UPSC Prelims Marathon 31 July – External Sector of India – 2025

With reference to the Fixed Currency Regime under the IMF, consider the following statements:
1.Under this regime, the exchange rate of a currency was fixed by the IMF against a basket of major world currencies.
2.Member countries were required to maintain the fixed exchange rate determined by the IMF, which could be revised periodically.
Which of the statements given above is/are correct?

With reference to the Floating Currency Regime, consider the following statements:
1.In a floating exchange rate system, the value of a currency is determined by market forces such as demand and supply.
2.The IMF mandated all member countries to adopt the floating currency regime after 1973.
3.In a floating exchange rate system, the central bank does not intervene in the foreign exchange market under any circumstances.
Which of the statements given above is/are correct?

With reference to the Managed Exchange Rate System, consider the following statements:
1.It is a hybrid system combining features of both fixed and floating exchange rate regimes.
2.India follows a managed but flexible exchange rate system.
3.Under this system, central banks never intervene in the foreign exchange market to influence currency value.
Which of the statements given above is/are correct?

With reference to the Foreign Exchange Market, consider the following statements:
1.It is the institutional framework where one national currency is exchanged for another.
2.Exchange rates in the foreign exchange market are determined purely through government mandates under all systems.
3.Active currency exchange in this market is typically seen under floating and managed exchange rate regimes.
Which of the statements given above is/are correct?

With reference to international trade, consider the following statements:
Statement I: The trade balance refers to the monetary difference between the total exports and imports of an economy in a financial year, and it can be either favourable or unfavourable.
Statement II: Trade policy, also known as foreign trade or Exim policy, regulates a country’s export-import activities and is periodically revised based on global economic conditions and the policies of trading partners.
Which of the statements given above is/are correct?

With reference to currency valuation in the foreign exchange market, consider the following statements:
1.Depreciation refers to a fall in the value of a domestic currency in a floating exchange rate system due to market forces.
2.Devaluation occurs when the government officially lowers the value of its currency under a fixed exchange rate system.
3.Revaluation is the process of increasing the value of a currency due to demand-supply dynamics in a floating exchange rate system.
Which of the statements given above is/are correct?

Consider the following statements:
Statement I: In the external sector, the Current Account of a country records all current transactions in foreign currency, such as exports, imports, interest payments, remittances, and transfers.
Statement II: These transactions are recorded as either inflows (credits) or outflows (debits), and the resulting balance can be either a surplus or a deficit.
In the context of the above statements, which of the following is correct?

With reference to the Capital Account in the Balance of Payments (BoP), consider the following statements:
1.The Capital Account records all capital transactions of an economy with the rest of the world, including external borrowings, foreign investments, and foreign currency deposits.
2.Unlike the Current Account, the Capital Account does not reflect a surplus or deficit at the end of the financial year.
Which of the statements given above is/are correct?

With reference to the Current Account, consider the following statements:
1.The Current Account in the external sector includes all current transactions such as exports, imports, interest payments, remittances, and transfers.
2.In the banking sector, a current account is primarily used by business firms and generally does not earn interest, but it facilitates multiple withdrawals and provides overdraft facilities.
Which of the statements given above is/are correct?