External Sector of India: UPSC Previous Year Questions (Indian Economy)
4 previous year UPSC Prelims questions on External Sector of India (Indian Economy). Choose an option to see the answer and explanation.
Explanations state facts as of the year each question was asked; words like “recently” refer to that year.
Showing 1–4 of 4 questions
UPSC 1998Indian Economy · External Sector of India
Q1. Which one of the following is the correct sequence of decreasing order of the given currencies in terms of their value in Indian Rupees?
Explanation
The correct order of these currencies in terms of higher value per Indian rupee (as per 1998 exchange rates) was:
1. US Dollar (USD) Highest
2. Canadian Dollar (CAD)
3. New Zealand Dollar (NZD)
4. Hong Kong Dollar (HKD) Lowest The US dollar had the highest exchange value, while the Hong Kong dollar was the lowest among the listed currencies.
UPSC 1998Indian Economy · External Sector of India
Q2. Consider the following statements: The price of any currency in international market is decided by the: 1. World Bank 2. Demand for goods/services provided by the country concerned 3. Stability of the government of the concerned country 4. Economic potential of the country in question of these statements: Codes:
Explanation
Statements 2 and 3 are correct: The exchange rate of a currency is primarily determined by:
Demand for goods/services provided by the country: If a country’s exports are in high demand, its currency appreciates in value due to increased foreign exchange inflows. Hence,
statement 2 is correct.
Stability of the government: Political stability and good governance boost investor confidence, strengthening the currency. Political instability can cause depreciation. Hence,
statement 3 is correct.
Statements 1 and 4 are incorrect:
The World Bank does not set exchange rates; currency values are determined by market forces under floating exchange rate systems. Economic potential does influence long-term currency value, but it is not a direct determinant of daily exchange rate fluctuations. As per the International Monetary Fund (IMF) Exchange Rate Policy Framework, exchange rates are mainly driven by trade demand, capital flows, inflation, and interest rates.
UPSC 1998Indian Economy · External Sector of India
Q3. Which one of the following regions of the world supplies the maximum of our imported commodities (in terms of rupee value)?
Explanation
As of 1998 and even in current times, the largest share of India’s imports, in terms of rupee value, came from the Asia and Oceania region. This was primarily due to India’s heavy dependence on crude oil and petroleum imports from West Asian (Middle Eastern) countries such as Saudi Arabia, Iran, Iraq, and the UAE. Additionally, India imported electronic goods, machinery, and chemicals from East Asian economies like China, Japan, and South Korea.
UPSC 1998Indian Economy · External Sector of India
Q4. The Capital Account Convertibility of the Indian Rupee implies:
Explanation
Capital Account Convertibility (CAC) allows the unrestricted exchange of the Indian rupee with foreign currencies for transactions related to investment and financial assets, such as foreign direct investment (FDI), portfolio investment, and external borrowings. Unlike current account convertibility, which deals with trade in goods and services, Capital account convertibility enables cross-border capital flows without regulatory restrictions. India has partially implemented Capital Account Convertibility, with restrictions on foreign investments in specific sectors and external borrowings.
Answer key for these questions
Q
UPSC year
Correct answer
1
1998
(a) US dollar, Canadian dollar, New Zealand dollar, Hong Kong dollar
2
1998
(b) 2 and 3 are correct
3
1998
(c) Asia and Oceania
4
1998
(c) that the Indian Rupee can be exchanged for any major currency for the purpose of trading financial assets
Frequently asked questions
How many previous year UPSC questions are there on External Sector of India?
This page covers 4 previous year UPSC Prelims GS Paper-I questions on External Sector of India (Indian Economy), asked from 1996 to 2025. Each has the correct answer and an explanation.
How should I use previous year UPSC questions for Prelims?
Attempt each question first, then open the answer and read the explanation for every option. Repeat by chapter, and track which statements UPSC reuses across years. Previous year questions show the exam pattern and difficulty level.
Which years are covered for External Sector of India?
Questions on External Sector of India (Indian Economy) are available for 22 years, from 1996 to 2025. Use the Year filter to practise a single paper.
