1. Consider the following statements in the context of the Financial Stability and Development Council (FSDC):
(1) The FSDC is a statutory body.
(2) The FSDC is an apex-level body constituted by the Government of India to strengthen and institutionalize the mechanism of financial stability in India.
(3) The Council is headed by the chairperson of the Insolvency and Bankruptcy Board of India (IBBI).
Which of the statements given above is/are not correct?
(a) 2 only
(b) 1 and 2 only
(c) 3 only
(d) 1 and 3 only
Answer: (d) Explanation: Statement 1 is incorrect. Financial Stability and Development Council (FSDC) is not a statutory body. It was first mooted by the Raghuram Rajan Committee in 2008. Statement 2 is correct. FSDC is an apex-level body constituted by the government of India to strengthen and institutionalise the mechanism of maintaining financial stability, financial sector development, inter-regulatory coordination along with monitoring macro-prudential regulation of economy. Statement 3 is incorrect. The Council is headed by the Finance Minister. Other members of the FSDC are ➢ The Minister of State responsible for the Department of Economic Affairs (DEA) ➢ The Secretary of Department of Electronics and Information Technology ➢ The Chairperson of the Insolvency and Bankruptcy Board of India (IBBI) and ➢ The Revenue Secretary.
2. ‘The Chicago Convention’ is seen in the news sometimes. It is related to which of the following?
(a) Convention on the Prohibition of Military.
(b) Convention on International Civil Aviation.
(c) International Conference on Banking, Finance and Business.
(d) None of the above.
Answer: (b) Explanation: The Chicago Convention (also known as the Convention on International Civil Aviation), established the International Civil Aviation Organisation (ICAO), a specialized agency of the United Nations, which coordinates and regulates international air travel. The Convention establishes rules of airspace, aircraft registration and safety and details the rights of the signatories in relation to air travel. It also exempts air fuels from tax. The Convention was signed by 52 States in December 1944. The Convention provided for the sovereignty of airspace above the territory of each state and governs the freedom of states to operate air transport flights (including the carriage of passengers, cargo and mail) across, into and within the airspace of other states. Hence option (b) is the correct answer.
3. The New Telecom Policy, 2018 talks about giving a push to 5G & Internet of Things (IoT) and providing thrust to telecom penetration by using Universal Service Obligation Fund (USOF). In this context, which of the following statements about USOF is/are not correct?
(a) It is directed towards inclusive development strategy.
(b) It is created under the Ministry of Finance.
(c) Allocation of funds to USOF requires Parliamentary approval.
(d) It has a statutory support under the Indian Telegraph (Amendment) Act 2003.
Answer: (b) Explanation: The New Telecom Policy - 1999 (NTP '99) provided that the resources for meeting the Universal Service Obligation (USO) would be raised through a 'Universal Access Levy (UAL)', which would be a percentage of the revenue earned by the operators under various licenses. The Indian Telegraph (Amendment) Act, 2003 gives statutory status to the Universal Service Obligation Fund (USOF). It is setup under Department of Telecommunications, Ministry of Communications and Information Technology, Government of India. The collections of USL are credited to the Consolidated fund of India and allocation of funds to USOF is through Parliamentary approval. The balances to the credit of the Fund does not lapse at the end of the financial year. Hence, Option (b) is the correct answer. Additional Information The Bharat Net Project is the new name of National Optical Fibre Network (NOFN) which was launched in October, 2011 to provide broadband connectivity to all 2.5 Lakh gram panchayats (GPs) through optical fibre. Bharat Net is being funded through Universal Service Obligation Fund (USOF).
4. The Securities and Exchange Board of India (SEBI) has recently proposed to allow Universal Exchanges to operate in India. In this regard, what could be the possible benefits of such Universal Exchanges?
(1) Promote competition and lower transaction costs.
(2) Traders can access products through a single trading account.
(3) BSE, NSE and MCX need not change their operations system.
(4) Indian bourses can compete on a global level.
Select the correct answer using the code given below:
(a) 1 only
(b) 1, 2 and 4 only
(c) 2, 3 and 4 only
(d) 1, 2, 3 and 4
Answer: (b) Explanation: Usually security exchanges and commodity trading are regulated by separate entities. By creating universal exchange, SEBI has allowed the same exchange to offer products in the equity, commodity derivatives, and debt and currency segments. This comes after merging of Forward Markets Commission with SEBI. It will promote competition in the market for these products and greater volume can result in streamlining of such transactions, translating into lower transaction cost. If an exchange like BSE starts dealing in wide spectrum of products, traders and stock brokers need to hold just a single account with such exchange to deal in both equity and commodities, which was done through 2 separate accounts earlier, one with BSE and one with MCX (just an example).
Existing exchanges need to make changes in their operating environment to deal with the new sphere of operations, e.g. - BSE to make adjustment with respect to futures and options. Due to increased size of operation and market capitalization, Indian bourse can compete with global exchange like NIKKEI and SGX. Hence, Option (b) is the correct answer.
5. The United States Treasury Department had recently put India again on the currency manipulator watch-list. What could be the possible reasons of such an action?
(1) India has a trade deficit with USA.
(2) India is having a low current account surplus as a percentage of its GDP.
(3) Net annual purchases of forex by the RBI in 2017 exceeded 2 percent of GDP.
(4) Frequent interventions by the RBI to arrest ‘Rupee’ appreciation.
Select the correct answer using the code given below:
(a) 1 only
(b) 3 and 4 only
(c) 3 only
(d) None of the above
Answer: (c) Explanation: The US Department of the Treasury publishes a semi-annual report in which the developments in global economic and exchange rate policies are reviewed. If a US trade partner meets three assessment criteria, the US labels it a currency manipulator. The US Treasury has established thresholds for the three criteria. ➢ a significant bilateral trade surplus (at least $20 billion) with the US; ➢ a material current account surplus is one that is at least 3% of GDP; and ➢ persistent, one-sided intervention reflected in repeated net purchases of foreign currency and total at least 2% of an economy’s GDP over a year. The report has said that India’s goods trade surplus with the United States was $23 billion in 2017, the highest level on record, which breached the first criterion. However, the US Treasury in its 2018 report said that India’s current account deficit widened modestly in 2017 to 1.5% of the GDP, which is in stark contradiction with the second criterion that makes a case for current account surplus instead. Last year the US administration surprised economists when it put India, a country running current account deficit, on the currency watchlist along with China and Germany which run huge current account surpluses. That was due to the Reserve Bank of India’s USD purchases to prevent a strong appreciation of the currency. This year the tide has turned. The Rupee is down about 14 percent this year making it the worst performing currency. Hence, Option (c) is the correct answer.