Daily Quiz #22 UPSC Prelims Marathon – November 26, 2019

Explanation: CDS is in operation in India since October 2011 – launched in only corporate bonds. The eligible participants are commercial banks, primary dealers, NBFCs, insurance companies and mutual funds. CDS is a credit derivative transaction in which two parties enter into an agreement, whereby one party (called as the ‘protection buyer’) pays the other party (called as the ‘protection seller’) periodic payments for the specified life of the agreement.

Explanation: To protect the returns of investors from the vagaries of inflation, the Reserve Bank of India plans to introduce inflation-indexed bonds (IIBs)—it was proposed by the Union Budget 2013–14. The government hopes this will help increase financial savings instead of buying gold. In the recent years, the rate of return on debt investments has often been below inflation, which effectively means that inflation was eroding savings. Inflation indexed bonds provide returns that are always in excess of inflation, ensuring that price rise does not erode the value of savings. In 2013–14, RBI launched two such bonds —the first one in June 2013 linked with the WPI which had a very weak retail response and second one in December 2013 linked with CPI.

Explanation: The New Pension System (NPS) was introduced for the new recruits who join government service on or after 1 January, 2004. Although the NPS is perhaps one of the cheapest financial products available in the country, in order to make it affordable for the economically disadvantaged, the government in September 2010 introduced a lower cost version, known as
Swavalamban Scheme, which enables groups of people to join the NPS at a substantially reduced cost. As per existing scheme under NPS, Swavalamban could be availed either in ‘unorganised sector’ or in ‘NPS Lite’. NPS Lite is a model specifically designed to bring NPS within easy reach of the economically disadvantaged sections of the society —it is extremely affordable and viable due to its optimised functionalities, available at reduced charges.

Explanation: India announced the Liberalized Exchange Rate Mechanism System
(LERMS) in the Union Budget 1992–93 and in March 1993 it was operationalised. India delinked its currency from the fixed currency system and moved into the era of floating exchange-rate system under it.

Explanation: The Extended fund Facility (EFF) is a service provided by the IMF to its member countries which authorises them to raise any amount of foreign exchange from it to fulfil their BoP crisis, but on the conditions of structural reforms in the economy put by the body. It is the first agreement of its kind. India had signed this agreement with the IMF in the financial year 1981–82.