SET- 3

1. Consider the following statements about GIC Re.

1. The public sector reinsurer provides reinsurance support to the life and non-life insurance companies in the country.

2. It also manages Marine Hull Pool, Indian terrorism insurance pool and India motor third party insurance pool for commercial vehicles on behalf of Indian insurance industry.

3. It has emerged as a preferred reinsurer in the Afro-Asian region.

4. It is the third largest aviation reinsurer globally.

Select the correct statements using the code below.

Code:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

2. Which of the following is correct about ‘coach mitra’ recently in news—

(a) A single window interface proposed by the Indian Railways to register

all coach related complaints and needs.

(b) An ‘app’ based service system to help rail passengers to avail entertainment and internet on the go.

(d) None of the above.

3. Consider the following statements related to the Central Sales Tax (CST) and the VAT (Value Added Tax).

1. CST is a destination-based tax of the Centre while VAT is an origin- based tax of the states.

2. CST is inconsistent with VAT.

3. CST is a cascading-type tax not rebatable against the VAT.

Select the correct statement/statements using the code given below:

(a) Only 1

(b) 1 and 2

(d) 1, 2 and 3

4. Consider the given statements regarding subsidies.

1. They are essential parts of public policy to the extent they are ad hoc arrangements.

2. While everybody benefits from it, they are not paid by all.

3. Capital part of subsidies is counted in the planned expenditure of the government.

4. The FRBM Act has strict provisions regarding subdies.

Select the incorrect statements using the code given below:

Code:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

5. Which among the following is/are not counted as ‘public expenditure’.

1. Expenditure categorised as ‘consumption’.

2. Expenditure known as ‘investment’ and ‘capital creation’

3. Expenditure in ‘running the government’.

4. Expenditure in forwarding ‘external grants’.

Select the correct answer using the code given below:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

6. If the RBI decides to adopt an ‘expansionist’ monetary policy, which of the following it would not do?

1. Cut CRR and optimise SLR.

2. Increase MSF Rate.

3. Cut Bank Rate and increase Reverse Repo Rate

Select the answer using the code given below:

(a) 1 and 2

(b) Only 1

(d) Only 2

7. Which of the following ‘redistributive’ policies the government will not adopt if it wants to bridge economic inequality?

1. Rationalising subsidies

2. Progressive tax policies

3. Regressive expenditure

Select the answer using the code given bolow.

(a) 1 and 2

(b) Only 2

(d) Only 3

8. Which of the following will be the outcome once an economy is under an inflationary pressure?

1. Domestic currency heads for depreciation

2. Exports become less competitive with imports getting costlier

3. Cost of borrowing decreases

4. Bond-holders get benefitted

Select the answer using the code given below:

(a) 1 and 2

(b) Only 2

(d) Only 3

9. Consider the following statements related to the Regional Rural Banks (RRBs).

1. They were conceived as institutions that combine local feel and familiarity with the rural problems, which the cooperatives possess.

2. They were conceived on the line of a business organisation with the ability to mobilise deposits, like a commercial bank.

3. Originally they were intended to provide institutional credit to the weaker sections of the society called ‘target groups’.

Select the incorrect statement/statements using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) None of these

10. Consider the following statements regarding the marginal standing

facility rate of the RBI.

1. It is similar to the repo rate for the financial institutions.

2. It is on the lines of the liquidity adjustment facility and part of it.

3. Though it is a costlier route to fulfil overnight requirement of funds, it is not a penal rate.

4. Banks use this route once they exhaust all channels to raise short-term fund.

Select the incorrect statements using the code given below:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

11. Which one of the following statements is not true about Game Theory?

(a) It is a branch of economics that uses models to study interactions between countries, individuals and organisations.

(b) It was devised in 1944 by John Von Neumann and Oscar Morgenstern.

(c) It was often used in political or military context to explain conflicts between countries but has of late been used to map trends in the business world, ranging from how cartels sell prices to how companies can better their goods and services in new markets.

(d) Robert J. Aumann and Thomas C. Schelling were awarded Nobel Prize in Economics in 2005 for their work on this theory.

12. Select the correct statements about ‘countervailing duty’—

(a) A tax imposed on import by the importing country to neutralise the benefit of export subsidies offered by the exporting country.

(b) Another name of the anti-dumping duty.

(d) It is opposite to custom duty.

13. Due to certain reasons, it becomes difficult for the Export Credit

Gaurantee Corporation to cover pure commercial risks of the medium- and long-term exports originating from India. What are these reasons?

1. Long repayment period

2. Large value of contracts

3. Difficult economic and political conditions in the importing countries

4. Non-availability of reinsurance for such external projects

Select the answer using the code give below:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

14. Consider the following statements about derivatives in India.

1. A security derived from a debt instrument, share, secured or unsecured loan.

2. A contract which derives its value from the prices or index of underlying assets.

3. A security derived from exchange rates and interest rates.

4. It may be derived from monsoon forcasting.

Select the correct statements using the code given below:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

15. ‘Net income’ term was recently in news—which of the following is correct about it?

(a) It is balance of a company’s total income and its total expenditure.

(b) The profit of a company after paying corporate tax.

payments.

(d) The income of a company without deducting their losses.

16. Consider the following statements regarding ‘angel investors’.

1. Investors who provide financial backing to entrepreneurs for starting their business.

2. They are investors with positive spillover effects.

3. They may provide finance as loan or as share capital in the upcoming business.

4. They usually invest in person rather than the economic viability of business.

5. They are usually from the entrepreneur’s family and friends, but may be from outside, too.

6. Venture capital funds serve similar purpose to the extent arrangement of investible capital is concerned.

Select the incorrect statements using the code given below:

(a) 1, 2 and 5

(b) 2, 3 and 4

(d) None of the above

17. Consider the following items with respect to India’s capital account.

1. foreign currency deposits of the banks

2. private remittances

3. security market investments by the RFPIs and QFIs

4. foreign direct investment

5. external bonds issued by the GoI

6. merchandise trade balance

7. interest liabilities of the expernal loans

Which among the above items is associated with India’s capital account?

(a) 1, 3, 4 and 5

(b) 2, 4, 6 and 7

(d) 1, 3, 6 and 7

18. Consider the following statement regarding the India Inclusive Innovation Fund.

1. The idea is to build innovative enterprise from the bottom of the pyramid (BOP).

2. The fund will provide risk capital to create solutions aimed at enhancing the quality of life at the BOP.

3. Will address the social impact objectives by kick-starting an ecosystem of capacity-building around BOP-focused entrepreneurship.

4. Will address economic return objectives by providing the capacities needed to deliver.

5. The fund will get mobilised from the government, public sector enterprises, corporate sector, venture funds, angel investment and investment firms.

Select the correct statements using the code given below:

(a) 1, 2, 4 and 5

(b) 2, 3, 4 and 5

(d) 1, 2, 3, 4 and 5

19. As per the circular of the RBI what is correct about the Core Investment Companies (CICs)?

(a) All those companies with a paid-up capital of over Rs. 1,000 crore, which invest primarily in the core industries.

(b) All those NBFCs which invest not less than 90 per cent of their total assets in the form of shares and securities for non-trading purposes.

(c) All the corporate houses with net-owned fund not less than Rs. 1,000 crore invested in the core sector for at least 10 years.

(d) All the Foreign Institutional Investors (FIIs) with a minimum of Rs. 1,000 crore paid-up capital base with at least 80 per cent of it invested in the core industries for long-term purposes.

20. An upsurge has been seen in the NPAs of the public sector banks, recently.

1. Lower economic growth in the country

2. Aggressive lending by banks in the past, especially during good times

3. Lack of right loan-recovery legal provisions

4. Banks shwitching over to a system-based identification of NPAs

Select the correct factors responsible for it using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 3 and 4

21. Which of the following are incorrect when the government starts repuchasing its bonds before their maturity periods?

1. Promotion of an ‘expansionist’ monetary policy

2. An attempt to increase the saving rate of the economy

3. A tool to check the rising inflation

4. Promotion to credit creation by the banks

Select the answer using the code given below:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

22. Consider the following statements about ‘narrow banking’.

1. A banking business in which banks go for short-term risk-free lending.

2. A type of retail banking in which banks provide short-term ‘open-

ended’ loans.

3. When banks prefer short-term ‘closed-ended’ lending to the corporate sector.

4. A banking business which adopts long-term collateralised loans to public.

Select the incorrect statements using the code given below:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

23. Consider the following statements about the ‘ordinary shares’ of a limited liability firm.

1. They undertake maximum entrepreneurial risk associated with a business venture.

2. These shares do not avail any voting right in the affairs of the company.

3. If a company is going for closure these shares get their claims after the bank loans have been settled and before the preference shares.

4. Company Law provides them no investment claims in the situations of closures.

Select the incorrect statements using the code given below:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

24. Consider the following statements about Grain Bank.

1. Run in tribal and non-tribal rural areas by the Ministry of Tribal Affairs and the Ministry of Consumer Affairs, Food and Public Distribution, respctively.

2. Foodgrains can be borrowed from it by mortgaging dwellings.

3. Established in the food scarce areas, it aims at providing safeguard to all against starvation during natural calamity and lean period.

4. Civil society bodies can also run it.

Select the incorrect statements using the code given below:

(a) 1, 2 and 3

(b) 1, 3 and 4

(d) 1, 2, 3 and 4

25. NITI Aayog has suggested a new method, the ‘price deficiency payment’, for farmers which is consistent with India’s agricultural obligations to the WTO. Select the correct statements regarding it, using the code given below:

1. It suggests to pay a bonus price above the minimum support price (MSP) announced for a crop which will be not more than the market price of the crop.

2. It looks into the prices in the mandis regulated by the Agriculture Produce Market Committee (APMC) of the states.

3. Farmers to get a maximum payment of the difference between the MSP and market price of a crop.

4. The technology platform of direct benefit transfer (DBT) is to be used for the purpose.

Code:

(a) 1 and 2

(b) 1, 2 and 4

(d) 1, 2, 3 and 4

Answer Key with Explanation

1. (b) It reinsures only ‘non-life’ segment of the insurance business and is the fifth largest aviation reinsurer in the world. Recently it has been selected as a Manager for Nat Cat Pool promoted by the Federation of Afro- Asian Insurers and Reinsurers (FAIR). GIC Re is financially strong and is rated ‘A’ (Excellent) by AM Best and ‘AAA’ by CARE. In 2016–17, the GoI allowed the foreign re-insurance to enter into India.

2. (a) This was one of the announcements of the Union Budget 2017–18, for railways. At present, for cleaning service of the rail coach a SMS based service (called ‘clean my coach service’) is operational.

3. (d) CST is levied under the provisions of the CST Act, 1956, on the sale of goods of the course of inter-state trade or commerce—levied by the Centre by virtue of Entry 92A of the Union List, but the same is assigned to the states within which the tax is leviable, by virtue of provisions of Article 269 of the Constitution of India. Thus, CST and VAT are inconsistent (similarly it will be inconsistent with the proposed GST also). This is why after extensive consultations between the Centre and states, the roadmap for phasing out the CST by March 31, 2010 (i.e., before the date appointed for the introduction of the GST) has been finalised (the date has got automatically forwarded as the GST was not implemented by that date). Accordingly, the process of phasing out of CST commenced with reduction in CST from 4 per cent to 3 per cent,

w.e.f. April 1, 2007, and further to 2 per cent w.e.f. June 1, 2008. Further cut in it is suspended due to delaying of the GST implementation. States have been getting compensation from the Centre for losses accruing due to the CST phase out.

4. (d) Basically, subsidies benefit some people while they are paid by the whole population of the economy. Subsidies have been advised by the economists provided they are used as short-term measures—if the ecomony uses them as a long-term measure, they make the population handicapped (those who get them). Subsidies are like putting someone on pain-killers in place of providing the real treatment for the pain! That is why it is always advised by economists that besides subsidies there should be an effective and time-bound long-term policy to impart market-linked purchasing capacity to the population getting subsidy benefit. All subsidies fall under the non-planned expenditure. The

FRBM Act has no direct provisions regarding subsidies—it talks about the revenue and fiscal deficits only.

5. (d) Every expenditure by the government is part of the public expenditure, be they plan, non-plan, developmental, non-developmental, revenue or capital.

6. (d) Following the ‘expansionist’ policy means encouraging the circulation of money in the economy. Here, except the MSFR increase, all other measures are dedicated to increase liquidity in the system.

7. (d) Regressive expenditure will never serve the purpose. The government will need to tax the higher income bracket with higher rate of taxes and rationalise the subsidies so that they go to the needy only and in adequate amount. All these measures are already being operationalised by the GoI.

8. (c) Inflation is directly seen converting into proportionate depreciation in the domestic currency. In such situations, exports become cheaper for other countries (which make it more competitive in the world market), besides imports becoming costlier (as the domestic currency loses value in front of the external currency). Real cost of borrowing is calculated by deducting the current rate of inflation (which is higher) from the ‘nominal rate of interest/borrowing’ (that is the rate of interest banks announce on a certain category of loan). Bond-holders are basically lenders so they suffer—interest income sees dilution.

9. (d) The RRBs were modelled to have the local touch of the ‘cooperatives’ and the business touch of the Scheduled Commercial Banks (SCBs). Since April 1997 they have been allowed to break free from the ceilings interests they forward on deposits or charge on loans (these measures were taken to consolidate the loss-making RRBs). In September 2005 the GoI initiated a process of amalgamation of the banks in a phased manner—accordingly, the total number of RRBs has come down to 46 (from 196) by the end of 2013.

10. (a) This route is only for banks, on the lines of the LAF, but it is not its part. It is a penal rate that is why remains always higher than the repo rate. While putting this route in place the RBI has permitted banks to borrow maximum 1 per cent of their Net Demand and Time Liabilities,

in coming times it was cut down, too. Similarly, it commenced with a rate of 1 per cent higher than the current repo rate, but over the time it went upto

3 per cent higher than the current repo (in the process of checking inflation, by end 2013).

11. (a) Game Theory is a branch of Applied Mathematics which uses models to study interactions between countries, individuals and organisations. It has been used by applied economists in different areas.

12. (a) Anti-dumping duty is imposed in similar case but not due to export subsidy given by the exporting country, rather when the country is exporting (dumping) something ‘below fair market price’. In both of the taxes an investigation is provisioned by the WTO.

13. (d) Overseas projects undertaken by the Indian firms face many political and commercial risks in the importing countries—to provide adequate credit insurance cover to such firms, the government has set up the ECGC under the Ministry of Commerce and Industry, for medium- and long-term exports.

14. (a) The derivatives in India has not been allowed to derive their value from the weather forcastings (it is allowed in many developed economies, for example, the USA).

15. (a) It is derived by deducting the expenses of the company from its total revenue in a particular period (usually one year). It is also called earnings, net earnings or net profit.

16. (d) All the statements are correct about angel investors—a term introduced in the Union Budget 2013–14. SEBI puts them in the Category I AIF (Alternative Investment Fund) with ‘positive spillover effects’. The venture capital funds also come under this. A venture fund invests in business rather then the person (opposite to the angel investor).

17. (a) Private remittances, interest liabilities of foreign loans and trade balance are shown in the current account.

18. (d) The idea was proposed by the India Innovation Council for the fiscal 2011–12. This fund is based on the idea of inclusion in the promotion of

entrepreneurship—it means it emphasises the social return model unlike the most popular model in the world of promoting the innovations on the items which are for the rich. The Union Budget 2014–15 (Interim) proposed a fund of Rs. 100 crore for this fund.

19. (b) CICs are basically the NBFCs carrying on the business of acquisition of shares and securities, which satisfies some conditions, i.e., it holds not less than

90 per cent of its total assets in this form; its investments in the equity shares in group companies constitutes not less than 60 per cent of its total assets; it does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment; and it does not carry on any other financial activity except investment in bank deposits, money market instruments, government securities, loans and investments in group companies.

20. (c) Some other factors were also responsible for the increase in NPAs, i.e., increased interest rates in the recent past; current macro-economic situation in the country.

21. (c) The money which flows from the government into the system was called the ‘cheap currency’ by J. M. Keynes. By doing so, governments promote economic activities, which supports the business and trade.

22. (c) The term was coined in India by the Narasimhan Committee-II set up on the Banking Sector Reforms (report came in April 1998). This suggestion was given by the committee for the ‘weak banks’ at that time.

23. (d) These shares get voting rigths in their exact proportion as they cover the maximum risk—in a way it is a compensation. As these shares get dividend after all payments have been made by the company, similarly, if the company is being closed down they get their investment claims at the last—after settling the claims of employees, creditors, lenders, government, preference shares etc. Thus, both during life and death of a business, the ‘ordinary share holders’ are the last to receive their claims.

24. (a) Launched in 1996–97 by the Ministry of Tribal Affairs, the centrally sponsored scheme was transferred to the Ministry of Consumer Affairs, Food and Public Distribution in 2004–05. It lends foodgrains without any mortgage to the target population (marginalised people) only. The

bank can be run by NGOs, self help group and gram sabha.

25. (c) This advice was given by a ‘Task Force on Agriculture’ of the NITI by late 2015. It suggested that farmers can be made a payment (say 50 per cent) of the difference between the market price and APMC regulated price for a crop, to encourage them produce more. This way, India will be able to promote more food crops as well as not violate the agricyltural provisions of the WTO.