PYQP – Economy – India’s Foreign Exchange and Foreign Trade

UPSC – CSE Prelims 2024

EASY

ECONOMY – SECURITIES

1. Consider the following:

1. Exchange-Traded Funds (ETF)
2. Motor vehicles
3. Currency swap

Which of the above is/are considered financial instruments?

(a) 1 only

(b) 2 and 3 only

(c) 1, 2 and 3

(d) l and 3 only

Ans. (d)

Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash, evidence of an ownership interest in an entity or a contractual right

Common examples of financial instruments include stocks, exchange-traded funds (ETFs), mutual funds, real estate investment trusts (REITs), bonds, derivatives contracts (such as options, futures, and swaps), checks, certificates of deposit (CDs), bank deposits, and loans.

MEDIUM

ECONOMY – SECURITIES

2. Consider the following statements :

1. In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India.
2. In India, Foreign Institutional Investors can hold the Government Securities (G-Secs).
3. In India, Stock Exchanges can offer separate trading platforms for debts.

Which of the statements given above is/are correct?

(a) l and 2 only

(b) 3 only

(c) 1, 2 and 3

(d) 2 and 3 only

Ans. (d)

MEDIUM

ECONOMY – SECURITIES

3. In India, which of the following can trade in Corporate Bonds and Government Securities?

1. Insurance Companies
2. Pension Funds
3. Retail Investors

Select the correct answer using the code given below:

(a) 1 and 2 only

(b) 2 and 3 only

(c) 1 and 3 only

(d) 1, 2 and 3

Ans. (d)

Government Securities (G Secs) are issued by the government to borrow funds from the general public

• The Reserve Bank of India issues bonds on behalf of the government of India.
• In common parlance, government securities with a maturity of less than one year are called treasury bills, and those with longer maturity are called government bonds.

Who can buy government securities?

• Government securities are available for purchase by various entities, including banks, financial institutions, primary dealers, corporate entities, individuals, and foreign investors.
• These securities can be bought through auctions conducted by the Reserve Bank of India (RBI) or in the secondary market through recognized stock exchanges or the NDS-OM platform.

NDS-OM (Negotiated Dealing System – Order Matching Segment)

• It is a screen based electronic anonymous order matching system for secondary market trading in Government securities owned by RBI.
• Presently the membership of the system is open to entities like Banks, Primary Dealers, Insurance Companies, Mutual Funds etc. i.e entities who maintain SGL accounts with RBI.
• These are Primary Members (PM) of NDS and are permitted by RBI to become members of NDS-OM.

UPSC – CSE Prelims 2023

ECONOMY – STOCKS

1. Consider the following statements:

Statement-I: Interest income from the deposits (InvITs) distributed to their investors is in Infrastructure Investment Trusts exempted from tax, but the dividend is taxable.

Statement-II: InvITs are recognized as borrowers under the ‘Securitization and Recon- struction of Financial Assets and Enforcement of Security Interest Act, 2002’.

Which one of the following is correct in respect of the above statements?

(a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(c) Statement-I is correct but Statement-II is incorrect

(d) Statement-I -II is correct but Statement is incorrect

Answer: d

Statement-I: Interest income from the deposits (InvITs) distributed to their investors is in Infrastructure Investment Trusts exempted from tax, but the dividend is taxable: This statement is incorrect. In Infrastructure Investment Trusts (InvITs), both the interest income and dividend income distributed to the investors are taxable. There is no exemption from tax for interest income from InvITs.

Statement-II: InvITs are recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’: This statement is incorrect. InvITs are not recognized as borrowers under the ‘Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002’. This act primarily deals with the securitization and reconstruction of financial assets and enforcement of security interests in relation to loans and borrowings.

Based on the revised explanations, the correct answer is (d) Statement-I is incorrect, and Statement-II is incorrect. I apologize for the confusion caused by the earlier response.

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