Ramesh Singh : Miscellaneous - 3

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Consider the following statements regarding depreciation.

  • This is wear and tear' in a fixed/immovable asset due to their use. For different assets the rates of depreciation are announced by the countries— the rates may vary across countries.

  • Depreciation is also used by countries as a tool of economic policy-for example, to boost the sales of heavy vehicles the Government of India has doubled the rate of depreciation of the vehicles (from 20 per cent to 40 per cent).


Consider the following statements in a situation when a currency goes for a devaluation.

1. Fall in the value of currency vis-a-vis a foreign currency

2. Exports become less competitive

3. Trading partners see fall in their export

4. Imports become costlier

Select the correct statements using the code given below:

  • Though devaluation in currencies are discouraged and negated with excessive Pressure coming from the trading partners of the country, it ultimately makes goods of the country cheaper in the world market-the economy earns profit from exports.

  • The increase in profit of export takes place due to the increase in 'volume' of the exports (but in reality, exporters forego more goods to earn the same amount of foreign currency).

  • As the foreign currency becomes costlier the country sees a decrease in its imports (provided its imports are non-compulsive) due to import substitution.


Deficit financing leads to inflation in general, but it can be checked if

Solution: The basic reason for price rises in the situations of deficit financing is that governments fail to equalise the total demand of the economy by the total supply.


Consider the following options if all banks in an economy are nationalised and converted into a monopoly bank.

1. Deposits will decrease in the new bank

2. Deposits will increase in the new bank

3. There will be no effect on either saving rate or lending

Select the correct option/options using the code given below:

Solution: Monopoly will discourage the depositors from putting money in the bank. The saving rate of the economy together with the lending activities of the bank will also get hampered.


Which of the following factors are responsible for a surplus in the current account of the economy?

1. Its exports are compulsory imports for other economies.

2. It imports low-technology items and exports high-technology items.

3. It has a huge domestic market.

4. Its imports are non-compulsive.

Select the answer using the code given below:

Solution: Having a huge domestic market never supports current accounts positively; it may impact the account negatively if its consumers are demanding more of the items which are being imported by the economy. In the case of India, the situation is: its imports are compulsive and most of its exports are non-compulsory for its trade partners.


Which of the following items appear in a company's balance sheet?

1. Value of raw materials held by the company.

2. Cash held in the banks in the company's current account.

3. Sales revenue of the company.

4. The issued capital of the company.

Select the answer using the code given below:

Solution: The revenue a company gets out of its sale of the manufactured items are not shown in the balance sheet of a company.


Which of the following statement defines the term 'insurance penetration'

Solution: Insurance penetration is defined as the ratio of underwritten premium in a given year to the GDP of an economy.


Consider the following statements regarding the state of full convertibility of the rupee in the current account.

1. 100 percent foreign currency is made available by the government at an official rate of exchange for all visible and invisible imports.

2. Foreign investment in the Indian security market, though an issue of the capital account, is considered as a matter of the current account for convertibility purposes.

3. In case of foreign grants, the rupee is partially convertible in India.

4. Rupee is fully convertible if someone needs foreign currency to go for medical treatment abroad.

Select the incorrect statement/statements using the code given below:

  • Foreign investments are of two types, viz., one is in the direct form and another in the indirect form (i.e., in the security market), both are considered capital inflows.

  • But in the case of convertibility, the security investment part of the foreign investment is considered a matter of current account to make it liquid in which rupee is fully convertible (otherwise no foreign investor will come to invest in the share market).

  • Going abroad is a matter of current account, thus rupee is fully convertible for this purpose.


Which of the following is correct about the 'ex-factory price'?

Solution: Ex-factory price and Ex-showroom price are the same. Factory price is the factor cost.


Select the statement which correctly defines the concept of 'debt trap'?

Solution: Many of the high indebted countries in sub-Saharan Africa fall under this category. India was very close to a similar situation in early 2000.
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