Insights Static Quiz -139, 2018
Economics
INSIGHTS IAS QUIZ ON STATIC SYLLABUS - 2018
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Question 1 of 5
1. Question
Which of the following are true
- Foreign currency borrowings is a preferable option when the currency is depreciating
- After 2008 financial crisis, Indian currency has depreciated
Select the right code
Correct
Answer – b
- During domestic currency appreciation, there will be a surge in capital flows and the debt service liability falls in domestic currency terms. A sharp depreciation in local currency would mean corresponding increase in debt service liability, as more domestic currency would be required to buy the same amount of foreign exchange for debt service payments. This would lead to erosion in profit margin and have ‘mark-to-market’ implications for the corporate. There would also be ‘debt overhang’ problem, as the volume of debt would rise in local currency terms.
- The opposite would happen when the domestic currency is depreciating due to reversal of capital flows during crisis situations, as happened during the 2008 global crisis. One of the factors contributing to faster recovery of the Indian economy after the 2008 global crisis was the low level of corporate external debt.
Incorrect
Answer – b
- During domestic currency appreciation, there will be a surge in capital flows and the debt service liability falls in domestic currency terms. A sharp depreciation in local currency would mean corresponding increase in debt service liability, as more domestic currency would be required to buy the same amount of foreign exchange for debt service payments. This would lead to erosion in profit margin and have ‘mark-to-market’ implications for the corporate. There would also be ‘debt overhang’ problem, as the volume of debt would rise in local currency terms.
- The opposite would happen when the domestic currency is depreciating due to reversal of capital flows during crisis situations, as happened during the 2008 global crisis. One of the factors contributing to faster recovery of the Indian economy after the 2008 global crisis was the low level of corporate external debt.
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Question 2 of 5
2. Question
Which of the following statements are true
- Money market caters to short term loan requirements
- Capital market avails loans for more than 364 days
Select the correct answer using the codes below
Correct
Answer – C
- Financial markets in every economy are having two separate segments today, one catering to the requirements of short-term funds and the other to the requirements of long-term funds.
- The short-term financial market is known as the money market, while the long-term financial market is known as the capital market. Hence statement 1 is correct.
- The money market fulfils the requirements of funds for the period upto 364 days (i.e., short term) while the capital market does the same for the period above 364 days (i.e., long term). Hence statement 2 is correct
Incorrect
Answer – C
- Financial markets in every economy are having two separate segments today, one catering to the requirements of short-term funds and the other to the requirements of long-term funds.
- The short-term financial market is known as the money market, while the long-term financial market is known as the capital market. Hence statement 1 is correct.
- The money market fulfils the requirements of funds for the period upto 364 days (i.e., short term) while the capital market does the same for the period above 364 days (i.e., long term). Hence statement 2 is correct
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Question 3 of 5
3. Question
Consider the following statements below regarding money market
- Its essentiality lies in the fact that lack of working capital can plague a company
- Chit funds are part of money market ecosystem
Which of the above statements is/are correct
Correct
Answer – C
- The crucial role money market plays in an economy is proved by the fact that if only a few lakhs or crores of rupees of working capital is not met in time, it can push a firm o business enterprise to go for lock-out, which has been setup with thousands of crores of capital. Hence statement 1 is correct.
- Unregulated NonBanking Financial Intermediaries are functioning in the form of chit funds, nidhis (operate in South India, which lend to only their members) and loan companies are crucial actors in unorganised money market. Hence statement 2 is correct.
Incorrect
Answer – C
- The crucial role money market plays in an economy is proved by the fact that if only a few lakhs or crores of rupees of working capital is not met in time, it can push a firm o business enterprise to go for lock-out, which has been setup with thousands of crores of capital. Hence statement 1 is correct.
- Unregulated NonBanking Financial Intermediaries are functioning in the form of chit funds, nidhis (operate in South India, which lend to only their members) and loan companies are crucial actors in unorganised money market. Hence statement 2 is correct.
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Question 4 of 5
4. Question
Which of the following are organised money market instruments
- Treasury bills
- Certificate of Deposits
- Commercial Paper
Select the correct answer using the codes below
Correct
Answer – D
- Since the government started developing the organised money market in India (mid-1980s), we have seen the arrival of a total of eight instruments designed to be used by different categories of business and industrial firms.
- Treasury bills
- Certificate of Deposits
- Commercial Bill
- Commercial paper
- Call Money Market
- Money Market Mutual Fund
- Repos and Reverse Repos
- Repos and Reverse Repos
- Hence D is correct option
Incorrect
Answer – D
- Since the government started developing the organised money market in India (mid-1980s), we have seen the arrival of a total of eight instruments designed to be used by different categories of business and industrial firms.
- Treasury bills
- Certificate of Deposits
- Commercial Bill
- Commercial paper
- Call Money Market
- Money Market Mutual Fund
- Repos and Reverse Repos
- Repos and Reverse Repos
- Hence D is correct option
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Question 5 of 5
5. Question
Consider the following comparisons between Treasury bills and Cash management bill
- Loan can be availed through both by the government on its discretion
- Liquidity period for both is same
Select the correct answer using the codes below
Correct
Answer – D
- Treasury bills are used by the Central Government to fulfil its short-term liquidity requirement upto the period of 364 days. While Cash Management Bills are non-standard and discounted instruments issued for maturities less than 91 days. Hence statement 2 is incorrect.
- The existing Treasury Bills serve the same purpose, but as they were put under the WMAs (Ways & Means Advances) provisions by the Government of India in 1997, they did not remain a discretionary route for the government in meeting its short-term requirements of funds at will. Hence statement 2 is incorrect.
Incorrect
Answer – D
- Treasury bills are used by the Central Government to fulfil its short-term liquidity requirement upto the period of 364 days. While Cash Management Bills are non-standard and discounted instruments issued for maturities less than 91 days. Hence statement 2 is incorrect.
- The existing Treasury Bills serve the same purpose, but as they were put under the WMAs (Ways & Means Advances) provisions by the Government of India in 1997, they did not remain a discretionary route for the government in meeting its short-term requirements of funds at will. Hence statement 2 is incorrect.
