Money Market: UPSC Previous Year Questions (Indian Economy)
2 previous year UPSC Prelims questions on Money Market (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 1–2 of 2 questions
UPSC 2024Indian Economy · Money Market
Q1. With reference to the Indian economy, "Collateral Borrowing and Lending Obligations" are the instruments of:
Explanation
Collateralized Borrowing and Lending Obligations (CBLO) are short-term money market instruments used for borrowing and lending funds. They are primarily used by financial institutions such as banks, mutual funds, and insurance companies to manage liquidity. CBLO transactions are collateralized, meaning they require securities (such as government bonds) as collateral, reducing credit risk. The instrument was introduced by the Clearing Corporation of India Ltd. (CCIL) to facilitate secure and efficient borrowing and lending of funds in the money market. CBLOs facilitate borrowing and lending transactions that are fully collateralized, typically using government securities as collateral. CBLOs are primarily used by financial institutions to man-age liquidity and funding needs over short durations, ranging from overnight to one year.
Additional insight:
Bond Market: The bond market is a financial marketplace where governments, corporations, and other entities issue and trade debt securities (bonds) to raise capital. Investors lend money to issuers in exchange for periodic interest payments and the return of the principal at maturity. Bonds are categorized into government bonds, corporate bonds, municipal bonds, and asset-backed securities. Forex Market: The foreign exchange (forex) market is a global decentralized platform for trading currencies. It facilitates currency exchange for trade, investment, speculation, and hedging against currency risks. The market includes spot transactions, forward contracts, futures, options, and swaps. Stock Market: The stock market is a marketplace where shares of publicly listed companies are bought and sold. It consists of the primary market (where companies issue shares through IPOs) and the secondary market (where existing shares are traded). Investors profit through dividends or capital gains as share prices fluctuate. Stocks, exchange-traded funds (ETFs), mutual funds etc are traded in the Stock market.
UPSC 2024Indian Economy · Money Market
Q2. Consider the following statements in respect of the digital rupee: 1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy. 2. It appears as a liability on the RBI’s balance sheet. 3. It is insured against inflation by its very design. 4. It is freely convertible against commercial bank money and cash. Which of the statements given above are correct?
Explanation
The Central Bank Digital Currency (CBDC), or Digital Rupee (e), is the Reserve Bank of India’s official digital currency, interchangeable one-to-one with fiat currency and recognized as legal tender. It can be used by individuals, businesses, and government entities for transactions without needing a bank account, especially in the case of retail CBDC, which works like digital cash. CBDCs help reduce the costs of printing, transporting, and storing physical currency while improving transaction efficiency by minimizing intermediaries and enabling faster payments.
Statement 1 is correct: The Digital Rupee (e) is issued by the RBI as Central Bank Digital Currency (CBDC) and functions as legal tender, just like physical cash. Its issuance is aligned with monetary policy objectives, including promoting financial inclusion and reducing dependency on cash.
Statement 2 is correct: Since the Digital Rupee is an obligation of the central bank, it is recorded as a liability on RBI’s balance sheet, similar to physical currency notes issued by the central bank.
Statement 3 is incorrect: The Digital Rupee, like any fiat currency, is not inherently protected against inflation. Its value depends on broader economic factors, including monetary policy, demand-supply conditions, and RBI’s inflation management strategies.
Statement 4 is correct: The digital rupee can be exchanged for physical cash or commercial bank money at par value without any restrictions. CBDC is freely convertible into cash and money from commercial banks.
Answer key for these questions
Q
UPSC year
Correct answer
1
2024
(c) Money market
2
2024
(d) 1, 2 and 4
Frequently asked questions
How many previous year UPSC questions are there on Money Market?
This page covers 2 previous year UPSC Prelims GS Paper-I questions on Money Market (Indian Economy), asked from 2001 to 2024. 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 Money Market?
Questions on Money Market (Indian Economy) are available for 8 years, from 2001 to 2024. Use the Year filter to practise a single paper.
