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Prelims-IAS – ECONOMICS MCQ-31

1.. Widening Current Account Deficit (CAD) is a persistent problem for Indian economy. With reference to this, which of the following statements is/are correct?

  1. Current Account tracks the movement of funds for investments and loans into and out of a country.
  2. CAD may results into devaluation of currency.
  3. CAD is the difference between the country’s export earnings plus inward remittances minus imports and outward remittances.

Select the correct answer using the code given below.
(a) 1 and 3 only
(b) 2 only

(c) 2 and 3 only

(d) 1 and 2 only


2.. Consider the following statements:

  1. FDI is also known as “Hot Money” and “Fly by night” money.
  2. Tapering of Quantitative easing by the US Federal Reserves will lead to huge inflow of foreign exchange in emerging markets such as India.
  3. The government should protect strategic sectors from FDI.

Which of the above is/are correct?

(a) 1 and 2 only
(b) 3 only
(c) All of the above

(d) None of the above


3.. Consider the following statements:

  1. Depreciation refers to the fall in the value of rupee due to withdrawal of foreign capital from the economy.
  2. Devaluation is a deliberate effort by the Central Bank to bring down the value of rupee to boost earnings from exports.

Which of the above statement/statements is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 and 2


4.. Which of the following statements is/are true about Real effective exchange rate (REER)

  1. It is used to determine an individual country’s currency value relative to the other major currencies in the index, as adjusted for the effects of inflation.
  2. In India REER is calculated based on the WPI
  3. REER is considered to be a better indicator of international competitiveness than NEER.

(a)  1 and 2

(b) 2 and 3

( c) 1 and 3

(d) all of these.


5.. Under a floating exchange rate regime, an increase in the supply of foreign exchange results in:

(a)  a depreciation of the domestic currency.

(b)  an appreciation of the domestic currency.

(c)  either an appreciation or a depreciation of the domestic currency.

(d)  no change in the exchange rate.


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