Daily Quiz: UPSC Prelims Marathon – September 11, 2018

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas.

Goods and Services Tax is a comprehensive indirect tax which is to be levied on the manufacture, sale and consumption of goods and services in India. This is so far, the biggest tax reform in the country. GST eliminates the cascading effect of taxes because it is taxed at every point of business and the input credit is available in the value chain. There are some commodities are not included under GST. Thus, it cannot be seen as a tax for all goods and services. Thus, option (c) is incorrect.

Statement 1 is incorrect.

EAC-PM is not a statutory body. The Prime Minister of India has constituted five members EAC-PM in September 2017 as an independent body to provide advice on economic issues to the government, specifically to the Prime Minister. It consists of economists of high repute and eminence.

Statement 2 is incorrect.

EAC-PM serves as an independent institutional mechanism, to provide informed advice to the Prime Minister on addressing issues of macroeconomic importance and related aspects. Note: A statutory authority is a body set up by law which is authorized to enact legislation on behalf of the relevant country or state. The Basel Committee on Banking Supervision is a committee of banking supervisory authorities of G-10 countries and was formed in 1974. It has been in the forefront of the international attempt in the development of standards and the establishment of a framework for bank supervision towards strengthening international financial stability. BCBS’s headquarters are located at Basel Switzerland.

Statement 1 is correct.

Monetary Policy Committee is an executive body of six members. Of these, three members are from RBI while three other members are nominated by the Central Government.

Statement 2 is correct.

Monetary Policy Committee is needed to meet at least four times a year and make public its decisions following each meeting.

Statement 3 is incorrect.

Monetary Policy Committee does not set inflation target for the economy. The amended RBI Act provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. The Central Government has notified 4 percent Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016, to March 31, 2021, with the upper tolerance limit of 6 percent and the lower tolerance limit of 2 percent.

Statement 1 is correct.

MCLR describes the method by which the minimum interest rate for loans is determined by a bank – on the basis of marginal cost or the additional or incremental cost of arranging one more rupee to th prospective borrower. The marginal cost of funds based lending rate (MCLR) refers to the minimu interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. It is an internal benchmark or reference rate for the bank.

Statement 2 is correct.

MCLR methodology replaces the base rate system introduced in July 2010.

Statement 3 is incorrect.

MCLR ensure availability of bank credit at interest rates which are fair to borrowers as well as banks. Thus, it does not make bank loan costlier. Rather, it enables banks to become more competitive and enhance their long-run value and contribution to economic growth.

Statement 4 is correct.

MCLR brings transparency in the methodology followed by banks for determining interest rates on advances. The MCLR is a tenor linked internal benchmark (tenor means the amount of time left for the repayment of a loan). The actual lending rates are determined by adding the components of spread to the MCLR. Banks will review and publish their MCLR of different maturities, every month, on a pre announced date.

Statement 1 is correct.

The Special Safeguard Mechanism (SSM) allowed developing countries to raise import duties on agricultural products in response to import surges. In WTO’s terms, safeguards are contingency or emergency restrictions on imports taken temporarily to deal with special circumstances such as a surge in imports. Contingency restriction means imposition of an import tax if the imports are causing injuries to domestic agricultural sector. The original GATT itself allows such restrictions to protect domestic economy.

Statement 2 is correct.

At the Doha Ministerial Conference, the developing countries were given the concession under Special Safeguard Mechanism (SSM) besides the existing safeguards (like the Special Agricultural Safeguard or the SSG). This SSM constituted an important part of the promises offered to the developing world at Doha. Thus, it is also known as Doha Development Agenda) or Development Round.

Statement 1 is correct.

Depository is a place where financial securities are held in dematerialized form. It is responsible for maintenance of ownership records and facilitation of trading in dematerialized securities.

Statement 2 is incorrect.

Both the depositories hold securities only. The main difference between banks and depository is the Bank holds funds in an account, depositories hold securities in an account.