SET- 5

1. Which of the following is correct about the external concessional loans India get as Official Development Assistance—

(a) only central government can used them

(b) centre as well as the states, both can use such loans

(d) they can be used in only social sector

2. Consider the following statements about ‘short-selling’.

1. Short selling allows to sell those shares which will be owned in future.

2. Short-selling is done by borrowing shares with a speculation that price of the share will fall in future.

3. Short-sellers post losses if prices uptrend for the short-selled shares.

Select the incorrect statements using the code given below:

(a) Only 1

(b) 1 and 2

(d) None of those

3. Select the correct statements related to the recently formed think tank, the NITI, using the code given below:

1. it is to function as a vehicle of good governance.

2. it has to develop a holistic and inclusive development model for the economy integrating the needs of Centre, states and the local bodies.

3. the body, in a sense, subsumes the National Development Council in its Governing Council—this gives it more legitimacy.

4. it has three specialised wings related to—research, conflict resolution and team India.

Code:

(a) 1 and 2

(b) 1, 2 and 3

(d) 1, 2, 3 and 4

4. Consider the following statements.

1. The value of total goods demanded in an economy is always identically equal to the total value of goods supplied.

2. Statement 1 is correct in the case of modern economies only, where use of currencies as the mode of exchange, but does not hold correct if it is a barter economy.

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

(a) Only 1

(b) Only 2

(d) None of the above

5. Consider the following statement which defines the ‘wildcat strike’.

1. A strike called by the labourers in between the work.

2. The strike which is called without informing the management.

3. The strike which is supported by an outside trade union.

4. The strike not supported by the organised trade union of the firm.

Select the incorrect statements using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2, 3 and 4

6. Which among the following policy decision/decisions a government should take to promote foreign investments in the economy?

1. Allowing full convertibility to its currency in current and capital accounts.

2. Reducing or withdrawing the ‘withholding tax’.

3. Prohibitory laws for its nationals for overseas investments.

Select your answer using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) 1, 2 and 3

7. An economy is following the policies given below:

1. Creating self-employment sources with high speed.

2. Cutting its expenditures on the heads of salaries, subsidies and pension.

3. Promoting public-private partnerships in the infrastructure sector.

Select the correct outcome which the economy wants out of such a policy.

(a) Promoting revenue expenditure at the cost of capital expenditures.

(b) Cutting revenue ependitures to promote capital expenditure.

(d) Both (b) and (c)

8. Select the correct statement about ‘zero-coupon bond’ from the following:

(a) A bond with zero coupon rate which is sold at a price lower than its face value and investors get face value price at maturity.

(b) A bond with zero rate of interest but of the highest value of liquidity for which investors get other concessions like tax breaks.

(c) A special category of bond used as ‘express money’ to finance immediate needs of the economy which carries zero interest but gives tax credits to investors in their income tax returns.

(d) A kind of bond which is generally issued by governments in the times of financial crises to the high income group citizens, which carries no interest but investors get tax concessions for investing in it.

9. Select the incorrect statement from the following statements regarding deficit financing which an economy might be following.

(a) ‘Factory price’ of a product at constant prices is always lower than its ‘factor cost’ at current prices.

(b) ‘Ex-factory price’ of a product at the current prices is always lower than its ‘market cost’ at the constant prices.

(d) ‘Factor cost’ and ‘market cost’ may be calculated both at constant and current prices.

10. Consider the following statements about ‘indicative planning’.

1. Dominance of imperative policies in the planning process.

2. Inclusion of incentives-based and co-ordinating policies.

3. Suitable for planned development of the state and mixed economies.

4. This kind of planning commenced in India with the economic reforms.

Select the incorrect statements using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2, 3 and 4

11. Select the correct statement from the following about ‘vulture funds’—

(a) The privately-owned funds which lend out capital for hostile bids of takeovers around the world charging high returns in the form of interests.

(b) The privately owned financial firms which buy sovereign debts of highly indebted countries at fraction of their value and collecting full amount via legal intervention.

(c) The enormous amount of private funds which have accumulated in major tax-havens of the world attacking high rising economies in the form of the so-called ‘hedge funds’.

(d) The privately-owned equity capital which covers a very high risk of repayment as they lend money to secretive groups in the world to fight against the nation states—considered playing a major role in promoting majority of terror outfits today.

12. Consider the following statements.

1. Hedging is similar to insurance.

2. In badla, a buyer wants postponement of deal—it is called contango in Western economies.

3. In undha badla, a seller wants postponement of deal—it is called backwardation in the Western economies

4. Scrip share is the other name for sweat share.

Select the correct statements using the code given below:

(a) 1, 2 and 3

(b) 2, 3 and 4

(d) 1, 2, 3 and 4

13. Consider the following statements about the process of issuing shares through ‘private placement’.

1. This is one among three routes through which a company raises capital in the primary market by issuing shares.

2. Companies directly negotiates with the investors which may be financial institutions as well as individuals.

3. This is completely opposite to the public issue route to issue shares.

Select the correct statements using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) 1, 2 and 3

14. Consider the following statements.

1. Raising capital by public issue is the most broad-based method, though it is the most time taking, too.

2. Though private placement route to raise capital is the least time taking, it is the riskiest route, too.

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

(a) Only 1

(b) Only 2

(d) Neither 1 nor 2

15. Consider the following statements.

1. ‘Trade creation’ has taken place in India via the provisions of the WTO.

2. Growth stories of the industrialised economies were the outcome of follow-up to ‘creative destruction’.

3. ‘Trade creation’ may be led by ‘creative destructions’.

Select the correct statements using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) 1, 2 and 3

16. What is correct about the term ‘transfer payments’ which was in news recently?

(a) The payments which takes place indirectly from the high bracket direct taxpayers to the subsidy-based sectors which are consumed by someone else.

(b) The expenditure by government for which it receives no goods or services, such as tax collection, unemployment allowance etc.

(d) Tax is a mode of income redistribution through which payments get transferred from high to low income group directly and indirectly, both ways.

17. Consider the following statements about ‘Venture Capital Fund’.

1. A dedicated corpus of capital to promote innovative enrepreneurship.

2. It may be public-owned or privately-owned.

3. The IVCF was India’s first such fund set up under private ownership.

Select the correct statements using the code given below:

(a) 1 and 2

(b) 2 and 3

(d) 1, 2 and 3

18. In 2016–17, the Centrally Sponsored Schemes (CSSs) were restructured by the GoI.

Select the correct statements related to the restructuring, using the code

given below:

1. the decision of restructuring was taken by the Governing Council of the NITI Aayog.

2. this will avoid overlapping of expenditure and provide visibility and impact to the CSSs.

3. the CSSs have been classified into ‘flagship’ and ‘extra-flagship’ categories.

4. the existing number of the CSSs is 37.

Code:

(a) 1 and 2

(b) 1, 2 and 3

(d) 1, 2, 3 and 4

19. Select the correct statement about the ‘unemployment trap’.

(a) A situation in the economy when the rate of employment growth is less than the rate of increase in the unemployed population.

(b) A situation of frictional unemployment when there is a heavy rush of labour force from the primary to the secondary activities.

(d) A situation when unemployed population of an economy does not feel encouraged to become employed.

20. Consider the following statements.

1. The risk of a government defaulting on overseas loan is known as sovereign risk.

2. All kinds of overseas borrowings by private companies also carry the burden of sovereign risk.

3. A member nation may insure its sovereign risk with the World Bank arm known as Multi-Lateral Insurance Guarantee Agency.

Select the correct statement using the code given below:

Code:

(a) 1 and 2

(b) 2 and 3

(d) 1, 2 and 3

21. Which of the following is correct statement regarding the external loans India get from the European Investment Bank—

(a) these loans can be only used by the central government

(b) these loans can be used by public as well as private sector

(c) these loans are more concessional than the official development assistance (ODAs) which India gets from foreign countries.

(d) these loans are availed by only private sector companies of India

22. Consider the following statements.

1. Expenditures done on advertisement, research and development are known as ‘essential costs’.

2. The costs which are borne on account of salaries, fringe benefits, pensions and provident funds are known as ‘sunk cost’.

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

(a) Only 1

(b) Only 2

(d) None of these

23. Consider the following statements.

1. ‘Product swap’ functions just opposite to the system of barter.

2. ‘Currency swap’ is a mode of hedging against exchange rate fluctuations.

3. ‘Subsidy swap’ is a method of cross-subsidising two products.

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

(a) 1 and 2

(b) Only 2

(d) Only 3

24. Consider the following statements.

1. ‘Market cost’ is ‘factory price’ added with all the indirect taxes.

2. ‘Market cost’ and ‘ex-factory price’ are different things.

3. ‘Maximum retail price’ and ‘market cost’ are the same things.

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

(a) Only 1

(b) 1 and 2

(d) 1 and 3

25. Select the correct statements regarding India’s present composition of the external debt, using the code given below:

1. Concessional part is around 10 per cent.

2. Forex reserves provide around 77 per cent cover to it.

3. Long-term part of the debt is around 83 per cent.

Code:

(a) Only 1

(b) Only 3

(d) 1, 2 and 3

Answer Key with Explanations

1. (b) private sector can not avail its use. There is no sectoral compulsion though the areas are outlined before loan is availed.

2. (d) All are correct about the action of ‘short selling’. Short-sellers basically

speculate that prices of the short-selled shares will fall in future. Thus, they borrow those shares (it means they don’t own it) and post profit. In case the prices increase in place of falling, the short-seller posts loss (as the borrowed shares are to be handed over to the original owner at a higher price now).

3. (b) Though, the National Development Council (NDC) is still there, it has not met since December 2012 (when it had its 57th meeting). It is believed that either the body will be abolished or considered subsumed into the Governing Council of the NITI Aayog. The three ‘specialised wings of the NITI are related to—research, consultancy and team India. Basically, ‘conflict resolution’ is one its functions.

4. (a) This is known as the ‘Walras’s Law’ which is correct only in the case of a barter economy. This is so because the economies which have currency as a mode of exchange, currency supplies depend on so many factors and not on the level of the goods and services produced in the economy. The best example is shown by the instances of inflation.

5. (a) This is a strike which is not supported by the organised trade union of the firm. At times, such strikes may be supported by a trade union from outside.

6. (a) The 3rd statement is neutral to the issue of attracting foreign investment and its promotion. Once the domestic currency becomes fully convertible in the capital account such prohibitory laws are not possible

—that is why India is believed to not allowing such convertibility at the full scale—as the economy does not want foreign exchange taking flight from the economy (since it is itself trying to attract it).

7. (b) The Government of India also wants to do the same but its subsidy rationalising programmes have not taken place on expected lines.

8. (a) G-Secs are issued by the GoI through this route, too.

9. (b) Price of anything at current price has to be higher than its price at constant price as the former includes the weight of current inflation.

10. (c) Planning in India was already indicative, during reform period it became more so. Imperative policies are the symptom of ‘target planning’ popular among the State economies (in ex-USSR, China

before they switched over to mixed economy). Planning of the mixed economies can only reach its goals once private sector is also included in the process—this requires provision of incentives and co-ordination by the government.

11. (b) These funds file lawsuits in London, New York, Paris and collect full face values plus interest of the national debts of the poor nations—many of the nations falling in the Heavily Indebted Poor Countries (HIPC). As per the IMF, these funds are concentrated in the US, UK as well as the British Virgin Islands (the UK protectorate tax haven). These countries have enough political pressure to ban these funds as their activities are against the soul of the foreign policies of the UK and US.

12. (a) ‘Scrip shares’ are given to the existing shareholders without any change and are also called ‘bonus shares’. The shares given to employees (usually top officials) by a company without any charge is called ‘sweat share’.

13. (d) In a ‘public issue’ the company does not negotiate directly with the public who want to purchase the shares.

14. (c) Public issue makes a company to broad-base its share-ownership, but this is a complex and time-consuming process. While private placement is the quickest method to raise capital from the security market, a company covers the risk of takeovers in it (due to shift in the share holders loyalties to a competing firm).

15. (d) The increase in international trade which results from the elimination or reduction of trade barriers (such as quota, customs, surcharge etc.), is ‘trade creation’. Innovation is known as ‘creative destruction’ (the term was coined by the Australian economist J. Schumpeter).

16. (b) All loss-making activities done by the government in the head of social sector come under it—poverty alleviation, healthcare, education, social security etc.

17. (a) The IVCF was a public-owned Venture Capital Fund (VCF), set up in 1998. First such fund in India in which ‘I’ stands for IFCI (Industrial Finance Corporation of India, set up 1948), a Government of India’s wholly-owned Specialised Financial Instituion (SFIs).

18. (a) The 50 existing CSSs were restructured into 30 and classified as ‘core’ and ‘optional’ categories. Earlier they were restructured into 66 (from 137) for the 12th Plan period—among them 17 were announced as the ‘flagship programmes’ by the GoI. They were further restructured into 50 by the Union Budget 2015–16.As per the government, the schemes which are for social protection and social inclusion will be considered as the ‘core of the core’ of the CSSs.

19. (d) This is the another term for ‘poverty trap’. Such situation arises in an economy where there are provisions of unemployment allowance— disposable income (income after paying direct taxes) becomes less than the allowance they get.

20. (a) World Bank arm, MIGA, provides insurance services, but to the companies which go for foreign direct investment; it covers non- commercial risk.

21. (b) These loans are less concessional than that of the ODAs—but more flexible as they can be used by centre, states as well as the private sector.

22. (c) The expenditure on the items discussed in Statement 1 are ‘sink costs’. There is nothing like ‘essential costs’ in business economics.

23. (b) ‘Product swap’ is similar to barter while there is nothing like ‘subsidy swap’ in public finance management.

24. (a) ‘Market Cost’ and ‘ex-factory price’ are same things. ‘Market cost’ added with the traders margins and effect of the current inflation is ‘maximum retail price’ (MRP).

25. (d) As per the Economic Survey 2016–17, India’s external debt was US $

484.3 billion by end-September 2016, while its forex reserve was US $ 360 billion.