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 INDEX
IMPORTANT ECONOMY TOPICS.......................................................................................................................3
1. Securities and Exchange Board of India (SEBI).................................................................................... 3
2. Sovereign Gold Bonds.......................................................................................................................... 4
3. Indexation on Long-Term Capital Gains Tax (LTCG)..............................................................................5
4. India Semiconductor Mission................................................................................................................6
5. Unified Lending Interface by the RBI.................................................................................................... 7
6. AgriSURE Fund and Krishi Nivesh Portal.............................................................................................. 8
7. PM Gati Shakti National Master Plan.................................................................................................... 9
8. Windfall Tax......................................................................................................................................... 11
9. Universal Basic Income.......................................................................................................................12
10. Periodic Labour Force Survey 2024.................................................................................................. 13
Previous Year Questions (2024 - 2021)............................................................................................................ 15

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 Important Economy Topics

1. Securities and Exchange Board of India (SEBI)

About SEBI
● The Securities and Exchange Board of India (SEBI) serves as the main regulator of India's
securities market.
● It functions as a statutory body under the Ministry of Finance, Government of India.

Criticism
● The focus is more on market conduct regulation and less on prudential regulation.
● Compared to US and UK counterparts, it has significantly greater legislative and enforcement
powers. It can impose serious economic restrictions based on suspicion, potentially causing
significant economic harm.
● Rules and enforcement, especially in areas like insider trading, are inadequate.
● There is a lack of prior consultation with the market and a review system for regulations, leading
to widespread fear of the regulator.

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 Way Ahead
● Shift towards a more balanced approach that equally emphasises both market conduct and
prudential regulation to ensure comprehensive oversight.
● Regularly review and refine legislative powers to avoid overreach and minimize the risk of
unwarranted economic impact.
● Implement a structured consultation process with market participants to gather feedback and
align regulations with industry needs.

Conclusion: Given questions about SEBI's credibility, it's crucial to protect investors, ensure fairness,
and foster a trustworthy financial ecosystem.

2. Sovereign Gold Bonds

About Sovereign Gold Bond (SGB)

● SGBs are tradeable government securities denominated in grams of gold.
● They are substitutes for holding physical gold.
● Investors have to pay the issue price in cash and the bonds will be redeemed in cash on
maturity. The maturity of the bond is 8 years.
● These bonds offer 2.5 percent simple interest per annum paid semi-annually on the purchase
value.
● The Bond is issued by the Reserve Bank on behalf of the Government of India.
● These securities are eligible to be used as collateral for loans from banks, financial
Institutions and Non-Banking Financial Companies (NBFC).

Benefits
● Protection of Investment: Investors receive the market price of gold at the time of redemption
or premature redemption, ensuring the quantity of gold paid for is protected.
● Superior to Physical Gold: SGBs eliminate storage risks and costs associated with holding
physical gold.
● Assured Returns: Investors are assured of the market value of gold at maturity and receive
periodic interest.
● No Additional Charges: SGBs are free from making charges and purity concerns that apply to
gold jewelry.
● Secure Holding: Bonds are held in RBI's books or in demat form, eliminating the risk of loss or
damage.

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 Conclusion: The reduction in customs duty on gold has understandably raised concerns among
Sovereign Gold Bond investors about the potential impact on returns. However, the long-term
advantages of SGBs, continue to make them a valuable and prudent investment choice.

3. Indexation on Long-Term Capital Gains Tax (LTCG)

Definitions
● Indexation: Indexation is the process of adjusting the original purchase price of an asset or
investment; it allows a taxpayer to neutralize the impact of inflation while paying tax on
capital gains.
● Capital Gain: A Capital gain refers to the increase in the value of a capital asset when it is sold.
It occurs when you sell an asset for more than what you originally paid for it. They fall into two
categories:
○ Short-term: Gains realized on assets that you've sold after holding them for one year or
less.
○ Long-term: Gains realized on assets that you've sold after holding them for more than
one year.

Budget Proposal
● Currently, LTCG on property sales is calculated by adjusting the purchase price for inflation
using the Cost Inflation Index (CII).
● The new rule eliminates this inflation adjustment.
● Taxpayers will now calculate capital gains by simply subtracting the original purchase price
from the sale price.
● Cost Inflation Index (CII):
○ The Cost Inflation Index (CII) is published annually by the income tax department.
○ CII helps adjust the cost of an asset for inflation.
○ The inflation-adjusted cost is subtracted from the sale price to determine taxable capital
gains.

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 New Amendment
● Taxpayers can now choose between a 12.5% LTCG tax rate without indexation or a 20% rate
with indexation for properties acquired before July 23, 2024.
● This allows taxpayers to select the most beneficial tax rate for properties bought before the
cutoff date.

4. India Semiconductor Mission

About India Semiconductor Mission (ISM)

● A specialized and independent Business Division within the Digital India Corporation.
● Its primary objective is to build a vibrant semiconductor and display ecosystem that enables
India to become a global hub for electronics manufacturing and design.

● ISM has been working as a nodal agency for the schemes approved under the Semicon
India Programme.

About SemiconIndia Programme

Conclusion: The India Semiconductor mission accelerates India's role in Industry 4.0 by boosting
semiconductor manufacturing, fostering innovation, and supporting the nation’s self-reliance in
advanced technology.

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 5. Unified Lending Interface by the RBI

About Unified Lending Interface (ULI)

The RBI's Unified Lending Interface (ULI) standardised and streamlined the lending process by
creating a common platform for banks, NBFCs, and fintech lenders to enable seamless, transparent,
and efficient lending across the financial sector.

Potential Benefits
● Faster Loan Approvals: With standardised processes and greater transparency, loans can be
approved more quickly.
● Reduced Costs: Automation and digital integration reduce operational overheads, making
lending cheaper for financial institutions.
● Greater Financial Inclusion: The ULI can extend lending services to individuals and
businesses that are currently outside the traditional banking system, such as small and medium
enterprises (SMEs) and rural populations.
● Credit Democratisation: The platform encourages competition, enabling borrowers to access
multiple lenders with diverse offers based on better terms and conditions.

Challenges
● Data Privacy and Security: With vast amounts of borrower data being used, ensuring the
privacy and security of personal financial data is critical.

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 ● Interoperability: Achieving seamless integration among various financial institutions and their
disparate legacy systems can be complex.
● Financial Viability and Maintenance: There are concerns about the cost of scaling and
maintaining ULI, with uncertainty over whether these expenses will be transferred to borrowers,
potentially raising borrowing costs.

Way Forward
● Data Security: Strong encryption and secure systems are essential to protect customer data,
with RBI ensuring transparency and preventing misuse.
● Digital Infrastructure: Initiatives like BharatNet are critical to improving rural digital
infrastructure for ULI's success.
● Digital Literacy: Programs like PMGDISHA improve digital literacy, boosting ULI adoption in
underserved areas.

Conclusion: ULI has the potential to revolutionise India's lending sector by tackling critical issues like
data privacy and tech infrastructure. Its effective rollout could result in a more efficient, inclusive, and
transparent credit system across the country.

6. AgriSURE Fund and Krishi Nivesh Portal

About AgriSURE Fund

● AgriSURE Fund announced in Budget 2022-2023 stands for Agri Fund for Startups and Rural
Enterprises Scheme.
● Launched by the Ministry of Agriculture and Farmers’ Welfare of the central government.
● Objectives
○ fuel growth and foster innovation in the agriculture sector and rural startup ecosystem
○ main focus on technology driven, high risk and high impact ventures.
○ Create employment opportunities
○ Encourage youth participation in agriculture
○ Strengthen the agriculture value chain

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 ● Funding Pattern - A Blended capital fund of ₹750 crore with SEBI Registered Category II,
Alternative Investment Fund (AIF), contributions from the Government of India is ₹250 crore,
NABARD is ₹250 crore, and ₹250 crore is being mobilised from banks, insurance companies,
and private investors.
● NABVENTURES, a fully owned subsidiary of NABARD will act as the fund manager.

About Krishi Nivesh Portal

Aspects Description

Ministry Ministry of Agriculture and Farmers’ welfare

About Centralised one-stop platform for agricultural investors to access various

government schemes and benefits

Purpose To simplify agricultural investments and enhance transparency

Objective ● Empower women in agriculture through training and special provisions.

● Provide guidelines for market entry and regulatory framework
● One stop platform for all information related to investors

Conclusion: The AgriSURE fund scheme is a way forward for India to achieve its dream of a Viksit
Bharat. It will drive innovation in agriculture, create employment opportunities, and provide IT-based
solutions and machinery rental services for farmers. The Krishi Nivesh Portal will transform the
agricultural landscape by centralizing investment opportunities and information.

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 7. PM Gati Shakti National Master Plan

About Gati Shakti Master Plan

● Objective: Aimed at integrated planning and coordinated execution of infrastructure projects to
boost India's multimodal connectivity and reduce logistics costs.
● Developed by the Bhaskaracharya National Institute for Space Applications and
Geoinformatics (BISAG-N), it serves as a Digital Master Planning tool.

Key Features
● Digital Integration: Unifies efforts of 16 ministries for coordinated infrastructure planning and
execution.
● Multi-Sector Collaboration: Integrates major initiatives like Bharatmala, Sagarmala, inland
waterways, dry ports, and UDAN for cohesive development.
● Economic Zones: Prioritizes development in areas like textile clusters, pharma hubs, defense
corridors, and agricultural zones.
● Technology-Driven: Uses advanced spatial tools and ISRO satellite imagery by BISAG-N for
data-backed project planning.

Key Achievements
● Whole-of-Government Integration: Unified 44 Central Ministries and 36 States/UTs on a
single platform with 1600+ data layers, supporting the planning and execution of over 200 large
infrastructure projects.
● Social Sector Impact: Extended to Social Sector Ministries to improve infrastructure planning
for healthcare, education, and tribal development in underserved areas.

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 ● State Master Plans (SMPs): All 36 States/UTs developed State Master Plan (SMP) portals
aligned with the National Master Plan, enabling better capital investment and mapping of 533
regional projects.
● EXIM & Trade Facilitation: In line with the National Logistics Policy (NLP), PM GatiShakti
helped improve India’s World Bank Logistics Performance Index rank from 44 (2018) to 38
(2023).
● Regional Workshops & Stakeholder Engagement: Conducted five regional workshops for
knowledge sharing and strengthened local adoption of the GatiShakti framework.
● Sustainable, Data-Driven Development: Utilizes GIS-based, real-time monitoring for
informed, timely decisions, supporting India’s Net Zero by 2070 goal with green infrastructure
and sustainable logistics.
● Training & Capacity Building: Over 20,000 officials trained, with courses on PM GatiShakti
integrated across major Central Training Institutes (CTIs) and district-level training sessions
conducted.

8. Windfall Tax

What is the Windfall Tax?

● A windfall tax is a tax imposed by governments on certain industries that experience unusually
high profits due to favorable economic conditions.
● These taxes are typically aimed at commodity-based industries that benefit most
significantly from the economic upswing.
● The goal of windfall taxes is to redistribute excess profits to fund broader social programs or
initiatives for public benefit.
● Though intended for the greater good, the concept of windfall taxes can be controversial as it
targets specific profit surges.
● Some individual taxes, like inheritance taxes or taxes on lottery or game-show winnings,
can also be considered windfall taxes since they are levied on unexpected gains.

Special Additional Excise Duty (SAED):

● The Special Additional Excise Duty (SAED) is a tax applied to the export of specific products,
such as petrol, diesel, and aviation turbine fuel (ATF).
● It aims to regulate their import and export, boost domestic supply, and mitigate the effects of
rising international prices.

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 9. Universal Basic Income

Universal Basic Income (UBI) is a social welfare program that provides a regular cash payment to
all citizens or residents of a country, regardless of their income, employment status, or other factors.

Characteristics of UBI include:

1. Recurring payment, such as monthly or bi-weekly, rather than a one-time payment.
2. Universal, i.e. not targeted to any specific population.
3. Unconditional, i.e. no work requirements.

Pros of UBI Cons of UBI

1. Poverty Reduction 1. Costly implementation; may not be

2. Offers a safety net, ensuring that financially feasible due to budget
everyone has a basic level of income to constraints.
cover essential living expenses. 2. An influx of cash into the economy might
3. Universal income transfers reduce lead to inflation, potentially diminishing
administrative costs and minimize the purchasing power of the UBI
exclusion errors. payments.
4. Provides individuals with the financial 3. Disincentive to work
stability to pursue education, training, 4. Providing UBI to all, including the
or entrepreneurial ventures. wealthy, may be seen as wasteful.
5. Reduces inequality by providing 5. Administrative challenges as it requires
everyone with the same base income, infrastructure for distribution and
potentially leveling the playing field. managing logistics.
6. Boosts Consumer Spending which can 6. Limited impact on poverty, it may not
stimulate local economies and create be sufficient to lift individuals above the
demand for goods and services. poverty line or cover basic needs.

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 7. Can enhance mental health by reducing 7. Opportunity cost; funds allocated to UBI
financial stress and anxiety associated could be used for other social programs
with economic instability. or services that might yield greater
benefits, such as healthcare or
education.

Way Forward
● Policies should be assessed for their feasibility and desirability, with different policy priorities
influencing these evaluations.
● Exploring modified and less ambitious UBI proposals could be beneficial.
● The argument against providing UBI to wealthier individuals misunderstands tax and benefit
systems; wealthier individuals contribute more in taxes than they receive.
● A limited universal income transfer scheme pegged at 1% of GDP per capita could provide
₹144 per month per citizen.
● A modified UBI scheme could build on existing programs like PM-KISAN, reaching a broader
audience, including landless laborers.
● Successful implementation would require addressing logistical issues, including access to
cash-out points and minimizing payment system failures.

10. Periodic Labour Force Survey 2024

About PLFS
● Started in 2017
● Conducted and released by National Statistical Office (NSO), under Ministry of Statistics and
Programme Implementation (MoSPI)
● Objective:
○ to estimate vital employment and unemployment indicators like the Labour Force
Participation Rate every three months in urban areas.
○ Measure the dynamic of labor force participation and employment status using the
Current Weekly Status (CWS) approach.
○ Measure labor force estimates for both rural and urban areas using Usual Status and
CWS parameters.

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 Findings of the Report
● Unpaid family labor has increased. Workers’ participation in agriculture has risen for the
fourth time.
● The rural LFPR rose to 63.7%, while the urban LFPR increased to 52%. It suggests more
people are seeking work in rural areas, possibly due to reverse migration or limited urban job
opportunities during and after the pandemic.
● Challenges in Creating Decent Jobs: The inability of the economy to generate enough
decent jobs is pushing more people into self-employment, often in the informal sector or
unpaid family roles.

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 Previous Year Questions (2024 - 2021)

2024
1. With reference to the sectors of the Indian economy, consider the following pairs:

Economic activity Sector

1. Storage of agricultural produce Secondary

2. Dairy farm Primary

3. Mineral exploration Tertiary

4. Weaving cloth Secondary

How many of the pairs given above are correctly matched?

A. Only one
B. Only two
C. Only three
D. All four

Correct Answer: B

Explanation:
1. Storage of agricultural produce | Secondary (Incorrect) - Storage is a tertiary activity. It falls
under the service sector, facilitating the smooth flow of goods from producers to consumers.
2. Dairy farm | Primary (Correct) - Dairy farming involves the direct extraction of raw materials
(milk) from natural resources (animals). Hence, it's a primary activity.
3. Mineral exploration | Tertiary (Incorrect) - Mineral exploration is a primary activity. It involves
extracting raw materials from the earth.
4. Weaving cloth | Secondary (Correct) - Weaving cloth transforms raw materials (cotton, silk,
etc.) into a finished product (cloth). This transformation signifies a secondary activity.
Therefore, only two pairs are correctly matched.

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 2. Consider the following statements with respect to the digital rupee:

1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its
monetary policy.
2. It appears as a liability on the RBI's balance sheet.
3. It is insured against inflation by its very design.
4. It is freely convertible against commercial bank money and cash.

Which of the statements given above are correct?

A. 1 and 2 only
B. 1 and 3 only
C. 2 and 4 only
D. 1, 2 and 4

Correct Answer: D

Explanation:
● Statement 1 is correct. The digital rupee, also known as the e-rupee or Central Bank
Digital Currency (CBDC), is indeed a sovereign currency issued by the RBI. It's a digital
representation of India's fiat currency and is part of the RBI's monetary policy toolkit.
● Statement 2 is correct. Like physical currency, the digital rupee is a liability on the RBI's
balance sheet. When you hold digital rupees, it's essentially a claim you have on the RBI,
similar to holding physical banknotes.
● Statement 3 is incorrect. The digital rupee, by itself, doesn't come with inherent inflation
protection. Its value, like physical currency, is subject to inflationary pressures. The RBI
manages inflation through its monetary policy measures, not through the inherent design of
the digital rupee.

● Statement 4 is correct. The digital rupee is designed to be freely convertible. This means
you can easily exchange it with bank deposits (commercial bank money) and cash at a 1:1
ratio without any restrictions.
● Therefore, the correct answer is (D) - 1, 2 and 4.

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 3. Consider the following statements:

1. In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window
of the Reserve Bank of India.
2. In India, Foreign Institutional Investors can hold Government Securities (G-Secs).
3. In India, Stock Exchanges can offer separate trading platforms for debts.

Which of the statements given above is/are correct?

A. 1 and 2 only
B. 3 only
C. 1, 2 and 3
D. 2 and 3 only

Correct Answer: D

Explanation:
● Statement 1 is incorrect: Non-Banking Financial Companies (NBFCs) in India do not have
direct access to the Liquidity Adjustment Facility (LAF) window of the Reserve Bank of India
(RBI). The LAF is a tool used by RBI to manage short-term liquidity in the banking system.
● Statement 2 is correct: Foreign Institutional Investors (FIIs) are permitted to invest in
Government Securities (G-Secs) in India, subject to certain regulations and limits set by the
Securities and Exchange Board of India (SEBI) and RBI.
● Statement 3 is correct: Stock exchanges in India can offer separate trading platforms for
debt securities. For instance, the National Stock Exchange (NSE) and the Bombay Stock
Exchange (BSE) have dedicated platforms for trading in corporate bonds and government
securities.

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 4. Consider the following:

1. Exchange-traded funds (ETF)

2. Motor vehicles
3. Currency swap

Which of the above is/are considered financial instruments?

A. 1 only
B. 2 and 3 only
C. 1, 2 and 3
D. 1 and 3 only

Correct Answer: D

Explanation:
1. Exchange-Traded Funds (ETFs): ETFs are baskets of securities (like stocks) that are traded on
stock exchanges, similar to individual stocks. They represent a financial instrument.

2. Motor vehicles: Motor vehicles are tangible assets, not financial instruments. Financial
instruments represent claims to assets or cash flows.

3. Currency swap: A currency swap is a derivative contract where two parties exchange principal
and interest payments in different currencies. It is a type of financial instrument.

Therefore, only ETFs and currency swaps are considered financial instruments.

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 5. The total fertility rate in an economy is defined as:

A. the number of children born per 1000 people in the population in a year.
B. the number of children born to a couple in their lifetime in a given population.
C. the birth rate minus the death rate.
D. the average number of live births a woman would have by the end of her child-bearing age.

Correct Answer: D

Explanation:
● (A) the number of children born per 1000 people in the population in a year. This describes
the crude birth rate, not the total fertility rate.

● (B) the number of children born to a couple in their lifetime in a given population. This is
close but not quite accurate. The total fertility rate is calculated for women, not couples.

● (C) the birth rate minus death rate. This defines the rate of natural increase, which indicates
population growth, not fertility.

● (D) the average number of live births a woman would have by the end of her child-bearing
age. This is the correct definition of Total Fertility Rate (TFR). It's a hypothetical measure
assuming a woman lives through her childbearing years and experiences the age-specific
fertility rates of a given period.

● In simple terms, TFR tells us the average number of children a woman would have if current
birth trends continued.

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2023
6. Consider the following:

1. Demographic performance
2. Forest and ecology
3. Governance reforms
4. Stable government
5. Tax and fiscal efforts

For horizontal tax devolution, the Fifteenth Finance Commission used how many of the above as
criteria other than population area and income distance?

A. Only two
B. Only three
C. Only four
D. All five

Correct Answer: B

Explanation: Based on principles of need, equity and performance, overall devolution formula is as
follows.
Criteria Weight(%)
1. Population - 15.0
2. Area - 15.0
3. Forest & ecology - 10
4. Income distance - 45
5. Tax & fiscal efforts - 2.5
6. Demographic performance - 12.5

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 7. In the context of finance, the term 'beta' refers to the

A. process of simultaneous buying and selling of an asset from different platforms.

B. an investment strategy of a portfolio manager to balance risk versus reward.
C. a type of systemic risk that arises where perfect hedging is not possible.
D. a numeric value that measures the fluctuations of a stock to changes in the overall stock market

Correct Answer: D

Explanation:
● In the context of finance, the term 'beta' refers to a measure of the volatility of a security or
portfolio concerning the overall market. It essentially compares how much a specific
investment's price fluctuates compared to the benchmark index, typically the S&P 500.
● Beta > 1 The security's price is expected to be more volatile than the market. It will tend to
swing more significantly than the market in both upward and downward movements.
● Beta 1 The security's price is expected to move in line with the market.
Beta < 1 The security's price is expected to be less volatile than the market. Its price
movements will likely be smaller than the market's overall swings.

8. Which one of the following activities of the Reserve Bank of India is considered to be part of
'sterilisation'?

A. Conducting 'Open Market Operations'

B. Oversight of settlement and payment systems
C. Debt and cash management for the Central and State Governments
D. Regulating the functions of Non banking Financial Institutions

Correct Answer: A

Explanation:
● Sterilisation refers to the actions taken by a central bank to offset the impact of its foreign
exchange operations on the domestic money supply.
● When a central bank intervenes in the foreign exchange market by buying or selling foreign

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 currencies, it affects the domestic money supply. Open Market Operations (OMO) is one of
the primary tools used by central banks, including the Reserve Bank of India (RBI), to
conduct monetary policy.
● In OMO, the central bank buys or sells government securities (bonds) in the open market to
influence the liquidity in the economy. When the RBI conducts OMO, it impacts the money
supply in the economy. If the RBI buys government securities, it injects money into the
system, increasing the money supply. To prevent this injection of money from creating
inflationary pressures, the RBI engages in sterilisation.
● Sterilisation involves the simultaneous sale or purchase of other securities, typically treasury
bills, to offset the impact of the initial open market operation.

9. Consider the following markets:

1. Government Bond Market

2. Call Money Market
3. Treasury Bill Market
4. Stock Market

How many of the above are included in capital markets?

A. Only one
B. Only two
C. Only three
D. All four

Correct Answer: B

Explanation: Capital markets are financial markets where long-term securities, such as stocks and
bonds, are traded. They provide a platform for raising capital for businesses and governments.
On the other hand, Money markets are financial markets where short-term securities such as T-Bill,
C-Paper, Cash Management Bills, Ways and Means advances, etc are traded.
● Statement 1 is correct- Government bonds are long-term debt securities issued by
governments to finance their activities. The government bond market is a part of the capital
market as it involves the trading of long-term debt securities.

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 ● Statement 2 is incorrect- The call money market is a short-term market where funds are
borrowed and lent for very short durations, usually overnight. It deals with short-term funds,
and its transactions are not classified as part of the capital market.
● Statement 3 is incorrect- Treasury bills are short-term debt instruments issued by
governments to finance their short-term cash flow requirements. The treasury bill market,
similar to the call money market, deals with short-term instruments and is not considered
part of the capital market.
● Statement 4 is correct- The stock market, also known as the equity market or share
market, is where shares or stocks of publicly listed companies are bought and sold. The
stock market is a part of the capital market as it involves the trading of ownership interests
(equity securities) in companies.

10. Consider the following statements :

Statement-I : India accounts for 3.2% of global export of goods.

Statement-II :Many local companies and some foreign companies operating in India have taken
advantage of India's 'Production-linked Incentive' scheme.
Which one of the following is correct in respect of the above statements?

A. Both Statement-I and Statement-II are correct and Statement II is the correct explanation for
Statement-I
B. Both Statement-I and Statement-II are correct and Statement II is not the correct explanation for
Statement-I
C. Statement-I is correct but Statement II is incorrect
D. Statement-I is incorrect but Statement-II is correct

Correct Answer: D

Explanation:
● Statement I is incorrect. India's share in global merchandise trade is only 1.8% and 4% in
global services. India plans to increase its export share in global trade from 2.1% to 3% by
2027 and 10% by 2047.
● Statement II is correct The PLI scheme is open to both domestic and international
manufacturers. Samsung as well as Indian firms such as Dixon Technologies, UTL,

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 Neolyncs, Lava International, Optiemus Electronics and Micromax are also expanding their
factories to take advantage of the PLI scheme.

2022
11. With reference to Convertible Bonds consider the following statements:

1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of
interest.
2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer
prices.

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

Correct Answer: C

Explanation:
● A convertible bond is a type of debt security that provides an investor with a right or an
obligation to exchange the bond for a predetermined number of shares in the issuing
company at certain times of a bond's lifetime. It is a hybrid security that possesses features
of both debt and equity.
● Statement 1 is correct Convertible bonds tend to offer a lower coupon rate or rate of return
in exchange for the value of the option to convert the bond into a common stock. Investors
will generally accept a lower coupon rate on a convertible bond, compared with the coupon
rate on an otherwise identical regular bond, because of its conversion feature. This enables
the issuer to save on interest expenses, which can be substantial in the case of a large bond
issue.
● Statement 2 is correct The option to convert to equity affords the bondholder a degree of
indexation to rising consumer prices as equity prices can differ widely from the given
interest and the difference in that can be used as a hedge for inflation.

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 12. With reference to foreign-owned e-commerce firms operating in India, which of the following
statements is/are correct ?

1. They can sell their own goods in addition to offering their platforms as market-places.
2. The degree to which they can own big sellers on their platforms is limited.

Which of the above statements are correct?

A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

Correct Answer: B

Explanation:
● Inventory-based model restricted Foreign e-commerce companies cannot directly sell their
own goods through an inventory-based model in India. This is to ensure a level playing field
for domestic sellers and protect small retailers.
● Marketplace model allows These companies to operate as online marketplaces, providing a
platform for other sellers to list and sell their products.
● Foreign ownership of big sellers on these platforms is also restricted. While there are no
direct limitations on the size of sellers, the Foreign Direct Investment (FDI) rules in India
restrict foreign multi-brand retailers (those selling a variety of brands) from owning inventory
or controlling the sale of products on their platforms. This indirectly limits their influence on
big sellers.

Therefore, the correct answer is 2 only.

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 13. Rapid Financing Instrument and "Rapid Credit Facility" are related to the provisions of lending
by which one of the following?

A. Asian Development Bank

B. International Monetary Fund
C. United Nations Environment Programme Finance Initiative
D. World Bank

Correct Answer: B

Explanation:
● Both Rapid Financing Instrument (RFI) and Rapid Credit Facility (RCF) are lending facilities
offered by the International Monetary Fund (IMF) to member countries facing urgent balance
of payments needs.
● Rapid Financing Instrument (RFI) This is available to all IMF member countries.
● Rapid Credit Facility (RCF) This is a concessional lending facility specifically for low-income
countries (LICs) that are members of the Poverty Reduction and Growth Trust (PRGT).

14. Which of the following activities constitute the real sector in the economy?

1. Farmers harvesting their crops.

2. Textile mills converting raw cotton into fabrics
3. A commercial bank lending money to a trading company
4. A corporate body issuing Rupee Denominated Bonds overseas

Select the correct answer using the code given below:

A. 1 and 2 only
B. 2, 3 and 4 only
C. 1, 3 and 4 only
D. 1, 2, 3 and 4

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 Correct Answer: A

Explanation:
The real sector of the economy includes:
● Farmers harvesting their crops This is a primary sector activity where raw materials are
produced. Agriculture forms a crucial part of the real sector.
● Textile mills converting raw cotton into fabrics This is a secondary sector activity where raw
materials are processed into finished goods. Manufacturing industries are considered part
of the real sector.
The other two options are part of the financial sector:
● Commercial bank lending money (Financial sector) Banks and other financial institutions
provide financial services like lending, borrowing, and investing. These activities facilitate
transactions in the real sector but don't directly produce goods or services themselves.
● Issuing rupee-denominated bonds overseas (Financial sector) This is a financial instrument
where a company raises funds by issuing bonds. While it can indirectly support real sector
activities by providing capital, it's not directly involved in production.

Therefore, the correct code is 1 and 2 only.

15. With reference to the Indian economy, consider the following statements :

1. A share of the household financial savings goes towards government borrowings.

2. Dated securities issued at market-related rates in auctions form a large component of internal debt;

Which of the above statements is/are correct ?

A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

Correct Answer: C

Explanation:

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 ● Household savings and government borrowings A portion of household financial savings in
India does indeed go towards government borrowings.
● Government Debt Instruments The government raises funds through various debt
instruments like bonds and treasury bills. These instruments offer a return on investment to
individuals who purchase them.
● Savings and Investments When households save money, they might invest it in these
government debt instruments through banks or other financial institutions. This provides a
source of funding for the government while offering a return to the investors (savers).
● Dated securities and internal debt Dated securities are a major component of India's internal
debt. These are essentially government bonds issued at market-determined interest rates
through auctions. Investors, including households, banks, and financial institutions, can
participate in these auctions and purchase dated securities.

Hence, both statements are correct.

16. With reference to the Indian economy, consider the following statements:

1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade
competitiveness.
3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an
increasing divergence between NEER and REER.

Which of the above statements are correct?

A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. 1, 2 and 3

Correct Answer: C

Explanation:
● The nominal Effective Exchange Rate (NEER) is a measure of the value of a country's

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 currency against a basket of other currencies weighted by their importance in trade. If NEER
increases, it means that the value of the currency has increased relative to the currencies in
the basket, indicating appreciation.
Hence, statement 1 is correct.
● The Real Effective Exchange Rate (REER) takes into account both nominal exchange rates
and relative price levels (inflation) between countries. An increase in REER means that the
country's currency is overvalued relative to its trading partners, which can reduce trade
competitiveness.
Hence, statement 2 is incorrect.
● If domestic inflation is higher than inflation in other countries, the real value of the domestic
currency decreases faster than the nominal value, causing a divergence between NEER and
REER. Hence, statement 3 is correct.

Therefore, the correct statements are 1 and 3.

17. With reference to the Indian economy, what are the advantages of "Inflation-Indexed Bonds
(IIBs)"?

1. Government can reduce the coupon rates on its borrowing by way of IIBs.
2. IIBs provide protection to the investors from uncertainty regarding inflation.
3. The interest received as well as capital gains on IIBs are not taxable.

Which of the statements given above are correct ?

A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. 1, 2 and 3

Correct Answer: A

Explanation:
● Inflation-indexed bonds (IIBs) typically offer a fixed real rate of return above inflation.
Therefore, the coupon rates on IIBs are adjusted based on changes in inflation to maintain

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 the real rate of return.
Hence, statement 1 is correct.
● Inflation-indexed bonds (IIBs) provide investors with protection against inflation because
their principal and interest payments are adjusted based on changes in the inflation rate.
This helps investors preserve their purchasing power.
Hence, statement 2 is correct.
● Tax exemption Currently, the interest income on IIBs is taxable in India. Capital gains tax
treatment on IIBs might depend on the specific holding period and type of investor.
Hence, statement 3 is incorrect.

2021
18. Consider the following statements:

1. The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2. Certain provisions in the Constitution of India give the Central Government the right to issue
directions to the RBI in public interest.
3. The Governor of the RBI draws his power from the RBI Act.

Which of the above statements are correct?

A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
D. 1, 2 and 3

Correct Answer: C

Explanation:
● Statement 1 is correct: The Governor of the Reserve Bank of India is appointed by the
Central Government.
● Statement 2 is incorrect: The central Government can give directions to RBI as per section
7 of the RBI Act 1934 and not as per constitutional Provisions.
● Statement 3 is correct: The Governor of the RBI draws his power from the RBI Act.

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 19. Which among the following steps is most likely to be taken at the time of an economic
recession?

A. Cut in tax rates accompanied by increase in interest rate.

B. Increase in expenditure on public projects.
C. Increase in tax rates accompanied by reduction of interest rate.
D. Reduction of expenditure on public projects.

Correct Answer: B

Explanation: During an economic recession, the goal is to stimulate economic activity and
consumer spending.

A. Cut in Tax Rates & Increase in Interest Rates: Cutting taxes puts more money in people's
pockets, potentially increasing spending. However, raising interest rates discourages borrowing and
investment, potentially hindering economic growth. This combination could have offsetting effects.
B. Increase in Expenditure on Public Projects: This injects money into the economy through
government spending, creating jobs and boosting demand for goods and services. This is a typical
measure during recessions.
C. Increase in Tax Rates & Reduction of Interest Rates: Increasing taxes reduces disposable
income, dampening consumer spending. Lowering interest rates encourages borrowing and
investment, but it might not be effective if there's low confidence in the economy.
D. Reduction of Expenditure on Public Projects: This reduces government spending, taking
money out of circulation and potentially worsening the recession.

Therefore, the most likely step during an economic recession is (B) Increase in expenditure on
public projects

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 20. The money multiplier in an economy increases with which one of the following?

A. Increase in the Cash Reserve Ratio in the banks.

B. Increase in the Statutory Liquidity Ratio in the banks.
C. Increase in the banking habits of the people.
D. Increase in the population of the country.

Correct Answer: C

Explanation:
● An increase in the Banking habits of the people can lead to an increase in money multiplier
in an economy. When a customer deposits into a short-term deposit account, the banking
institution can lend one minus the reserve requirement to someone else. While the original
depositor maintains ownership of their initial deposit, the funds created through lending are
generated based on those funds. If a second borrower subsequently deposits funds
received from the lending institution, this raises the value of the money supply even though
no additional physical currency exists to support the new amount.
● An increase in the Cash Reserve Ratio in the banks, an increase in the Statutory Liquidity
Ratio in the banks and an increase in the population of the country will not increase the
money multiplier.

21. Which one of the following is likely to be the most inflationary in its effects?

A. Repayment of Public debt.

B. Borrowing from the public to finance a budget deficit.
C. Borrowing from the banks to finance a budget deficit.
D. Creation of new money to finance a budget deficit.

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 Correct Answer: D

Explanation:
Out of the given options, the most inflationary effect is likely caused by
● D) Creation of new money to finance a budget deficit
● Repayment of public debt (A) This actually removes money from circulation, potentially
leading to deflationary pressure.
● Borrowing from the public (B) or banks (C) While these options involve increasing
government debt, they don't directly increase the money supply. The government
essentially takes money that already exists in the economy.
● Creation of new money (D) This is the most inflationary option. This can lead to an increase
in the money supply, which can put upward pressure on prices (inflation) if not
accompanied by a corresponding increase in goods and services.
In essence, printing new money directly expands the money supply, potentially outpacing
economic growth and leading to inflation.

22. Consider the following statements:

The effect of devaluation of a currency is that it necessarily:-

1. improves the competitiveness of domestic exports in the foreign markets.
2. increases the foreign value of domestic currency.
3. improves the trade balance.

Which of the above statements is/are correct?

A. 1 Only
B. 1 and 2
C. 3 Only
D. 2 and 3

Correct Answer: A

Explanation:
● When a country devalues its currency, it becomes cheaper for foreign buyers to purchase

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 the country's exports. This can lead to increased demand for exports, making domestic
producers more competitive in the international market.
Hence, statement 1 is correct.
● Devaluation actually decreases the foreign value of the domestic currency. The whole point
is to make the domestic currency less expensive relative to foreign currencies.
Hence, statement 2 is incorrect.
● While improved export competitiveness can lead to a better trade balance (more exports,
fewer imports), it's not a guaranteed outcome. Other factors like import prices, global
demand, and domestic production costs can also influence the trade balance. Devaluation
can also lead to increased import costs if the country relies on imported raw materials.
Hence, statement 3 is also incorrect.
Therefore, the correct code is 1 only.

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