External Sector & Foreign Trade PYQs — 31 UPSC CSE Previous Year Questions

Question 1

Which of the following is/are the most significant implication(s) of obtaining Oeko-Tex certification for Eri Silk in the global textile industry? It allows Indian exporters to compete in high-end markets that prioritise chemical-free products. It confirms that Eri Silk meets international safety, environmental, and quality standards, enabling its entry into premium eco-conscious markets. Select the answer using the code given below :

Accepted Answer

C. Both 1 and 2

Question 2

Consider the following statements : Vietnam has been one of the fastest growing economies in the world in the recent years. Vietnam is led by a multi-party political system. Vietnam's economic growth is linked to its integration with global supply chains and focus on exports. For a long time Vietnam's low labour costs and stable exchange rates have attracted global manufacturers. Vietnam has the most productive e-service sector in the Indo-Pacific region. Which of the statements given above are correct ?

Accepted Answer

C. 1, 3 and 4

Question 3

With reference to the Indian economy, consider the following statements : An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness. 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 ?

Accepted Answer

C. 1 and 3 only

Question 4

Consider the following statements: Tight monetary policy of US Federal Reserve could lead to capital flight. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs). Devaluation of domestic currency decreases the currency risk associated with ECBs. Which of the statements given above are correct?

Accepted Answer

A. 1 and 2 only

Question 5

Consider the following: Foreign currency convertible bonds Foreign institutional investment with certain conditions Global depository receipts Non-resident external deposits Which of the above can be included in Foreign Direct Investments?

Accepted Answer

A. 1, 2 and 3

Question 6

Consider the following statements: The effect of devaluation of a currency is that it necessarily improves the competitiveness of the domestic exports in the foreign markets increases the foreign value of domestic currency improves the trade balance Which of the above statements is/are correct?

Accepted Answer

A. 1 only

Question 7

With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

Accepted Answer

B. It is largely non-debt creating capital flow.

Question 8

In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis? The foreign currency earnings of India's IT sector Increasing the government expenditure Remittances from Indians abroad Select the correct answer using the code given below.

Accepted Answer

B. 1 and 3 only

Question 9

What is the importance of developing Chabahar Port by India ?

Accepted Answer

C. India will not depend on Pakistan for access to Afghanistan and Central Asia.

Question 10

Convertibility of rupee implies

Accepted Answer

C. freely permitting the conversion of rupee to other currencies and vice versa

Question 11

With reference to Balance of Payments, which of the following constitutes/constitute the Current Account? Balance of trade Foreign assets Balance of invisibles Special Drawing Rights Select the correct answer using the code given below.

Accepted Answer

C. 1 and 3

Question 12

Which of the following constitute Capital Account? Foreign Loans Foreign Direct Investment Private Remittances Portfolio Investment Select the correct answer using the codes given below.

Accepted Answer

B. 1, 2 and 4

Question 13

Which one of the following groups of items is included in India's foreign-exchange reserves?

Accepted Answer

B. Foreign-currency assets, gold holdings of the RBI and SDRs

Question 14

The balance of payments of a country is a systematic record of

Accepted Answer

A. all import and export transactions of a country during a given period of time, normally a year

Question 15

Which of the following would include Foreign Direct Investment in India? Subsidiaries of foreign companies in India Majority foreign equity holding in Indian companies Companies exclusively financed by foreign companies Portfolio investment Select the correct answer using the codes given below:

Accepted Answer

D. 1, 2 and 3 only

Question 16

Consider the following statements:

The price of any currency in the international market is decided by the:

World Bank
Demand for goods/services provided by the country concerned
Stability of the government of the concerned country
Economic potential of the country in question

UPSC CSE I - 1998

Accepted Answer

B. 2 and 3 only

Question 17

Both Foreign Direct Investment (FDI) and Foreign Institutional Investor (FII) are related to investment in a country. Which one of the following statements best represents an important difference between the two ?

Accepted Answer

B. FII helps in increasing capital availability in general, while FDI only targets specific sectors

Question 18

In terms of economy, the visit by foreign nationals to witness the XIX Common Wealth Games in India amounted to

Accepted Answer

A. Export

Question 19

Consider the following actions which the Government can take : Devaluing the domestic currency. Reduction in the export subsidy. Adopting suitable policies which attract greater FDI and more funds from FIIs. Which of the above action/actions can help in reducing the current account deficit ?

Accepted Answer

D. 1 and 3

Question 20

The SEZ Act, 2005 which came into effect in February 2006 has certain objectives. In this context, consider the following:

Development of infrastructure facilities.
Promotion of investment from foreign sources.
Promotion of exports of services only.

Which of the above are the objectives of this Act?

Accepted Answer

A. 1 & 2 only

Question 21

A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies like UK and France. Why?

Accepted Answer

B. India has double taxation avoidance agreement with Mauritius

Question 22

Assertion (A): Balance of Payments (BoP) represents a better picture of a country's economic transactions with the rest of the world than the Balance of Trade (BoT). Reason (R): BoP takes into account the exchange of both visible and invisible items whereas BoT does not.

Accepted Answer

A. Both A & R are individually true and R is the correct explanation of A

Question 23

Consider the following statements. Full convertibility of the rupee may mean:

Its free float with international currencies
Its direct exchange with any other international currency at any prescribed place inside and outside the country
It acts just like any other international currency

Which of these statements are correct?

Accepted Answer

D. 1, 2 & 3

Question 24

Global capital flows to developing countries increased significantly during the nineties. In view of the East Asian financial crisis and Latin American experience, which type of inflow is good for the host country?

Accepted Answer

B. Foreign Direct Investment

Question 25

Assertion (A): Ceiling on foreign exchange for a host of current account transaction heads was lowered in the year 2000. Reason (R): There was a fall in foreign currency assets also.

Accepted Answer

C. A is true but R is false

Question 26

Consider the following statements: The Indian rupee is fully convertible

in respect of Current Account of Balance of Payment.
in respect of Capital Account of Balance of Payment.
into gold.

Which of these statements is/are correct?

Accepted Answer

A. I alone

Question 27

Assertion (A): Devaluation of a currency may promote export. Reason (R): Price of the country's products in the international market may fall due to devaluation.

Accepted Answer

A. Both A & R are true and R is the correct explanation of A

Question 28

Consider the following statements:

The price of any currency in the international market is decided by the:

World Bank
Demand for goods/services provided by the country concerned
Stability of the government of the concerned country
Economic potential of the country in question

Accepted Answer

B. 2 & 3 are correct

Question 29

The Capital Account Convertibility of the Indian Rupee implies:

Accepted Answer

C. That the Indian Rupee can be exchanged for any major currency for the purpose of trading financial assets

Question 30

Hawala transactions relate to payments:

Accepted Answer

A. received in rupees against overseas currencies and vice versa without going through the official channels

Question 31

One of the important goals of the economic liberalisation policy is to achieve full convertibility of the Indian rupee. This is being advocated because:

Accepted Answer

B. It will attract more foreign capital inflow in India