Money Market: UPSC Previous Year Questions (Indian Economy)
12 previous year UPSC Prelims questions on the money market and related instruments are on this page, from 2001 to 2024. UPSC asks about money market instruments such as the CBLO, the digital rupee and bitcoin, the Sovereign Gold Bond Scheme, venture capital and measures that raise the money supply. The explanations define each instrument.
Explanations state facts as of the year each question was asked; words like “recently” refer to that year.
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UPSC 2010Indian Economy · Money Market
Q11. A great deal of Foreign Direct Investment (FDI) to India comes from Mauritius than from many major and mature economies like the UK and France. Why?
Explanation
India receives significant FDI from Mauritius primarily due to the Double Taxation Avoidance Agreement (DTAA) between the two countries. DTAA is a tax treaty that prevents individuals/entities from being taxed twice on the same income. It promotes cross-border investments by offering tax relief. Historically, this agreement allowed Mauritius-based investors to route investments into India with tax benefits, leading to higher FDI flows compared to countries like the UK and France. India has DTAA with several countries, including Mauritius, Singapore, USA, UK, Germany, Japan, Canada, France, Australia, Netherlands, China, and Bangladesh. India does not have DTAA with Afghanistan, Iraq, and Pakistan.
UPSC 2001Indian Economy · Money Market
Q12. Consider the following: 1. Market borrowing 2. Treasury bills 3. Special securities issued to RBI Which of these is/are components(s) of internal debt?
Explanation
Internal debt refers to the funds borrowed by the government from domestic sources rather than foreign loans. It includes various instruments used to raise funds within the country. Internal borrowing refers to the process by which the government borrows funds from domestic sources within its own country to finance its expenditures without resorting to foreign loans. This can be done through various mechanisms such as Market Borrowing, Treasury Bills, and Special Securities issued to the RBI. It reduces dependency on foreign loans, avoiding risks related to exchange rate fluctuations. Helps maintain economic sovereignty and control over debt.
Option (d) is correct:
The government issues bonds or securities to borrow from the domestic market. This is a major source of funding for government expenditures. It helps avoid reliance on foreign debt and minimizes risks associated with exchange rate fluctuations. Short-term borrowing instruments issued by the government, generally with a maturity of up to one year(Treasury bills). Used for managing short-term liquidity needs. The government issues special securities to the Reserve Bank of India (RBI) for various fiscal purposes. These help the government raise funds without affecting the open market borrowing program.
Answer key for these questions
Q
UPSC year
Correct answer
11
2010
(b) India has double taxation avoidance agreement with Mauritius
12
2001
(d) 1, 2 and 3
What UPSC has tested in Money Market
Collateralised Borrowing and Lending Obligations are money market instruments.
The digital rupee is a sovereign currency issued by the Reserve Bank of India.
Venture capital is long-term start-up capital provided to new firms with high growth potential.
A rise in the general level of prices may be caused by an increase in the money supply.
Frequently asked questions
How many previous year UPSC questions are there on Money Market?
This page covers 12 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.
What is the digital rupee?
A central bank digital currency, a digital form of the rupee issued by the Reserve Bank of India as a sovereign currency. Unlike bitcoin, it is legal tender backed by the RBI and is not a private cryptocurrency.
What is venture capital?
Long-term capital provided to start-up firms with strong growth potential, usually in return for equity. Venture capital funds take a high risk for high returns and often help the firm with management advice.
Which measures increase the money supply?
Purchase of government securities by the central bank, a reduction in the cash reserve ratio and cuts in policy rates all increase the money supply. Sales of securities and higher reserve ratios reduce it.
