External sector & international economic bodies

Answer: (c) Both 1 and 2

Masala bonds were first issued in November 2014 by the International Finance Corporation (IFC), the private-sector lending member of the World Bank Group, as offshore bonds denominated in Indian rupees. In September 2015 RBI opened the same route to any Indian corporate or body corporate, so rupee bonds sold abroad became a debt-raising tool for both public and private companies.

• ✓ 1. IFC is a member of the World Bank Group; its first Masala bonds were 10-year offshore rupee bonds listed on the London Stock Exchange.
• ✓ 2. The bonds are denominated in rupees, so the currency risk lies with the foreign investor. RBI's framework of 29 September 2015 lets any corporate or body corporate issue them, public or private, as borrowing within ECB policy.

Remember · Masala bond = rupee-denominated bond issued abroad; first issuer IFC (World Bank Group), Nov 2014; RBI framework Sept 2015 under ECB; exchange-rate risk borne by the investor.

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Answer: (a) WTO affairs

The coloured 'boxes' are the WTO's way of classifying farm subsidies under the Agreement on Agriculture, borrowed from traffic lights. Green box support is allowed freely, amber box support distorts trade and must be reduced, and blue box support is tied to programmes that limit production.

• ✓ (a) The WTO backgrounder on domestic support explains that subsidies are grouped into green (permitted), amber (to be reduced) and, in agriculture, a blue box for production-limiting programmes.
• ✗ (c) UNFCCC talks use terms like NDCs, Annex I and CDM, not subsidy boxes.
• ✗ (d) An India-EU free trade agreement would negotiate tariffs and market access; the box classification belongs to the multilateral WTO Agreement on Agriculture.

Remember · WTO farm subsidy boxes: green = minimal trade distortion, allowed; amber = trade-distorting, capped and reduced; blue = production-limiting; no red box in agriculture.

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Answer: (d) Renminbi

On 30 November 2015 the IMF Executive Board, in its five-yearly review of the Special Drawing Right (SDR), decided that China's renminbi met the criteria and would join the SDR basket as its fifth currency from 1 October 2016.

• ✓ (d) The renminbi was declared a 'freely usable' currency and added to the basket alongside the U.S. dollar, euro, Japanese yen and British pound.
• ✗ (c) The Indian rupee has never been in the SDR basket; it is not a fully convertible currency on the capital account.
• ✗ (a) The key question in the 2015 review was whether the renminbi qualified; the Russian rouble and the South African rand are not in the SDR basket.

Remember · SDR basket since 1 Oct 2016: U.S. dollar, euro, Chinese renminbi, Japanese yen, British pound (five currencies). The SDR is the IMF's reserve asset, not a currency.

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Answer: (c) Both 1 and 2

The IMFC is the ministerial-level committee of the IMF's Board of Governors. It meets twice a year, reviews developments in the world monetary and financial system and, though it has no formal decision-making power, gives strategic direction to the Fund's work; the World Bank is among the institutions that attend as observers.

• ✓ 1. The IMF describes the IMFC as advising the Board of Governors on the international monetary and financial system and as a key instrument for giving strategic direction to the work and policies of the Fund.
• ✓ 2. The IMF factsheet states that several international institutions, including the World Bank, participate as observers in IMFC meetings.

Remember · IMFC: 25 members (mirrors the IMF Executive Board), meets at the Spring and Annual Meetings, advisory only, works by consensus; World Bank attends as an observer.

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Answer: (d) It is the number of months of imports that could be paid for by a country's international reserves

Import cover is a reserve-adequacy measure: foreign exchange reserves divided by the average monthly import bill, so it tells how many months of imports the reserves could pay for if all other inflows stopped. That is why it is always quoted in months.

• ✓ (d) The Economic Survey 2024-25 reports India's import cover as 10.9 months (December 2024) and notes that this exceeds the IMF's recommended three months for emerging economies.
• ✗ (a) Imports as a share of GDP is a measure of import dependence or openness, not of reserve adequacy.
• ✗ (c) The ratio of exports to imports describes the trade balance between partners; it says nothing about how long reserves would last.

Remember · Import cover = forex reserves ÷ monthly imports, expressed in months. A common rule of thumb is at least three months.

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Answer: (c) World Bank

The World Bank Group published the Ease of Doing Business ranking in its annual Doing Business report. In the 2016 edition, released in October 2015, it ranked India 130th out of 189 economies.

• ✓ (c) The ranking came from the World Bank Group's Doing Business report, which measured business regulations for local firms in 190 economies. The 2016 edition placed India 130th of 189, up from 142nd.
• ✗ (b) The World Economic Forum publishes the Global Competitiveness Report, a different index, not the Ease of Doing Business ranking.
• ✗ (a) The OECD does not compile the Ease of Doing Business ranking.
• ✗ (d) The WTO deals with trade rules and disputes; it does not rank countries on ease of doing business.
• • Since then The World Bank Group discontinued the Doing Business report on 16 September 2021 after data irregularities were found in the 2018 and 2020 editions. The ranking is no longer published; the answer stands as of the exam year.

Remember · The Ease of Doing Business ranking was issued by the World Bank Group (Doing Business report; discontinued in September 2021).

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Answer: (d) Neither 1 nor 2

The Trans-Pacific Partnership (TPP) was a trade and investment agreement signed on 4 February 2016 by twelve countries. It was not a maritime-security alliance, and it did not cover every Pacific Rim country other than China and Russia, so neither statement is correct.

• ✗ 1. Only twelve countries signed: the United States, Japan, Canada, Mexico, Australia, New Zealand, Chile, Peru, Singapore, Malaysia, Brunei and Vietnam. Many other Pacific Rim economies, such as South Korea, Indonesia, the Philippines and Thailand, were not signatories.
• ✗ 2. The ministers' statement calls it an agreement to set a new standard for trade and investment. It is an economic agreement, not a security alliance.
• • Since then The United States told the other signatories in 2017 that it did not intend to join. The remaining eleven concluded the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which entered into force on 30 December 2018.

Remember · The TPP (signed 4 February 2016) was a 12-country trade and investment pact, not a maritime-security alliance, and it left out many Pacific Rim economies.

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Answer: (b) curbing of the tax evasion by multinational companies

Base Erosion and Profit Shifting (BEPS) means tax-planning strategies by which multinational companies use gaps in tax rules to move profits artificially to low-tax or no-tax places. The OECD/G20 BEPS Project is the global effort to curb this, so 'curbing tax evasion by multinational companies' is the closest option.

• ✓ (b) BEPS is about multinationals shifting profits to low or no-tax locations to avoid paying tax. The OECD calls it tax avoidance; of the four options, this is the only one about tax.
• ✗ (c) Exploitation of a country's genetic resources by companies is the issue of biopiracy and access-and-benefit-sharing, not profit shifting.
• ✗ (d) Ignoring environmental costs in development projects is a matter for environmental impact assessment, not for tax rules.

Remember · BEPS = multinationals shifting profits to low-tax places to cut tax; countered by the OECD/G20 BEPS Project (15 actions) so that profits are taxed where value is created.

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Answer: (b) 2 only

The New Development Bank (NDB) was set up by the BRICS countries, not by APEC, and its headquarters is in Shanghai. Statement 1 is wrong and statement 2 is correct.

• ✗ 1. The NDB was established by the BRICS countries; its founding agreement was signed at the sixth BRICS Summit in Fortaleza in 2014. It is not an APEC body.
• ✓ 2. The NDB is headquartered in Shanghai; it moved into its permanent HQ there in 2021.
• • Since then Since 2016 the NDB has admitted new members, for example Bangladesh, Egypt, UAE and Uruguay in 2021, and it has set up regional offices, including one in GIFT City, Gujarat, in 2022 (NDB website).

Remember · NDB = the BRICS bank (agreement signed at Fortaleza, 2014; first President K.V. Kamath of India), headquartered in Shanghai. It is not an APEC body.

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Answer: (c) 1 and 3 only

Both schemes, introduced in 2015, aim to bring gold held by Indian households into productive use and to cut the country's need to import gold. Neither is meant to attract foreign direct investment into the gold or jewellery trade.

• ✓ 1. The Gold Monetisation Scheme is meant to mobilise idle gold held by households and institutions and put it to productive use; the Sovereign Gold Bond gives savers a paper substitute for buying physical gold.
• ✗ 2. Neither scheme deals with FDI. They are about domestic gold holdings and gold bonds issued by the Government (through the RBI), not about foreign investment in gold or jewellery.
• ✓ 3. Since most gold demand is met by imports, shifting demand from physical gold to bonds, and putting household gold back into circulation, reduces import dependence and helps keep the current account deficit in check.
• • Since then The Medium and Long Term Gold Deposit components of the Gold Monetisation Scheme were discontinued from 26 March 2025 (Department of Economic Affairs, Ministry of Finance). The answer as it stood in 2016 is unchanged.

Remember · Sovereign Gold Bond and Gold Monetisation Scheme (2015): mobilise household gold and cut gold imports; they are not FDI schemes.

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Answer: (b) International Monetary Fund

The Global Financial Stability Report is published by the International Monetary Fund (IMF), prepared by its Monetary and Capital Markets Department. It assesses the global financial system and the risks to its stability.

• ✓ (b) The IMF issues the report twice a year, looking at global financial markets, systemic risks and emerging-market financing.
• ✗ (a) The European Central Bank publishes its own Financial Stability Review, which covers the euro area, not the world.
• ✗ (c) The IBRD (World Bank) is known for reports such as Global Economic Prospects and the World Development Report, not this one.

Remember · Global Financial Stability Report = IMF. Do not mix it up with the World Bank's Global Economic Prospects or the OECD's Economic Outlook.

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Answer: (b) ASEAN

RCEP is a trade agreement led by ASEAN, the Association of Southeast Asian Nations. Its negotiations were launched in November 2012 by the ten ASEAN members together with ASEAN's six free trade partners: Australia, China, India, Japan, Korea and New Zealand.

• ✓ (b) ASEAN adopted the RCEP framework and drove the talks, on the principle of ASEAN centrality.
• ✗ (a) The G20 is a forum of major economies for financial and economic coordination; it did not negotiate RCEP.
• ✗ (c) The Shanghai Cooperation Organisation deals mainly with regional security and cooperation in Eurasia, not this trade pact.
• ✗ (d) SAARC is a South Asian grouping and was not involved in RCEP.
• • Since then The RCEP Agreement was signed on 15 November 2020 by ASEAN's ten members with Australia, China, Japan, Republic of Korea and New Zealand; India was not among the signatories (ASEAN).

Remember · RCEP = ASEAN plus its six FTA partners (Australia, China, India, Japan, Korea, New Zealand); talks launched November 2012 at Phnom Penh.

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Answer: (b) agency of EU that provides financial assistance to eurozone countries

The European Stability Mechanism (ESM) is the permanent rescue fund of the euro area. It lends money and gives other financial help to euro area countries in severe financial distress, acting as a lender of last resort. Strictly, the ESM calls itself an intergovernmental organisation of the euro-area states rather than an EU agency, so (b) is the closest option.

• ✓ (b) Set up on 8 October 2012 as the successor to the temporary European Financial Stability Facility, the ESM gives loans and other assistance to euro area members that cannot borrow from markets at sustainable rates.
• ✗ (a) Refugee arrivals are handled through other EU policies and funds; the ESM is a financial crisis fund and has no refugee role.
• ✗ (c) Trade agreements are dealt with by the EU's own institutions. The ESM is a financial-crisis fund and has no trade role.
• ✗ (d) The ESM does not settle disputes among members; it lends money to countries in financial trouble.

Remember · ESM (set up 2012) is the permanent euro-area bailout fund, successor to the EFSF; it lends to eurozone countries in severe financial distress.

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