Feb 1st, 2022 - Daily Quiz
1. Consider the following statements regarding the recent Economic survey of India.
  1. It shows that the service sector was the worst hit sector by the COVID-19 pandemic.
  2. The private consumption has not yet recovered fully form the pandemic till Financial year 2021.
  3. India's balance of payment remained negative in the last two years.
Which of the above statements are correct? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3 2. Which of the following is/are correctly defined?
  1. The balance of payments of a country is the difference between all money flowing into the country in a particular period of time and the outflow of money to the rest of the world.
  2. Current account deficit refers to the net outflow of money in terms of exports and imports of both goods and services and transfer payments.
  3. Trade deficit is the situation when a country's imports exceeds exports.
Select the correct answer using the codes given below: (a) 1 only (b) 2 only (c) 3 only (d) 1, 2 & 3 3. World Economic Outlook (WEO) growth projections are released by (a) WEF (b) IMF (c) WB (d) UNCTAD 4. Consider the following statements regarding the recent Economic survey of India pointing out the impact of pandemic throughout the last two years.
  1. Despite all the disruptions caused by the global pandemic, India’s balance of payments remained in surplus throughout the last two years.
  2. Reserve Bank of India accumulated foreign exchange reserves, which is equivalent to 13.2 months of imports and higher than the country’s external debt.
Which of the above statements are correct? (a) 1 only (b) 2 only (c) Both 1 & 2 (d) Neither 1 Nor 2 5. Which of the following are the supply side reforms carried out in the latest two years?.
  1. deregulation of certain sectors
  2. simplification of processes
  3. removal of legacy issues like ‘retrospective tax’
  4. production-linked incentives
  5. privatization
Which of the above statements are correct? (a) 1, 2 and 4only (b) 2, 3 and 5 only (c) 1, 2, 3 and 4 only (d) 1, 2, 3, 4 and 5 Answers 1 – a https://pib.gov.in/PressReleasePage.aspx?PRID=1793826  Services sector - It was hit the Hardest - especially segments that involve human contact.  It is estimated to grow by 8.2% this financial year following last year’s 8.4% contraction. Private consumption as a share of nominal gross domestic product slipped further to 57.5% in 2021-22 from 58.6% in 2020-21 and 60.5% in 2019-20, pointing to a sustained slowdown in household consumption since the onset of the covid-19 pandemic. India’s balance of payments remained in surplus throughout the last two years. This allowed the RBI to keep accumulating foreign exchange reserves, which stand at US$634 billion on 31st December 2021. This is equivalent to 13.2 months of imports and higher than the country’s external debt. THUS STATEMENT 3 is INCORRECT 2 – d A country’s BOP is vital for the following reasons:
  • The BOP of a country reveals its financial and economic status.
  • A BOP statement can be used as an indicator to determine whether the country’s currency value is appreciating or depreciating.
  • The BOP statement helps the Government to decide on fiscal and trade policies.
  • It provides important information to analyze and understand the economic dealings of a country with other countries.
By studying its BOP statement and its components closely, one would be able to identify trends that may be beneficial or harmful to the economy of the county and thus, then take appropriate measures. Current Account The current account is used to monitor the inflow and outflow of goods and services between countries. This account covers all the receipts and payments made with respect to raw materials and manufactured goods. It also includes receipts from engineering, tourism, transportation, business services, stocks, and royalties from patents and copyrights. When all the goods and services are combined, together they make up to a country’s Balance Of Trade (BOT). There are various categories of trade and transfers which happen across countries. It could be visible or invisible trading, unilateral transfers or other payments/receipts. Trading in goods between countries are referred to as visible items and import/export of services (banking, information technology etc) are referred to as invisible items. Unilateral transfers refer to money sent as gifts or donations to residents of foreign countries. This can also be personal transfers like –  money sent by relatives to their family located in another country. Capital Account All capital transactions between the countries are monitored through the capital account. Capital transactions include the purchase and sale of assets (non-financial) like land and properties. The capital account also includes the flow of taxes, purchase and sale of fixed assets etc by migrants moving out/into a different country. The deficit or surplus in the current account is managed through the finance from the capital account and vice versa. There are 3 major elements of a capital account: Loans and  borrowings – It includes all types of loans from both the private and public sectors located in foreign countries. Investments – These are funds invested in the corporate stocks by non-residents. Foreign exchange reserves – Foreign exchange reserves held by the central bank of a country to monitor and control the exchange rate does impact the capital account. Financial Account The flow of funds from and to foreign countries through various investments in real estates, business ventures, foreign direct investments etc is monitored through the financial account. This account measures the changes in the foreign ownership of domestic assets and domestic ownership of foreign assets. On analyzing these changes, it can be understood if the country is selling or acquiring more assets (like gold, stocks, equity etc). What is the importance of the Balance of Payments in India? The importance of the balance of payment in India can be determined from the following points:
  • It monitors the transaction of all the imports and exports of services and goods for a given period
  • It helps the government analyse a particular industry export growth potential and formulate policy to sustain it
  • It gives the government a comprehensive perspective on a different range of import and export tariffs. The government then increases and decreases the tax to discourage import and encourage export, individually, and be self-sufficient
 What is the difference between the balance of trade and the balance of payments? Balance of trade is the difference between exports and imports of goods. Only the visible items are considered in the balance of trade. The exchange of services between countries is not considered. The current account of the balance of payment comprises exports and imports of goods, services and unilateral transfers like remittances, gifts, donations, etc. The net value of all these constitutes the balance of the current account. Thus, the balance of trade is a part of the current account of the balance of payments. What are the sources of supply of foreign exchange? The sources of supply of foreign exchange are:
  • Purchase of goods and services by foreigners
  • Foreign Direct Investment (FDI) into our country
  • Inflow by the NRIs settled in foreign countries
  • Speculative purchase of home currency by foreigners
What is the meaning of a deficit in the balance of payments? When autonomous foreign exchange payments exceed autonomous foreign exchange receipts, the difference is the balance of payments deficit. The autonomous transactions in foreign exchanges are those transactions that are independent of the state’s balance of payments and are undertaken for an individual’s own sake. What are official reserve transactions and their importance in the balance of payments? Official reserve transactions mean running down the country’s foreign exchange reserves in case of a deficit in the balance of payments by selling foreign currency in the foreign exchange market. In case of surplus, the country can buy foreign exchange and increase its official reserves. A country is said to be having its balance of payment in equilibrium when the sum of its current account and non-reserve capital account equals zero, which means the current account deficit is financed entirely by international borrowings without any movement in the country’s official reserves. 3 – a https://pib.gov.in/PressReleasePage.aspx?PRID=1793826 4 – c https://pib.gov.in/PressReleasePage.aspx?PRID=1793826    5 – d https://pib.gov.in/PressReleasePage.aspx?PRID=1793826


POSTED ON 01-02-2022 BY ADMIN