All questions of Industry and Infrastructure for BPSC (Bihar) Exam

I didn't get the purpose of this ridiculous question in this test till now.

India's Exchange Rate System

The adoption of an exchange rate system is a crucial aspect of a country's monetary policy. In the case of India, the exchange rate system has undergone significant changes over the years. Let's analyze the given statements regarding India's exchange rate system in detail.

i. India adopted LERMS in 1992
The statement is correct. LERMS stands for the Liberalized Exchange Rate Management System. It was introduced in India in 1992 as a transitional arrangement towards a market-determined exchange rate system. LERMS aimed to reduce the control of the central bank over the exchange rate and allow market forces to play a more significant role in determining the value of the Indian rupee.

Under LERMS, the exchange rate was determined by a dual mechanism. The exporters and foreign exchange earners had to surrender 40% of their foreign exchange earnings at the official exchange rate, while the remaining 60% could be converted at the market-determined exchange rate. This system was intended to gradually move towards a more flexible exchange rate regime.

ii. In 1993, dual exchange rate system was replaced by a unified floating exchange rate.
The statement is also correct. In 1993, the dual exchange rate system, which was implemented under LERMS, was replaced by a unified floating exchange rate system. This transition marked a significant shift towards a market-determined exchange rate.

Under the unified floating exchange rate system, the value of the Indian rupee is determined by market forces of demand and supply in the foreign exchange market. The Reserve Bank of India (RBI) intervenes in the market only to manage excessive volatility or to maintain stability in the exchange rate.

The adoption of a unified floating exchange rate system allowed for greater flexibility in the exchange rate, enabling it to adjust to external shocks and changes in market conditions. It also eliminated the need for dual rates and simplified the exchange rate mechanism in India.

Conclusion
In conclusion, both statements are correct. India adopted LERMS in 1992 as a transitional arrangement towards a more market-determined exchange rate system. In 1993, the dual exchange rate system was replaced by a unified floating exchange rate, which allowed for greater flexibility and simplified the exchange rate mechanism in India.

Statement i: The executive board is the highest decision-making body of IMF.

Statement ii: The Board of Governors meets twice a year.

The correct answer is option D, none.

Explanation:

Statement i: The executive board is not the highest decision-making body of IMF. The highest decision-making body of IMF is the Board of Governors, consisting of representatives from all member countries. The executive board is responsible for the day-to-day operations and decisions of the IMF, but it does not have the final authority on major policy decisions.

Statement ii: The Board of Governors does meet twice a year. The Board of Governors holds an annual meeting, which is usually held in September or October, where major policy decisions are made. Additionally, there is a Spring Meetings event, which is also attended by the Board of Governors. During these meetings, representatives from member countries discuss global economic issues, review IMF policies, and make decisions on various matters.

Therefore, both statements i and ii are incorrect.

In conclusion, the correct answer is option D, none.

Governing Body of IFC

The International Finance Corporation (IFC) is a member of the World Bank Group and is governed by a board of governors. The board of governors consists of representatives from the 184 member countries. They meet once a year to discuss the policies, strategies, and activities of the IFC. The board of governors is responsible for providing guidance and oversight to ensure that the IFC operates in accordance with its mandate and objectives.

Mobilization of Capital in International Capital Markets

One of the key functions of the IFC is to mobilize capital in international capital markets. This means that the IFC raises funds from various sources, such as institutional investors, sovereign wealth funds, and private sector organizations, to finance its projects and investments in developing countries. The IFC plays a crucial role in attracting private sector investment to regions and sectors that are considered risky or underserved.

The IFC mobilizes capital in several ways:

1. Bond Issuances: The IFC issues bonds in international capital markets to raise funds. These bonds are attractive to investors because they are backed by the creditworthiness of the IFC and offer competitive returns. The proceeds from these bond issuances are used to finance the IFC's operations and investments.

2. Syndications: The IFC often partners with commercial banks and other financial institutions to co-finance projects in developing countries. Through syndications, the IFC mobilizes additional capital from the private sector to support its investments. This allows the IFC to leverage its resources and expand its impact.

3. Equity Investments: The IFC also makes equity investments in companies and projects in developing countries. These investments provide capital to support the growth and development of businesses, and the IFC's participation often attracts additional investment from other investors.

4. Financial Intermediaries: The IFC works with financial intermediaries, such as banks and microfinance institutions, to increase access to finance for small and medium-sized enterprises (SMEs) in developing countries. By providing funding and technical assistance to these intermediaries, the IFC helps them expand their lending activities and reach underserved markets.

Overall, the IFC plays a crucial role in mobilizing capital from international capital markets to support private sector development in developing countries. Its efforts help bridge the financing gap and promote economic growth and poverty reduction.

The correct answer is option 'A' - I only.

Explanation:
I. ICSID is a multilateral treaty formulated by executive directors of IBRD: This statement is correct. ICSID, which stands for the International Centre for Settlement of Investment Disputes, is indeed a multilateral treaty. It was formulated in 1965 by the executive directors of the International Bank for Reconstruction and Development (IBRD), which is also known as the World Bank. The purpose of ICSID is to provide a forum for the settlement of investment disputes between states and foreign investors.

II. All the countries have deposited their instruments of ratification, acceptance of the convention: This statement is incorrect. While many countries have indeed ratified or accepted the ICSID Convention, not all countries have done so. As of now, there are 163 countries that are party to the ICSID Convention. However, there are still some countries that have not ratified or accepted the convention. Therefore, statement II is incorrect.

In summary, statement I is correct, but statement II is incorrect. Hence, the correct answer is option 'A' - I only.

IDA and IBRD are two arms of the World Bank Group that provide financial assistance to countries. The International Development Association (IDA) focuses on providing financial support to the world's poorest countries, while the International Bank for Reconstruction and Development (IBRD) provides loans to middle-income and creditworthy low-income countries.

i. Low income countries are eligible to receive low interest loans from IDA:
This statement is correct. IDA provides low-interest loans and grants to the world's poorest countries to support their development efforts. These loans have significantly lower interest rates compared to market rates and are designed to help these countries overcome their economic and social challenges.

ii. India is eligible for a blend of financial assistance from IDA and IBRD:
This statement is also correct. India is classified as a middle-income country and is eligible to receive financial assistance from both IDA and IBRD. As a middle-income country, India can access both low-interest loans from IDA and market-based loans from IBRD. This blend of financial assistance allows India to meet its development needs and implement projects that require different types of financing.

India has been a beneficiary of IDA funding since its inception in 1960. Over the years, India has received significant financial support from the IDA to address poverty, improve infrastructure, and promote inclusive growth. At the same time, India has also accessed financing from IBRD to support its development priorities.

In conclusion, low-income countries are eligible to receive low-interest loans from IDA, and India, as a middle-income country, is eligible for a blend of financial assistance from both IDA and IBRD. This allows countries like India to access the necessary funding to address their development challenges and promote sustainable growth.