Daily Static Quiz Prelims Practice 2027
Private remittances are secondary income (transfers) within the current account, and India is the world's largest recipient of remittances. The capital account records capital transfers and non-produced, non-financial assets, the financial account records FDI, FPI, loans and banking capital, and reserve changes record movements in the RBI's foreign exchange reserves, not household transfers.
- A depreciation of the rupee makes Indian exports costlier for foreign buyers.
- India devalued the rupee in 1966 and in 1991.
Statement 1 is incorrect — depreciation makes Indian exports cheaper for foreign buyers and imports costlier, which can help exports. Statement 2 is correct — India devalued the rupee, an official cut in its value, in 1966 and 1991; depreciation is a market-driven fall, whereas devaluation is a deliberate reduction under a fixed or managed parity.
Option (c) is incorrect — a REER index above 100 indicates appreciation relative to the base period, adjusted for relative prices, and it does not by itself prove overvaluation. Options (a), (b) and (d) are correct — FDI and FPI are financial-account items; a CAD arises when outflows on goods, services, primary income and secondary income exceed inflows; and ECBs are governed by RBI rules under FEMA.
- Assertion (A): The Balance of Payments always balances in an accounting sense.
- Reason (R): The Balance of Payments is a double-entry record that includes changes in foreign exchange reserves and an item for errors and omissions.
Assertion A is correct — as an accounting statement, the BoP always balances, and a “BoP deficit” in common usage refers to the overall balance before reserve changes. Reason R is correct and explains A, because under double-entry every transaction has a matching entry: any gap between the current and capital/financial accounts is met by reserve changes, with errors and omissions absorbing statistical discrepancies, which is why the account balances.
- The current account includes trade in goods and services, primary income and secondary income.
- Masala Bonds are denominated in US dollars.
- The Liberalised Exchange Rate Management System of 1992 was a dual exchange rate system that preceded a market-determined rate in 1993.
Statement 1 is correct — these four components make up the current account, with primary income covering interest, dividends and wages and secondary income covering transfers and remittances. Statement 2 is incorrect — Masala Bonds are rupee-denominated bonds issued abroad, so the foreign investor bears the currency risk. Statement 3 is correct — LERMS (March 1992) introduced a dual exchange rate, with part of earnings converted at the official rate and the rest at the market rate, and India moved to a unified, market-determined rate in March 1993.
