Question 1

Both foreign direct investment (FDI) and foreign institutional investment (FII) are related to investment in a country. Which of the following is incorrect regarding FDI and FII?

Accepted Answer

FII typically involves investment in financial assets like stocks and bonds, not specifically in technology-oriented enterprises, whereas FDI involves direct investment in physical assets or businesses, which can include both traditional and technology-oriented setups.

Question 2

Which of the following statements is/are correct regarding FDI under automatic route?
1) FDI in India under the automatic route does not require prior approval either by the Government of India or the Reserve Bank of India.
2) Investors are only required to notify the concerned regional office of the RBI before receipt of inward remittances and file required documents with that office before the issue of shares to foreign investors. Select the correct answer using the codes given below.

Accepted Answer

Both statements are correct regarding FDI under the automatic route. Statement 1 accurately describes that under the automatic route, FDI does not require prior approval from the Government of India or the Reserve Bank of India. Statement 2 correctly outlines the procedural requirements for investors, including notification to the RBI's regional office and filing of necessary documents before issuing shares to foreign investors.

Question 3

Which of the following are the components of foreign capital?
1) Grants and loans
2) External commercial borrowings
3) Foreign direct investment
4) Deposits from non-residents
Select the correct answer using the codes given below.

Accepted Answer

Foreign capital encompasses various forms of financial inflows into a country from foreign sources, including grants and loans (often from international organizations or foreign governments), external commercial borrowings (loans from foreign lenders), foreign direct investment (investments made by a company or individual in one country in business interests in another country), and deposits from non-residents (savings or investments made by non-residents in a country's banks). These components collectively contribute to the financial resources available to a country from abroad.

Question 4

The value of Special Drawing Right (SDR) is determined by the basket of ......currencies.

Accepted Answer

The value of Special Drawing Right (SDR) is determined by a basket of 5 currencies, which includes the US dollar, Euro, Chinese renminbi, Japanese yen, and British pound sterling.

Question 5

Which of the following is not the objective of the IMF?

Accepted Answer

The International Monetary Fund (IMF) does not provide loans to private sectors. Its primary objectives include promoting international monetary cooperation, ensuring balanced international trade, and ensuring exchange rate stability among member countries. Providing loans to private sectors falls outside its mandate.

Question 6

If the Balance of Payment of a country is adverse, then which institution will help that country?

Accepted Answer

The International Monetary Fund (IMF) is designed to assist countries facing balance of payments problems. It provides financial support and policy advice to help stabilize economies.

Question 7

Which of the following is known as the Paper Gold?

Accepted Answer

Special Drawing Right (SDR) is known as "Paper Gold" because it is an international type of monetary reserve currency created by the International Monetary Fund (IMF) that operates as a supplement to the existing reserves of member countries.

Question 8

Why the World Bank was established?

Accepted Answer

The World Bank was established to help reconstruct the economies of countries that were damaged during the Second World War.

Question 9

Which of the following statement is correct?

Accepted Answer

Every member country of the International Monetary Fund (IMF) automatically becomes a member of the World Bank as part of the conditions for membership. This linkage is due to the collaborative nature of these two institutions in promoting international financial stability and development.

Question 10

The main focus of IBRD and IDA is on ___________:

Accepted Answer

The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA) are both part of the World Bank Group, and their main focus is on providing financial and technical assistance to developing countries to help reduce poverty and support development.

Question 11

The president is selected by the board of executive directors for a ____year, renewable term:

Accepted Answer

The president is typically selected for a 5-year renewable term.

Question 12

Which of the following does not form part of current account under balance of payments?

Accepted Answer

Capital receipts and payments are part of the capital account in the balance of payments, not the current account. The current account includes exports and imports of goods and services, and income receipts and payments.

Question 13

Which of the following pairs is not correctly matched with regard to balance of payment accounts?

Accepted Answer

Portfolio investment payments are recorded in the financial account (not the current account) of the balance of payments as they involve the transfer of capital.

Question 14

A country is said to be in debt trap if

Accepted Answer

A debt trap occurs when a country needs to take on new debt to repay existing interest on its loans, indicating a cycle of borrowing that becomes difficult to escape.

Question 15

Balance in capital account refer to the

Accepted Answer

The balance in a capital account reflects a nation's net exports of financial claims, which includes investments in foreign stocks, bonds, and other financial assets. It does not directly relate to goods, services, or official reserve assets.

Question 16

Which of the following statement is not true about the WTO?

Accepted Answer

The World Trade Organization (WTO) was officially constituted on 1 January 1995, not 1991, as a result of the Uruguay Round negotiations which took place from 1986 to 1994.

Question 17

Which of the following is not the objective of the WTO?

Accepted Answer

The World Trade Organization (WTO) primarily focuses on regulating international trade to ensure smooth, predictable, and free trade among nations. Its objectives include improving living standards, enlarging production and trade, and protecting the environment. Improving the Balance of Payment situation of member countries is not a direct objective of the WTO; rather, it is a potential outcome of engaging in more efficient and fair trade practices.

Question 18

Which of the following body is not related to the WTO?

Accepted Answer

The Exchange Rate Management Body is not related to the World Trade Organization (WTO). The WTO deals with the global rules of trade between nations, focusing on trade agreements, dispute settlement, and monitoring national trade policies, but it does not directly manage exchange rates, which fall under the purview of financial institutions like the International Monetary Fund (IMF).

Question 19

Which of the followings are called Brettonwoods Twins?

Accepted Answer

The Bretton Woods Twins refer to the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which is the main component of the World Bank Group. These institutions were both created at the Bretton Woods Conference in 1944 to help rebuild the international economy post-World War II.

Question 20

Which of the following institution is associated with Dunkel Proposals?

Accepted Answer

The Dunkel Proposals are associated with the World Trade Organization (WTO), specifically relating to the Uruguay Round of trade negotiations that led to the establishment of the WTO.

Quiz 3: International Trade, Investment, and Financial Institutions