[Solution] – Tuesday Economy Quiz #5

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[Solutions]

Q.1) ‘Basel III Accord’ or simply ‘Basel III’, often seen in the news, seeks to
a) develop national strategies for the conservation and sustainable use of biological diversity
b) improve banking sector’s ability to deal with financial and economic stress and improve risk management
c) reduce the greenhouse gas emissions but places a heavier burden on developed countries
d) transfer technology from developed Countries to poor countries to enable them to replace the use of chlorofluorocarbons in refrigeration with harmless chemicals

Answer. [B]

Explanation- “Basel III” accord is a set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen the regulation, supervision and risk management of the banking sector.

These measures aim to:

• improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source
• improve risk management and governance
• strengthen banks’ transparency and disclosures.

Q.2) With reference to Indian economy, consider the following statements:

1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.
2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.

Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c)  Both 1 and 2
d)  Neither 1 nor 2

Answer. [B]
Explanation- This is trend base question. Statement 1 is wrong. After 2008 financial meltdown, growth rate of GDP of the Indian economy had declined for the next few years from 8-9% to 5-6%.

Even though the growth rate declined, the GDP at market prices has always increased year on year since last one decade. Statement 2 is thus correct.

Q.3) With reference to Indian economy, consider the following

1. Bank rate
2. Open market operations
3. Public debt
4. Public revenue

Which of the above is/are component/ components of Monetary Policy?
a) 1 only
b) 2, 3 and 4
c) 1 and 2
d) 1, 3 and 4

Answer. [C]

Explanation- Monetary policy is the policy by which monetary authority of a country, controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth.

Tools of Monetary policy are:
1.Repo and reverse repo rate
2.Open Market Operations
3.Statutory Liquidity ratio
4.Bank Rate

Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation’s economy. Public Debt and revenue are part of this policy.

Q.4) Which of the following would include Foreign Direct Investment on India?

1. Subsidiaries of foreign companies in India
2. Majority foreign equity holding in Indian companies
3. Companies exclusively financed by foreign companies
4. Portfolio investment

Select the correct answer using the codes given below:
a) 1, 2 , 3 and 4
b) 2 and 4 only
c) 1 and 3 only
d) 1, 2 and 3 only

Ans: [D]
Explanation- FDI is an investment made by a company or entity based in one country, into a company or entity based in another country. Foreign direct investments differ substantially from indirect investments such as portfolio investment, wherein overseas institutions invest in equities listed on a nation’s stock exchange.

FDI in India means investment by non-resident entity/person resident outside India in the capital of an Indian company under Schedule 1 of Foreign Exchange Management or in other words a Therefore, 1, 2 and 3 falls under these definitions clearly.

Q.5) The sales tax you pay while purchasing a toothpaste is a
a) tax imposed by the Central Government
b) tax imposed by the Central Government but collected by the State Government
c) tax imposed by the State Government but collected by the Central Government
d) tax imposed and collected by the State Government

Answer [D]

Explanation – A sales tax is a consumption tax imposed and collected by the state government on the sale of goods and services. A conventional sales tax is levied at the point of sale, collected by the retailer and passed on to the government.Retailer is simply collecting the tax as part of their agreement to do business in that city or state. From time to time the retailer will have to prepare forms and pay in the money they collected for taxes to the state or local government. State and local government generate revenue from it. Every time we go to shopping, we are paying this tax. Buying toothpaste, paper towels, soda, clothing etc includes this tax only.

Q.6) What does venture capital mean?
a) A short-term capital provided to industries
b) A long-term start-up capital provided to new entrepreneurs
c) Funds provided to industries at times of incurring losses
d) Funds provided for replacement and renovation of industries

Answer: [B]
Explanation-  Venture capital is money provided by investors to startup firms and small businesses with perceived long-term growth potential. This is a very important source of funding for startups that do not have access to capital markets.

Q.7) With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?

1. Balance of trade
2. Foreign assets
3. Balance of invisibles
4. Special Drawing Right

Select the correct answer using the code given below.
a) 1 only
b) 2 and 3
c) 1 and 3
d) 1, 2 and 4

Answer : [C]
xplanation –
Balance of invisible means difference between the imports and exports of services as opposed to those of goods.

The current account is defined as the sum of the balance of trade (goods and services exports minus imports), net income from abroad and net current transfers.

A positive current account balance indicates that the nation is a net lender to the rest of the world, while a negative current account balance indicates that it is a net borrower from the rest of the world.

Q.8) The balance of payments of a country is a systematic record of
a) all import and transactions of a country during a given period normally a year
b) goods exported from a country during a year
c) economic transaction between the government of one country to another
d) capital movements from one country to another

Answer: [A]
Explanation-  BOP is a statement that summarizes an economy’s transactions with the rest of the world for a specified time period. It encompasses all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts.

Q.9)The Reserve Bank of India regulates the commercial banks in matters of

1. liquidity of assets
2. branch expansion
3. merger of banks
4. winding-up of banks

Select the correct answer using the codes given below.
a) 1 and 4 only
b) 2, 3 and 4 only
c) 1, 2 and 3 only
d) 1, 2, 3 and 4

Answer: [D]

Explanation– RBI regulates Liquidity of Assets via SLR. 1 is correct thus. Existing bank requires RBI permission for expansion. 2 is correct thus. Amalgamation /Merger of two bank require RBI’s approval. Thus final answer is D.

Q.10) Consider the following:

1. Hotels and restaurants
2. Motor Transport undertakings
3. Newspaper Establishments
4. Private Medical Institutions

The Employers of which of the above can have the “ Social Security coverage under Employees State Insurance Scheme?
a) 1, 2 and 3 only
b) 4 only
c) 1, 3 and only 4
d) 1, 2, 3 and 4

Answer: [D]
Explanation- Employee State Insurance scheme is known as a Social Security Scheme for workers engaged in factories and Establishments having 10 or more employees. Workers getting salary/ wages up to Rs. 15000/- per month are covered. All above 4 institutions are covered under it.