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What is the primary goal behind India and Russia's plan to establish a "dynamic reference rate" for their currencies?
  • a)
    To simplify financial transactions between the two countries
  • b)
    To reduce the impact of U.S. sanctions on Russia
  • c)
    To stabilize the exchange rates of the Indian Rupee and Russian Rouble
  • d)
    To encourage foreign investments in both countries
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
What is the primary goal behind India and Russia's plan to establish a...
India and Russia's plan to create a "dynamic reference rate" for their currencies primarily aims to reduce the impact of U.S. sanctions on Russia. By establishing a direct exchange rate between the Indian Rupee (INR) and the Russian Rouble (RUB), adjusted by their central banks, the initiative seeks to simplify financial transactions and strengthen economic ties between the two nations, especially amidst challenges posed by U.S. sanctions.
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What is the primary goal behind India and Russia's plan to establish a...
Introduction
India and Russia's initiative to establish a "dynamic reference rate" for their currencies primarily aims to mitigate the effects of U.S. sanctions imposed on Russia. This strategic financial maneuver is vital for both nations, especially in a rapidly changing geopolitical landscape.
Impact of U.S. Sanctions on Russia
- The sanctions have significantly restricted Russia's access to international financial systems.
- These restrictions have prompted Russia to seek alternative trading partners and financial arrangements.
- Establishing a reference rate allows Russia to conduct transactions more smoothly with India, reducing dependence on U.S. dollar-denominated transactions.
Strengthening Bilateral Trade
- A dynamic reference rate facilitates easier trade by allowing transactions to be conducted directly in local currencies.
- This reduces transaction costs and enhances the volume of trade between the two countries.
- The arrangement can help both countries to navigate around U.S. sanctions by minimizing dollar reliance.
Currency Stabilization
- By establishing a reference rate, both countries can work towards stabilizing their currencies against external shocks.
- It can provide a predictable framework for businesses and investors, encouraging economic activities.
Conclusion
In summary, while simplifying transactions and promoting investments are secondary benefits, the primary goal of establishing a dynamic reference rate between India and Russia is to reduce the impact of U.S. sanctions on Russia. This strategic alignment not only strengthens their economic ties but also enhances their resilience against external pressures.
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Directions: Read the passage carefully and answer the questions given beside.It is quite timely that the Interdepartmental Group of the RBI has released a report on the internationalization of the rupee. The talk of making currencies international has gathered momentum ever since the US put an embargo on dealing with Russia. By blocking all payments through the SWIFT system to Russia, the message sent was this can happen to any country. This has led countries to seriously discuss the issue of de-dollarisation, with the internationalization of local currency as part of the package. If a group of countries decides to conduct business with one another in their currencies, then an optimal solution can be achieved. But the issue is that there will always be surpluses with some countries and deficits for others. Those with a deficit are better off using such arrangements while those with surpluses may not know how to use the currencies as they are not acceptable outside this perimeter. Therefore, while the regulation on foreigners or Indians holding rupees outside India can be liberalized, getting countries to accept the same is the challenge. Currently, one is not allowed to carry more than 25,000 outside the country. An argument put forward often is that this should be withdrawn because if there are takers for the same outside, it saves dollars for the country.There are some interesting facts that need to be considered when one looks at the internationalization of currencies. The first is that today around 60 percent of the world’s forex reserves are held in dollars,20 percent in euros, and 55.5 percent in yen and pounds each. Hence 90 percent of the holdings are in these four currencies. While China has tried its best to make inroads, the share of its currency is a mere 2.6 percent; slightly higher than the Canadian and the Australian dollar at 2.4 percent and 2 percent, respectively. Therefore, the size of the economy does not matter today. China, despite being the second largest economy, is unable to find greater global acceptance of its currency. Second, the structure of exports throws light on another aspect of global currencies. If a country exports a lot of goods, then there can be an incentive for countries to accept the currency as a mode of payment. World Bank data for 2021 shows that the euro region accounted for 26 percent of total global exports of $28.16 trillion. The US accounts for a share of only 9 percent, but the dollar is favored globally when it comes to holding forex reserves. China has the second-highest share in exports of 13.6 percent, but accounts for a much lower share in forex reserves. Japan follows next with 3.2 percent, Singapore 2.8 percent, South Korea 2.7 percent, Hong Kong 2.7 percent and India with 2.4 percent. Canada, Singapore and Russia had shares of around 2 percent each while Australia had a share of just 1.2 percent. The Australian dollar, however, is a preferred currency by the IMF when it comes to forex reserve holdings. India comes 9th in this ranking, and can hence pitch for inclusion as an international currency.Q.Which of the following statements, when considered in the context of the passage, undermines the notion that the stability and trustworthiness of the US dollar as a reserve currency, supported by the economic and geopolitical influence of the United States, make it the preferred choice for global investors and central banks?

Directions: Read the passage carefully and answer the questions given beside.It is quite timely that the Interdepartmental Group of the RBI has released a report on the internationalization of the rupee. The talk of making currencies international has gathered momentum ever since the US put an embargo on dealing with Russia. By blocking all payments through the SWIFT system to Russia, the message sent was this can happen to any country. This has led countries to seriously discuss the issue of de-dollarisation, with the internationalization of local currency as part of the package. If a group of countries decides to conduct business with one another in their currencies, then an optimal solution can be achieved. But the issue is that there will always be surpluses with some countries and deficits for others. Those with a deficit are better off using such arrangements while those with surpluses may not know how to use the currencies as they are not acceptable outside this perimeter. Therefore, while the regulation on foreigners or Indians holding rupees outside India can be liberalized, getting countries to accept the same is the challenge. Currently, one is not allowed to carry more than 25,000 outside the country. An argument put forward often is that this should be withdrawn because if there are takers for the same outside, it saves dollars for the country.There are some interesting facts that need to be considered when one looks at the internationalization of currencies. The first is that today around 60 percent of the world’s forex reserves are held in dollars,20 percent in euros, and 55.5 percent in yen and pounds each. Hence 90 percent of the holdings are in these four currencies. While China has tried its best to make inroads, the share of its currency is a mere 2.6 percent; slightly higher than the Canadian and the Australian dollar at 2.4 percent and 2 percent, respectively. Therefore, the size of the economy does not matter today. China, despite being the second largest economy, is unable to find greater global acceptance of its currency. Second, the structure of exports throws light on another aspect of global currencies. If a country exports a lot of goods, then there can be an incentive for countries to accept the currency as a mode of payment. World Bank data for 2021 shows that the euro region accounted for 26 percent of total global exports of $28.16 trillion. The US accounts for a share of only 9 percent, but the dollar is favored globally when it comes to holding forex reserves. China has the second-highest share in exports of 13.6 percent, but accounts for a much lower share in forex reserves. Japan follows next with 3.2 percent, Singapore 2.8 percent, South Korea 2.7 percent, Hong Kong 2.7 percent and India with 2.4 percent. Canada, Singapore and Russia had shares of around 2 percent each while Australia had a share of just 1.2 percent. The Australian dollar, however, is a preferred currency by the IMF when it comes to forex reserve holdings. India comes 9th in this ranking, and can hence pitch for inclusion as an international currency.Q.Considering the passage, which of the following statements would the author most likely oppose or find disagreement with?

Directions: Read the passage carefully and answer the questions given beside.It is quite timely that the Interdepartmental Group of the RBI has released a report on the internationalization of the rupee. The talk of making currencies international has gathered momentum ever since the US put an embargo on dealing with Russia. By blocking all payments through the SWIFT system to Russia, the message sent was this can happen to any country. This has led countries to seriously discuss the issue of de-dollarisation, with the internationalization of local currency as part of the package. If a group of countries decides to conduct business with one another in their currencies, then an optimal solution can be achieved. But the issue is that there will always be surpluses with some countries and deficits for others. Those with a deficit are better off using such arrangements while those with surpluses may not know how to use the currencies as they are not acceptable outside this perimeter. Therefore, while the regulation on foreigners or Indians holding rupees outside India can be liberalized, getting countries to accept the same is the challenge. Currently, one is not allowed to carry more than 25,000 outside the country. An argument put forward often is that this should be withdrawn because if there are takers for the same outside, it saves dollars for the country.There are some interesting facts that need to be considered when one looks at the internationalization of currencies. The first is that today around 60 percent of the world’s forex reserves are held in dollars,20 percent in euros, and 55.5 percent in yen and pounds each. Hence 90 percent of the holdings are in these four currencies. While China has tried its best to make inroads, the share of its currency is a mere 2.6 percent; slightly higher than the Canadian and the Australian dollar at 2.4 percent and 2 percent, respectively. Therefore, the size of the economy does not matter today. China, despite being the second largest economy, is unable to find greater global acceptance of its currency. Second, the structure of exports throws light on another aspect of global currencies. If a country exports a lot of goods, then there can be an incentive for countries to accept the currency as a mode of payment. World Bank data for 2021 shows that the euro region accounted for 26 percent of total global exports of $28.16 trillion. The US accounts for a share of only 9 percent, but the dollar is favored globally when it comes to holding forex reserves. China has the second-highest share in exports of 13.6 percent, but accounts for a much lower share in forex reserves. Japan follows next with 3.2 percent, Singapore 2.8 percent, South Korea 2.7 percent, Hong Kong 2.7 percent and India with 2.4 percent. Canada, Singapore and Russia had shares of around 2 percent each while Australia had a share of just 1.2 percent. The Australian dollar, however, is a preferred currency by the IMF when it comes to forex reserve holdings. India comes 9th in this ranking, and can hence pitch for inclusion as an international currency.Q.Which of the following statements can be inferred from the primary argument of the passage?

Direction: Read the following passage carefully and answer the questions given below:In view of the threat posed by private currencies such as cryptos, CBDCs (Central Bank Digital Currency) may seem to be the need of the hour to meet the threat of loss of monetary and later fiscal authority of the sovereign. There are no two opinions on the efficacy of the CBDCs (the Indian version being e-R) if juxtaposed only against the use of private currencies. In that case, the RBI’s e-R pilot is a welcome step. However, the story does not end there. One has to be essentially naive to ignore the larger implications of the overall political economy of digitalisation being attempted in a class-ridden capitalist economy in the neoliberal era. The way the debate is being put across by mainstream media, it appears that as bona fide citizens our choice is limited: digitalise or perish. In such a debate, the dominant voice, as usual, is of the government and of interests represented by finance capitalists. The increasing question and danger of surveillance by the government and curtailment of individual freedom are now expectedly occupying a back seat. However, the danger is real, even with CBDCs. Interestingly, while discussing the possibility of a CBDC in the United Kingdom in 2021, Sir Jon Cunliffe, the Bank of England’s Deputy Governor for Financial Stability, said that programming a digital currency for commercial or social purposes was something the British government needed to consider. He said: “You could think of giving your children pocket money, but programming the money so that it couldn’t be used for sweets.”There is another danger of data being collected and eventually used while one transacts on a digital platform, unlike in cash/currency transactions, where such possibility is eliminated ab initio. So, “programmable digital currency” is a real danger that will likely be a reality in the neoliberal era. Despite the advantages of a digital rupee, there is clear and present danger that its use would be closely monitored by the state, thereby leading to curtailment of individual freedom, huge abuse of data mining, and exponential growth of businesses based on digitalisation. In a country like India, with the existence and frequent reported abuses of the Telegraph Act, 1885, (notwithstanding the safeguards introduced following a Supreme Court judgment in 2007) to eavesdrop on citizens’ communications, the danger of surveillance by the state even in bona fide private exchange of digital currency is a cause for concern despite the assurances given by the RBI Governor.Q.Based on the information provided in the passage, which of the following statements can be inferred?

Directions: Read the given passage and answer the question that follows.With the European Central Bank expressing its intention to evaluate a Central Bank issued Digital Currency (CBDC) for the Euro Zone, it is apparent that regulators can no longer shrug aside digital currencies as a passing fad, or look upon them with suspicion. ECB President Christine Lagardes statement that the Bank may be ready to launch a digital currency in two to four years, viewed along with the public consultation on CBDC initiated by the ECB, suggests that the EU is serious about launching an official digital currency to boost digital payments. China may, however, be the first in this race; work on a CBDC has already begun and the Digital Currency Electronic Payment (DCEP) is currently being pilot tested in many Chinese cities. The need for a digital currency arises from two main factors: marginalising the use of cryptocurrency by anonymous non-State actors, often for nefarious ends; and moving to cashless transactions to curb tax evasion. Indian regulators are yet to start work on developing a government-backed digital currency, though there were reports of the RBI exploring its feasibility around three years back. Other countries including the US and the UK are also treading cautiously, awaiting thorough due diligence before venturing into this space. Governments and monetary authorities are apprehensive for good reasons. The past decade has been a roller-coaster for cryptocurrencies, led by Bitcoin, with frenzied rallies, large declines and numerous scams involving money laundering, terror financing and drug trafficking. The RBI had, in 2018, directed financial institutions against facilitating transactions involving crypto currencies, leading to many crypto trading platforms shutting down. The anarchic design of crypto currencies — creation as well as maintenance in the hands of the public, with no government supervision and ease of cross-border payments — renders them vulnerable to malpractice. The RBIs stance that it is against any privately issued digital currency is unexceptionable, as these currencies are not backed by any asset. Yet, a legal digital currency is not without advantages. The RBI should follow Chinas and the EUs example to start work on a digital currency for India. The advantages are numerous. One, official digital currencies can play an important role in weaning users away from using cash, which will help control tax evasion. Two, CBDCs will be pegged to the fiat currency and hence will not witness the volatility being seen in crypto currencies. Three, official digital currencies will be legal tender with sovereign backing, thus protecting consumers. Four, it will help distract investors from the current bunch of crypto assets that are highly risky. The feasibility study, design, testing and implementation are likely to take years, once the RBI decides on this path. It would, therefore, be best to set up a committee to begin working on this project — looking into its impact on macroeconomy and liquidity, banking systems and money markets.Q. The central banks are anxious about launching a digital currency controlled by them because of

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What is the primary goal behind India and Russia's plan to establish a "dynamic reference rate" for their currencies?a)To simplify financial transactions between the two countriesb)To reduce the impact of U.S. sanctions on Russiac)To stabilize the exchange rates of the Indian Rupee and Russian Roubled)To encourage foreign investments in both countriesCorrect answer is option 'B'. Can you explain this answer?
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What is the primary goal behind India and Russia's plan to establish a "dynamic reference rate" for their currencies?a)To simplify financial transactions between the two countriesb)To reduce the impact of U.S. sanctions on Russiac)To stabilize the exchange rates of the Indian Rupee and Russian Roubled)To encourage foreign investments in both countriesCorrect answer is option 'B'. Can you explain this answer? for CLAT 2025 is part of CLAT preparation. The Question and answers have been prepared according to the CLAT exam syllabus. Information about What is the primary goal behind India and Russia's plan to establish a "dynamic reference rate" for their currencies?a)To simplify financial transactions between the two countriesb)To reduce the impact of U.S. sanctions on Russiac)To stabilize the exchange rates of the Indian Rupee and Russian Roubled)To encourage foreign investments in both countriesCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for CLAT 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What is the primary goal behind India and Russia's plan to establish a "dynamic reference rate" for their currencies?a)To simplify financial transactions between the two countriesb)To reduce the impact of U.S. sanctions on Russiac)To stabilize the exchange rates of the Indian Rupee and Russian Roubled)To encourage foreign investments in both countriesCorrect answer is option 'B'. Can you explain this answer?.
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