Daily Static Quiz Prelims Practice 2027
Foreign Currency Assets, held mostly in securities and deposits, make up the bulk of India’s reserves. Gold, SDRs and the Reserve Tranche Position are also components, but each is much smaller. The SDR basket comprises the US dollar, euro, Chinese yuan, Japanese yen and pound sterling.
- Remittances from Indians working abroad are recorded in the current account as private transfers.
- Foreign Portfolio Investment is recorded in the current account.
- Net exports of services have helped offset a part of India’s merchandise trade deficit.
- External Commercial Borrowings form part of the capital account.
Statement 1 is correct — private transfers are part of the invisibles in the current account. Statement 2 is incorrect — FPI is a capital account item, along with FDI, ECBs and NRI deposits. Statement 3 is correct — IT and business services exports usually offset a significant part of the merchandise deficit. Statement 4 is correct — ECBs are loans raised abroad by Indian entities and are recorded in the capital account.
- Assertion (A): Foreign Portfolio Investment is generally considered more volatile than Foreign Direct Investment.
- Reason (R): Foreign investment of 10 per cent or more in the paid-up equity of a listed Indian company is classified as Foreign Portfolio Investment.
A is correct — FPI is invested in listed shares and bonds that can be sold quickly, which is why it is called “hot money”, while FDI reflects a lasting interest and management control. R is incorrect — holdings of 10% or more are treated as FDI, and FPI is below 10% of the post-issue paid-up equity capital. The 10% threshold is exactly what such questions twist.
- India–UAE CEPA — signed in 2022
- India–EFTA TEPA — EFTA comprises Iceland, Liechtenstein, Norway and Switzerland
- RCEP — India signed the agreement in 2020
- India–Australia ECTA — came into force in December 2022
Pairs 1 and 2 are correct — the CEPA with the UAE was signed in February 2022 and came into force in May 2022, and EFTA has four members (Iceland, Liechtenstein, Norway and Switzerland), with the TEPA signed in March 2024. Pair 3 is incorrect — India withdrew from RCEP negotiations in November 2019 and has not signed it, while the other 15 countries signed it in 2020. Pair 4 is correct — the ECTA with Australia came into force in December 2022.
The Peace Clause is an interim arrangement adopted at Bali (2013) that shields developing countries from dispute challenges where public stockholding for food security, such as India’s MSP-based procurement, breaches Aggregate Measurement of Support limits, until a permanent solution is found. Export-subsidy elimination was decided at Nairobi (2015), and no decision like options (c) or (d) was made at Bali. The Trade Facilitation Agreement, also from Bali, came into force in February 2017.
