UPSC STATIC QUIZ – Economy : 28 May 2024

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We will post 5 questions daily on static topics mentioned in the UPSC civil services preliminary examination syllabus. Each week will focus on a specific topic from the syllabus, such as History of India and Indian National Movement, Indian and World Geography, and more.

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• Question 1 of 5 1. Question Consider the following statements regarding interest coverage ratio. The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. For calculating interest coverage ratio, a company’s earnings before interest and taxes is considered. Generally a lower value of interest coverage ratio shows greater ability of a company to meet its interest obligations from earnings. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: b) Statement 3 is incorrect. The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expense during a given period. Generally, a higher coverage ratio is better. Incorrect Solution: b) Statement 3 is incorrect. The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expense during a given period. Generally, a higher coverage ratio is better.

#### 1. Question

Consider the following statements regarding interest coverage ratio.

• The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt.

• For calculating interest coverage ratio, a company’s earnings before interest and taxes is considered.

• Generally a lower value of interest coverage ratio shows greater ability of a company to meet its interest obligations from earnings.

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) All three

Solution: b)

Statement 3 is incorrect.

The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expense during a given period.

Generally, a higher coverage ratio is better.

Solution: b)

Statement 3 is incorrect.

Generally, a higher coverage ratio is better.

• Question 2 of 5 2. Question Consider the following statements. Valuation changes arising from an appreciating U.S. dollar can lead to decline in India’s foreign exchange reserves. The RBI Act, 1934 stipulates that the Central Government orders the rate at which the RBI shall buy or sell forex to banks. Which of the above statements is/are incorrect a) 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2 Correct Solution: d) India’s foreign exchange reserves can decline due to the valuation changes arising from an appreciating U.S. dollar. Section 40 of the RBI Act, 1934 (“Transactions in foreign exchange”) stipulates that the Central Government orders the “rate” at which the RBI shall buy or sell forex to banks (authorised persons). This “rate”, in turn, will be governed by India’s “obligations to the International Monetary Fund [IMF]”. Incorrect Solution: d) India’s foreign exchange reserves can decline due to the valuation changes arising from an appreciating U.S. dollar. Section 40 of the RBI Act, 1934 (“Transactions in foreign exchange”) stipulates that the Central Government orders the “rate” at which the RBI shall buy or sell forex to banks (authorised persons). This “rate”, in turn, will be governed by India’s “obligations to the International Monetary Fund [IMF]”.

#### 2. Question

Consider the following statements.

• Valuation changes arising from an appreciating U.S. dollar can lead to decline in India’s foreign exchange reserves.

• The RBI Act, 1934 stipulates that the Central Government orders the rate at which the RBI shall buy or sell forex to banks.

Which of the above statements is/are incorrect

• c) Both 1 and 2

• d) Neither 1 nor 2

Solution: d)

India’s foreign exchange reserves can decline due to the valuation changes arising from an appreciating U.S. dollar.

Section 40 of the RBI Act, 1934 (“Transactions in foreign exchange”) stipulates that the Central Government orders the “rate” at which the RBI shall buy or sell forex to banks (authorised persons). This “rate”, in turn, will be governed by India’s “obligations to the International Monetary Fund [IMF]”.

Solution: d)

India’s foreign exchange reserves can decline due to the valuation changes arising from an appreciating U.S. dollar.

• Question 3 of 5 3. Question Consider the following statements regarding Qualified Stock Brokers (QSB). Qualified Stock Brokers are entities, because of their size and scale of operations, can likely impact investors and the securities market. A stock broker will be designated as QSB on the basis of number of active clients, total available assets of clients and their trading volumes. Qualified Stock Brokers have the responsibility to red flag any unusual client behaviour to stock exchanges and take necessary measures to prevent fraudulent activity in the market. How many of the above statements is/are correct? a) Only one b) Only two c) All three d) None Correct Solution: c) Sebi defines QSBs as entities who, because of their size and scale of operations, can likely impact investors and the securities market, as well as governance and service standards. These stock brokers cater to the needs of a large number of investors. Due to their size, trading volumes, and amount of clients’ funds handled by them, QSBs occupy a significant position in the Indian securities market. The stock market activity is concentrated to these designated stock brokers. The failure of such stock brokers has the potential to cause disruption in the services they provide to large numbers of investors, causing widespread impact in the securities market. A stock broker will be designated as QSB on the basis of four parameters — number of active clients, total available assets of clients, trading volumes. and end-of-day margin obligations. All stock brokers with a total score greater than or equal to five on these four parameters are identified as QSBs. QSBs will have to red flag any unusual client behaviour to stock exchanges and take necessary measures to prevent fraudulent activity in the market. Incorrect Solution: c) Sebi defines QSBs as entities who, because of their size and scale of operations, can likely impact investors and the securities market, as well as governance and service standards. These stock brokers cater to the needs of a large number of investors. Due to their size, trading volumes, and amount of clients’ funds handled by them, QSBs occupy a significant position in the Indian securities market. The stock market activity is concentrated to these designated stock brokers. The failure of such stock brokers has the potential to cause disruption in the services they provide to large numbers of investors, causing widespread impact in the securities market. A stock broker will be designated as QSB on the basis of four parameters — number of active clients, total available assets of clients, trading volumes. and end-of-day margin obligations. All stock brokers with a total score greater than or equal to five on these four parameters are identified as QSBs. QSBs will have to red flag any unusual client behaviour to stock exchanges and take necessary measures to prevent fraudulent activity in the market.

#### 3. Question

Consider the following statements regarding Qualified Stock Brokers (QSB).

• Qualified Stock Brokers are entities, because of their size and scale of operations, can likely impact investors and the securities market.

• A stock broker will be designated as QSB on the basis of number of active clients, total available assets of clients and their trading volumes.

• Qualified Stock Brokers have the responsibility to red flag any unusual client behaviour to stock exchanges and take necessary measures to prevent fraudulent activity in the market.

How many of the above statements is/are correct?

• a) Only one

• b) Only two

• c) All three

Solution: c)

Sebi defines QSBs as entities who, because of their size and scale of operations, can likely impact investors and the securities market, as well as governance and service standards. These stock brokers cater to the needs of a large number of investors.

Due to their size, trading volumes, and amount of clients’ funds handled by them, QSBs occupy a significant position in the Indian securities market. The stock market activity is concentrated to these designated stock brokers. The failure of such stock brokers has the potential to cause disruption in the services they provide to large numbers of investors, causing widespread impact in the securities market.

A stock broker will be designated as QSB on the basis of four parameters — number of active clients, total available assets of clients, trading volumes. and end-of-day margin obligations. All stock brokers with a total score greater than or equal to five on these four parameters are identified as QSBs.

QSBs will have to red flag any unusual client behaviour to stock exchanges and take necessary measures to prevent fraudulent activity in the market.

Solution: c)

QSBs will have to red flag any unusual client behaviour to stock exchanges and take necessary measures to prevent fraudulent activity in the market.

• Question 4 of 5 4. Question Consider the following statements. “Friedman” economists are “welfarists” who see the need for a government hand in the economy. “Keynesian” economists are “monetarists” who want governments out of the way to let private entrepreneurs produce good outcomes for all. Which of the above statements is/are correct? (a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither 1 nor 2 Correct Solution: d) Economic science has dominated public policy since the 20th century. Debates have raged between “Keynesian” economists and “Friedman” economists: between “welfarists” who see the need for a government hand in the economy and “monetarists” who want governments out of the way to let private entrepreneurs loose and let an “invisible hand” produce good outcomes for all. Both sides agree that growth in GDP — the size of the economy measured in money terms — is essential. Incorrect Solution: d) Economic science has dominated public policy since the 20th century. Debates have raged between “Keynesian” economists and “Friedman” economists: between “welfarists” who see the need for a government hand in the economy and “monetarists” who want governments out of the way to let private entrepreneurs loose and let an “invisible hand” produce good outcomes for all. Both sides agree that growth in GDP — the size of the economy measured in money terms — is essential.

#### 4. Question

Consider the following statements.

• “Friedman” economists are “welfarists” who see the need for a government hand in the economy.

• “Keynesian” economists are “monetarists” who want governments out of the way to let private entrepreneurs produce good outcomes for all.

Which of the above statements is/are correct?

• (a) 1 only

• (b) 2 only

• (c) Both 1 and 2

• (d) Neither 1 nor 2

Solution: d)

Economic science has dominated public policy since the 20th century. Debates have raged between “Keynesian” economists and “Friedman” economists: between “welfarists” who see the need for a government hand in the economy and “monetarists” who want governments out of the way to let private entrepreneurs loose and let an “invisible hand” produce good outcomes for all. Both sides agree that growth in GDP — the size of the economy measured in money terms — is essential.

Solution: d)

• Question 5 of 5 5. Question Which of the following has the highest weightage under Consumer Price Index urban? a) Housing b) Food and beverages c) Fuel and Light d) Clothing and footwear Correct Solution: b) In India, the most important category in the consumer price index is Food and beverages which has highest weight in CPI rural and CPI urban. Incorrect Solution: b) In India, the most important category in the consumer price index is Food and beverages which has highest weight in CPI rural and CPI urban.

#### 5. Question

Which of the following has the highest weightage under Consumer Price Index urban?

• a) Housing

• b) Food and beverages

• c) Fuel and Light

• d) Clothing and footwear

Solution: b)

In India, the most important category in the consumer price index is Food and beverages which has highest weight in CPI rural and CPI urban.

Solution: b)

In India, the most important category in the consumer price index is Food and beverages which has highest weight in CPI rural and CPI urban.

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