Consider the following statements: Statement-I. In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes. Statement-II. Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means. Which one of the following is correct in respect of the above statements?

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(d) Statement-I is incorrect but Statement-II is correct

Consider the following statements: Statement-I. Switzerland is one of the leading exporters of gold in terms of value. Statement-II. Switzerland has the second largest gold reserves in the world. Which one of the following is correct in respect of the above statements?

(b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I

(d) Statement-I is incorrect but Statement-II is correct

Prelims · Economy & social development · 66 questions

Money, banking & monetary policy

Every UPSC Prelims question on this topic, 2016–2026, newest first. Tap an option to check yourself; the answer and explanation open below it.

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Prelims 2023 · Q22

Easy

Consider the following statements:

Statement-I: In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.
Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.

Which one of the following is correct in respect of the above statements?

Answer & explanation

Answer: (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I

After the pandemic and the Russia-Ukraine war pushed prices up, central banks led by the US Federal Reserve raised policy rates in step with one another. They did so because they believe that dearer money cools demand and brings inflation down, so Statement-II explains Statement-I.

✓ Statement-I The Economic Survey 2022-23 records synchronised policy rate hikes by central banks across economies to curb inflation, with the US Federal Reserve raising rates at its fastest pace since the 1970s.
✓ Statement-II Monetary policy is the main tool central banks use against inflation; in India the RBI Act makes price stability the primary objective of monetary policy, with a flexible inflation target.

Remember · Inflation up → central bank raises policy rate (repo) → borrowing costlier → demand cools → prices ease. RBI: primary objective is price stability, keeping growth in mind.

Sources

Economic Survey 2022-23, Ministry of Finance ↗ “Then, the central banks across economies led by the Federal Reserve responded with synchronised policy rate hikes to curb inflation.”
Reserve Bank of India, Monetary Policy overview ↗ “RBI is entrusted with the responsibility of conducting monetary policy in India with the primary objective of maintaining price stability while keeping in mind the objective of growth.”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2023 · Q24

Medium

Which one of the following activities of the Reserve Bank of India is considered to be part of ‘sterilization’?

Answer & explanation

Answer: (a) Conducting ‘Open Market Operations’

Sterilisation means offsetting the effect of the RBI's foreign-exchange dealings on domestic money supply. When the RBI buys dollars it releases rupees; it then sells government securities through open market operations to mop those rupees back up.

✓ (a) The RBI's own Working Group on Instruments of Sterilisation calls open market operations, in which the RBI sells securities, the commonly used instrument of sterilisation; the sale mops up the rupees released by forex purchases.
✗ (c) Debt and cash management is the RBI's role as banker and debt manager to governments; it does not by itself neutralise the liquidity impact of capital flows.
✗ (b) Overseeing payment and settlement systems is a regulatory function about safe transfers of money, not about controlling the money supply.

Remember · Sterilisation = RBI neutralising liquidity from forex intervention, mainly via OMOs (and the Market Stabilisation Scheme). OMO sale absorbs liquidity; OMO purchase injects it.

📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 3 (practise this chapter)

Sources

Reserve Bank of India, Report of the Working Group on Instruments of Sterilisation (Dec 2003) ↗ “While open market operations (OMO) involving sale of securities constitute the commonly used instrument of sterilisation, there are several other instruments available to offset the impact of capital inflows on domestic money supply.”
Reserve Bank of India, FAQs on Government Securities Market ↗ “When the RBI feels that there is excess liquidity in the market, it resorts to sale of securities thereby sucking out the rupee liquidity.”
NCERT Class 12 · Introductory Macroeconomics, Chapter 3 “It controls money supply of the country through various methods, like bank rate, open market operations and variations in reserve ratios.”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). Permalink ·

Prelims 2023 · Q25

Easy

Consider the following markets:

1.Government Bond Market
2.Call Money Market
3.Treasury Bill Market
4.Stock Market

How many of the above are included in capital markets?

Answer & explanation

Answer: (b) Only two

The capital market deals in long-term funds (more than a year), such as government bonds and shares, while the money market deals in funds for up to one year, such as call money and treasury bills. So only the government bond market and the stock market are capital markets.

✓ 1. Government bonds, or dated securities, have an original maturity of one year or more, so they are long-term capital-market instruments.
✗ 2. Call money is overnight inter-bank borrowing and lending, a money-market transaction.
✗ 3. Treasury bills are short-term (91, 182 and 364 days) zero-coupon government securities, which the RBI classes as money market instruments.
✓ 4. Shares traded on the stock market are long-term (perpetual) claims on companies, the core of the capital market.

Remember · Money market: up to 1 year (call money, T-bills, CPs, CDs, repos). Capital market: over 1 year (shares, dated G-secs/bonds, debentures).

Sources

Reserve Bank of India, FAQs on Government Securities Market ↗ “Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). … Money market instruments include call money, repos, T- Bills (for details refer para 1.3), Cash Management Bills (for details refer para 1.4), Commercial Paper, Certificate of Deposit”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2023 · Q71

Medium

Consider the following statements with reference to India:

1.According to the 'Micro, Small and Medium Enterprises Development (MSMED) Act, 2006', the 'medium enterprises' are those with investments in plant and machinery between ₹15 crore and ₹25 crore.
2.All bank loans to the Micro, Small and Medium Enterprises qualify under the priority sector.

Which of the statements given above is/are correct?

Answer & explanation

Answer: (b) 2 only

Only statement 2 is correct. RBI's priority sector lending rules say that all bank loans to MSMEs qualify as priority sector loans, while the MSMED Act's medium-enterprise ceiling was never a band of ₹15 crore to ₹25 crore.

✗ 1. At the time of the exam (2023), the 2020 classification under the MSMED Act treated a medium enterprise as one with investment in plant and machinery up to ₹50 crore and turnover up to ₹250 crore. The ₹15-25 crore band does not exist.
✓ 2. The RBI Master Direction on priority sector lending says that all bank loans to MSMEs qualify for classification under priority sector lending.
• Since then Budget 2025-26 announced higher ceilings: for a medium enterprise, investment up to ₹125 crore and turnover up to ₹500 crore (PIB, 1 February 2025).

Remember · All bank loans to MSMEs qualify as priority sector lending. Medium enterprise under the 2020 norms: investment up to ₹50 crore and turnover up to ₹250 crore.

Sources

Master Directions, Reserve Bank of India (Priority Sector Lending, Targets and Classification) Directions, 2025, para 10 (RBI) ↗ “All bank loans to MSMEs shall qualify for classification under priority sector lending.”
Celebrating MSMEs on National Small Industry Day 2024: Definition of MSMEs under the MSMED Act, 2006 (Press Information Bureau) ↗ “A medium enterprise, where the investment in plant and machinery or equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.”
Investment and turnover limits for classification of all MSMEs to be enhanced, Budget 2025-26 (Press Information Bureau, Ministry of Finance) ↗ “Micro Enterprises 1 2.5 5 10 Small Enterprises 10 25 50 100 Medium Enterprises 50 125 250 500”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2023 · Q72

Medium

With reference to Central Bank digital currencies, consider the following statements:

1.It is possible to make payments in a digital currency without using US dollar or SWIFT system.
2.A digital currency can be distributed with a condition programmed into it such as a time-frame for spending it.

Which of the statements given above is/are correct?

Answer & explanation

Answer: (c) Both 1 and 2

Both statements are correct. A central bank digital currency (CBDC) is the central bank's own money in digital form, so it can be moved directly between participants without a dollar leg or the SWIFT messaging network, and it can be programmed with rules such as an expiry date.

✓ 1. Multi-CBDC platforms such as the BIS-led Project mBridge let central banks and banks exchange their digital currencies peer to peer on a shared network, as an alternative to routing cross-border payments through correspondent banks and the dollar.
✓ 2. RBI's concept note on CBDC says money can be programmed by tying its end use, and that tokens may carry an expiry date by which they must be spent.

Remember · CBDC is sovereign money in digital form; it can settle cross-border payments directly between currencies and can be programmed, for example with an expiry date or a restricted use.

Sources

BIS press release: Project mBridge pilot on a cross-border CBDC platform (26 Oct 2022) ↗ “By enabling peer-to-peer and instant exchange of multiple CBDCs on a single network, Project mBridge aims to solve long-standing inefficiencies in cross-border payments”
RBI Concept Note on Central Bank Digital Currency (October 2022) ↗ “tokens may have an expiry date, by which they would need to be spent, thus ensuring consumption”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2023 · Q74

Medium

Consider the following statements:

1.The Self-Help Group (SHG) programme was originally initiated by the State Bank of India by providing microcredit to the financially deprived.
2.In an SHG, all members of a group take responsibility for a loan that an individual member takes.
3.The Regional Rural Banks and Scheduled Commercial Banks support SHGs.

How many of the above statements are correct?

Answer & explanation

Answer: (b) Only two

Only statements 2 and 3 are correct. The SHG-Bank Linkage Programme was started by NABARD, not the State Bank of India, but in an SHG the group as a whole stands behind each member's loan, and banks lend to and refinance SHGs.

✗ 1. NABARD launched the SHG-Bank Linkage pilot in 1992-93, linking about 500 SHGs to banks. The State Bank of India did not initiate the programme.
✓ 2. The group decides on loans and is responsible for repayment, and other members follow up seriously if any one member does not repay; this collective responsibility is why banks lend to poor households without collateral.
✓ 3. Banks finance SHGs with 100% refinance support from NABARD, and Regional Rural Banks (RRBs) are among the rural financial institutions that promote and link SHGs to credit. Commercial banks take part in the same bank linkage.

Remember · SHG-Bank Linkage began with NABARD in 1992-93. SHG members share responsibility for repayment, and banks (commercial banks, RRBs, cooperatives) lend to SHGs with NABARD refinance.

📘 Read it in NCERT: Class 10 Understanding Economic Development, Ch 3 (practise this chapter)

Sources

NCERT Class 10 · Understanding Economic Development, Chapter 3 “Also, it is the group which is responsible for the repayment of the loan. Any case of non- repayment of loan by any one member is followed up seriously by other members in the group.”
NABARD: Micro Credit Innovations (SHG-Bank Linkage Programme) ↗ “Banks are also provided 100% refinance support by NABARD for financing of SHGs.”
NABARD: SHG Bank Linkage Programme for Rural Poor - An Impact Assessment (2002) ↗ “impact of micro finance channelised through SHG Bank Linkage programme implemented by NABARD since 1992”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Prelims 2023 · Q86

Hard

Consider the following statements:

Statement-I: Switzerland is one of the leading exporters of gold in terms of value.
Statement-II: Switzerland has the second largest gold reserves in the world.

Which one of the following is correct in respect of the above statements?

Answer & explanation

Answer: (c) Statement-I is correct but Statement-II is incorrect

Switzerland is one of the world's main centres for refining and trading gold, so it ranks among the leading gold exporters by value. But it is far from having the second largest gold reserves: the Swiss National Bank holds 1,040 tonnes, several times less than the United States and Germany.

✓ Statement-I Switzerland refines and trades most of the world's gold, and it was the largest exporter of unwrought non-monetary gold by value in 2022 (about US$90 billion, ahead of the United States and the UAE), according to World Bank WITS trade data.
✗ Statement-II The Swiss National Bank holds 1,040 tonnes. The Deutsche Bundesbank states that Germany holds the second largest gold reserve in the world after the United States, so Switzerland is not second.

Remember · Switzerland is a gold refining and trading hub, hence a leading exporter by value, but its own official reserve (1,040 tonnes) is far below the top holders, the USA and Germany.

Sources

World Bank WITS (UN Comtrade data): top exporters of unwrought non-monetary gold, 2022 ↗ “In 2022, Top exporters of Gold in unwrought forms non-monetary are Switzerland ($90,129,887.58K , 1,565,130 Kg), United States ($36,789,874.85K , 643,545 Kg), United Arab Emirates ($35,135,001.67K )”
RBI, Gold in the Indian Economic System (speech by Y. V. Reddy) ↗ “world gold trading is concentrated in the U.K., Switzerland, Dubai, Hongkong, etc. and India does not figure among them.”
Deutsche Bundesbank (Germany's central bank), The development of the Bundesbank's gold reserves ↗ · reference work “Germany holds the second largest reserve of gold in the world after the United States, with these holdings accounting for two-thirds of Germany’s foreign reserves.”
Swiss National Bank, Questions and answers on the SNB's balance sheet ↗ · reference work “The SNB's gold holdings amount to 1,040 tonnes and have been unchanged since the end of 2008.”

Question and answer: UPSC's official GS Paper I (2023, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink ·

Money, banking & monetary policy

Prelims 2023 · Q22

Prelims 2023 · Q24

Prelims 2023 · Q25

Prelims 2023 · Q71

Prelims 2023 · Q72

Prelims 2023 · Q74

Prelims 2023 · Q86

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