Daily Quiz: UPSC Prelims Marathon- July 25

Statement 1 is incorrect because the committee has been set up under the guidance of the Bank for International Settlements (BIS), an international financial organisation owned by 60 member central banks, representing countries from around the world

Statement 2 and 3 is correct:

India will soon get a seat on the Global Foreign Exchange Committee (GFXC), a newly-constituted forum of central bankers and experts working towards promotion of a robust and transparent forex market.

It comprises of public and private sector representatives from the foreign exchange committees of 16 international forex trading centres.

Its main objective is:

• Promote collaboration and communication among the local FXCs and non-GFXC jurisdictions with significant FX markets
• Exchange views on trends and developments in global FX markets, including on the structure and functioning of those markets, drawing on information gathered at the various FXCs;

Promote, maintain and update on a regular basis the FX Global Code (the Code) and consider good practices regarding effective mechanisms to support adherence.

Explanation:

• A popular feature of short term capitals flows (movement of international investable money) is that they are often speculative and are highly unstable flows.
• Their quick inflows and outflows are creating management problem for many emerging market central banks like the RBI.
• Tobin tax is a tax on international flow of short term capital. The tax is known after economist James Tobin who proposed it in1972 in the form a currency transaction tax.
• Basically, Tobin tax aims to discourage volatile short term capital flows or hot money which are very speculative.
• Tobin has advocated the imposition of tax on cross border flow of short term capital as these are the sources of volatility and risks in the host economies

Explanation:

The components of India’s Foreign Exchange Reserves include Foreign currency assets (FCAs), Special Drawing Rights (SDRs), Gold and RBI’s Reserve position with International Monetary Fund (IMF).

India’s foreign exchange reserve is $386.539 billion .Among the components of India’s Foreign exchange reserve ,Foreign currency Asset(FCA) forms a major part of the overall reserve.($362.388 billion).It is followed by Gold($ 20.348 billion),RBI’s reserve position with IMF($ 2.32 billion) ,Special Drawing Rights($ 1.479 billion).hence this can be summarized as

FCA>Gold>RBI’s Position with IMF>SDR

IMPORTANTLEARNING:

Foreign currency asset consists of US dollar and other major non-US global currencies. It also comprises of investments in US Treasury bonds, bonds of other selected governments, deposits with foreign central and commercial banks.

All the statement are in accordance with GSTN

Important Point about GSTN:

• The Goods and Services Tax Network (GSTN) is a non-government non-profit private limited company created for providing the front end and back end IT and infrastructural support for the working of GST.
• Given its non-government nature, the shareholding is important. Here, the Governments –centre, states plus UTs hold 49% of GSTN. Central government holds 24.5% while the remaining governmental share of 24.5% is held by states and UTs. It has an authorized capital of Rs.10 crore to establish and operate the IT backbone of GST.
• The remaining 51% share is divided among five financial institutions—LIC Housing Finance with 11% stake and ICICI Bank, HDFC, HDFC Bank and NSE Strategic Investment Corporation Ltd with 10% stake each.

Following are the main functions of GSTN:

(i) facilitating registration;

(ii) filing and forwarding the returns to Central and State tax authorities;

(iii) computation and settlement of IGST;

(iv) matching of tax payment details with banking network;

(v) providing various Management Information System reports to Governments.

(vi) analysis of tax payers’ profile; and

(vii) running the matching engine for input tax credit.

Statement C is incorrect because SEBI norms on Municipal Bond  allow these instruments to be offered to the public, listed and traded on stock exchanges .

Important point about Municipal Bond:

• Municipal bonds can be issued by municipal bodies and municipal corporates (entities owned by municipal bodies) to raise money for financing specific projects specifically infrastructure projects.
• Institutional investors, as well as the public, can buy these bonds.
• Municipal bonds have been in existence in India from the year 1997.
• Cities such as Ahmedabad, Bengaluru, Nashik and Madurai have already issued them.

These bonds will help the city corporations to directly raise funds without the help of grants from the state governments or agencies such as World Bank.

Defence Equipment and modernization falls under Non plan capital expenditure while the rest falls under the category of Non plan Revenue expenditure.

Important Learning:

Non plan revenue expenditure:

• Interest payments on the loans taken by Government of India
• Expenditure incurred on Defence Services (except Defence Equipment which is a capital expenditure)
• Subsidies
• Grants to the states and UTs, including those from calamity fund
• Pensions, Social services such as healthcare, education, social security etc.
• Police
• Economic services by the government such as Agriculture, Industry, Power, Science & Technology
• Grants to foreign Governments

Explanation:

Payment bank perform the following activity:

• They can accept demand deposits.
• An account balance cannot exceed Rs. 1 Lakh for an individual customer.
• Payment Banks can issue ATM/debit cards but not credit cards.
• Payment Banks can not give loans.
• Payments and remittance services through various channels.
• A payment bank can become Banking Correspondent of another bank and offer all products / services which a BC can offer.
• Payment Banks can distribute non-risk sharing financial products like mutual fund units and insurance products, etc.
• The revenue of these banks would come mainly from the transaction fees.