supply. So that will also prevent depreciation, that is not the answer. Easing conditions relating to external commercial borrowing, which will mean more borrowing can happen, which will mean more supply of foreign currency, which is not what we want. Following an expansionary monetary policy, I told you earlier the government spending increases was an earlier question. Following an expansionary monetary policy, more money supply in the hands of people with more Indian rupee, they will demand more foreign currency. So demand for foreign currency will increase. If they do this, that is likely to further aid the slight or depreciation of Indian rupee. So the answer is D. Once again, this not makes this question more complicated than what it should. So D is the answer over here with respect to what will aid further depreciation of Indian currency. 79. Consider the following statements. The quantity of imported edible oil is more than the domestic production of edible oils in the last five years. The quantity of imported edible oil is more than the domestic production. So why would that be the case? Because the consumption is very, very high and India is renowned as one of the largest consumers of edible oils. So that is something that is likely to be true but you can only know with facts. Second, the government does not impose any customs duty on all imported edible oils as a special case. It does not impose any customs duty on all very, very extreme statements. Even though they have as a special case, it is highly unlikely to be true. Second statement, you can rule out. So the question is, is the first one right or wrong? India is a major consumer of edible oils. Again, read the economic survey, at least the highlights of it. You just these specific parts, budget, external sector, you would have an idea about this. So the first statement is correct. 79, the answer is A, one only. Moving to 80. With reference to IFC Masala Bonds. So International Finance Corporation Masala Bonds, sometimes seen in the news, which of the statements given below is or are correct. The IFC which offers these is an arm of World Bank. It is not about Masala Bonds, it is about organizational structure which is actually true. They are rupee denominated bonds and a source of debt financing for public and private sector. Current affairs of that time, Masala Bonds, you would wonder why they are called Masala Bonds because they are rupee denominated. So there are I think Panda Bonds which are issued in the case of China. So rupee denominated bonds, correct. Next question is public and private sector. Is it true? That is also, it also happens to be true. Factually, both one and two are correct. 81, we are moving towards the end of external sector. A couple of more questions, that is all. Recently, which one of the following currencies has been proposed to be added to the basket of IMF, SDR 2016. Previously, there were other currencies. Reorganization happened and Chinese currency was added inside it. Third biggest weightage if I am not wrong. The five currencies are US dollar, Euro, Renminbi, Japanese yen and pound sterling. Those are the five currencies that are there in the SDR basket of currencies. The ruble is not there, RAND rupee is not there. You eventually want rupee to be a part as well if sufficient internationalization of rupee happens. But this is a very old question, 2016 question. 82, which of the following best describes the term import cover sometimes seen in the news? Again, interest coverage ratio cover, import cover means do you have sufficient money for the particular purpose? Look at the options, you can, you should be able to arrive at the answer. Ratio of value of imports to GDP, it is the total value of imports of a country in a year. It is the ratio between value of exports and that of imports between two countries. It is the number of months of imports that could be paid for by a country's international reserves covering for imports. How much money do we have to pay for imports? So D is the logical answer to it. So based on that word import cover, we can assume D to be the answer even if you don't specifically know what the answer is. So that was 82. Moving to the last segment, which is financial market, just five questions here, all of them very recent. Consider the following statements. 2022, there was a big controversy about this organization called as Brickwork Ratings. They were questions raised on the credibility of the ratings provided by them on their working mechanism and all those things. Very recently also, RBA has announced that banks for their basal norms, the risk rating of assets, they can get it approved from a set of rating agencies. Brickworks ratings have been removed from the list. So this is a context. Credit rating agencies are regulated by RBI. They are regulated by SEBI. RBA provides accreditation to certain rating agencies, but they are regulated by SEBI. SEBI decides whether they can be a rating agency or not. So the first statement is wrong, answer is B. The rating agency popularly known as ICRA is a public limited company. Public limited doesn't mean government owned. Public limited means shares of them are available in common platform. They are taking, they have done initial public offering or follow on public offering. Common public can come and invest in their shares. So they are, Brickwork rating is an international Indian credit rating agency is correct. So if you know the first one is wrong, you can arrive at the answer even without knowing the other two. So 83, B is the answer. 84, with reference to convertible bonds. Convertible bonds means they can be converted to something. Technically, they can be converted to shares of a company. There is an option to exchange the bond for equity shares. As there is an option to do that convertible bonds pay a lower rate of interest. So they are offering you that you can take the bond, but you can later convert it to shares. What is in it for them? They offer you lesser interest on it. So the first statement is correct. The option to convert to equity affords the bond holder a degree of indexation to rising consumer prices. Is it inflation adjustment? No, you only have the option of converting your bonds to shares. What if the company performs poorly? Even if there is high inflation, you are not going to get much out of it. So it doesn't provide any indexation that happens. So one only is the answer. 85, this is 2021. Indian government bond yields are influenced by which of the following? Bond yield simply think of it as interest rates. Interest rates are influenced by what? Actions of US Federal Reserve. Federal Reserve increases the rates of capital flight may happen to prevent it. Indian bonds also, government bonds also have to increase. So actions of Federal Reserve can have a role. Actions of RBA, RBA's monetary policy can impact the general interest rates in the economy. So bond yields can also get affected. Inflation, how do you even decide what is the yield to be provided based on the inflation and the interest rates that are there in the economy? So all three are factors. You don't need to know the technical term of yield. Yield means interest earning. That's all that you need to know. So all three are factors which could influence. So that is 85. Moving to 86, the penultimate question. With reference to India, consider the following statements. Retail investors through DMAT account can invest in treasury bills and government of India, debt bonds and primary market. This was introduced in 2021. Retail investors, I had mentioned this earlier in the question where household savings are in the form of government borrowings. There I had mentioned this. Retail investors are allowed to through their DMAT account invest in T-bills, G-seks and all those things in the primary market. You are core banking you to bear portal. So the first statement is correct. The negotiated dealing system order matching. So NDSOM is a government security trading platform of the Reserve Bank of India. You should know this to answer this. Otherwise, you won't be able to. The central deposit services limited is jointly promoted by the Reserve Bank of India and Bombay stock exchange. So again, this is a question where the first one you can know you should be knowing. So if you know that the first one is correct and you should be knowing at least that second and third, you can leave it at that. So if you know the first one is right, you know that the C and D is wrong, which means that you don't have to worry about it. There is something wrong with the third statement. You can leave it at that. You don't need to know what is wrong. So one, one and two. So two, you have to make a guess in this case, two happens to be correct. So it is one of the places where securities are traded. They have given a list. So this is one of the places where it can be traded. So 86, you can eliminate, but you cannot exactly arrive with the answer. So 86, B. Last question. With reference to the Indian economy, consider the following statements. CP, commercial paper is a short-term, unsecured promissory note. So who issues CP? CP, a corporate. It is similar to T, T will be issued by the government. CP is issued by the corporate, need not be private, but corporate issues. So it is short-term. If they issue long-term, it's corporate bonds. So this is short-term. So that's correct. First statement is correct. Second, CD is a long-term instrument issued by RBI to a corporation. Two errors there. Certificate of deposit is not long-term. It is short-term. Again, very similar to CP and these are not issued by RBI. It is issued by banks to businesses to invest in five lakhs or multiples of five lakhs for duration of seven to 365 days. So multiple errors there. If you know about this instrument, you'll be able to answer. Call money is a short-term finance used for inter-bank transactions, one-day transactions. That is correct. So this statement is correct. This statement is correct. Zero coupon bonds are interest-bearing. Look at the error there. I told you in a previous question, coupon means interest. Here it says zero coupon. Here it says interest-bearing. How can zero coupon or zero interest bonds be interest-bearing bonds? I told you earlier about a concept called as issued at discount redeemed at par. Teebles, 1000 rupees. You pay 950 for it. You can get back 1000. There is an earning out of it, but there is no rate of interest that is associated with it. Those are called as zero coupon bonds. Zero coupon bonds are non-interest-bearing short-term bonds. It could be issued by any entity, schedule, commercial banks, I don't see how they are issuing it, maybe in the form of CD. Not sure, but CPs can be like that. Teebles are, CMVs are like that. So anyway, fourth statement is wrong. Second statement is wrong. One and three only is the correct answer. So this brings to an end the discussion that we have been having on the core economics questions during the last 7 years, 2016 to 2022. Whatever I have told as patterns, they are not set in stone. The pattern could change anytime. What we are observing is that the UPC based on what is currently happening in the economy decides what is the area of interest and importance for them. Every single area is equally important. Financial markets is also an area which is gaining prominence, especially over the years. Look at this 2020, 21, 21, 22, 22. So 22 questions, 21 two questions, 21 question. Prior to that 16 to 19, no question at all. So that's an area which is conventionally not important, but here also, here these days we are getting questions from that area also. So nothing can be predicted. Every single area is of importance, more so external sector than any other area, but we cannot just go with that because there are years when external sector has not got any question or just one question alone. So every area is becoming important or is important. It will vary from year to year. These basic concepts, all of these basic concepts are very, very important. I hope this discussion, quite a lengthy discussion, which most likely will be broken into parts and uploaded, has been useful for you. If there is any other queries that you have, do reach out in the form of probably comments. So we'll find a way to respond to that as well. Thank you so much. See you in some other video in future or in the classroom.