Quiz Questions 16 January 2023 (Key)

Q1.Which of the following factor/s determines flexible exchange rate?

1) Demand & Supply of exports and imports

2)Speculations

3)Investment in assets

Select the correct answer using the code given below:

1 only

1 and 3 only

2 and 3 only

1, 2 and 3

Explanation:

Exchange rates in the market depend not only on the demand and supply of exports and imports, and investment in assets, but also on foreign exchange speculation where foreign exchange is demanded for the possible gains from appreciation of the currency.

Q2.Which of the following is the largest export item from India in value terms?

Pharmaceutical Products

Electrical Machinery and Equipment Parts

Articles of Apparel and Clothing Accessories

Mineral fuels, oils and associated products of distillation

Explanation:

Mineral fuels, mineral oils and products of their distillation including products like coal and oil accounted for 16.92% of the total percentage share of India’s exports. These are date for FY 2010-11. Natural or cultured pearls, precious or semiprecious stones, and jewellery clad with precious metals and also coins accounted for 15.95% of total exports Vehicles other than railway or tramway rolling stock, and their parts and accessories accounted for 4.5%. Electrical machinery and their equipment and parts including products like televisions and sound recorders had a total share of 4.31% of the export basket

Q3.Sanitary and phytosanitary measures are related to?

Trade rules in WTO

Protection of indigenous biodiversity

Both (a) and (b)

None of the above

Explanation:

Sanitary and phytosanitary (SPS) measures are measures to protect humans, animals, and plants from diseases, pests, or contaminants. So, B is correct.The Agreement on the Application of Sanitary and Phytosanitary Measures is one of the final documents approved at the conclusion of the Uruguay Round of the Multilateral Trade Negotiations. So, A is correct.It applies to all sanitary (relating to animals) and phytosanitary (relating to plants) (SPS) measures that may have a direct or indirect impact on international trade.

Q4.The S&D box, with reference to WTO agreements, is related to?

Special exemptions for developing countries

Cross border customs clearances

Preferential rules of origin for LDCs

Phasing out of toxic substances in exports of developed countries

Explanation:

It comes under some of the crucial development-related issues in WTO which also include establishment of a Development Box, special and differential treatment (S&D) for developing countries, single commodity producers treatment, and the status of small island developing states (SIDS).S&D box gives the developing countries required flexibility in several WTO agreements to adapt to changed rules so as to create a level playing field with developed countries.

Q5.In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of traffic lights. Consider the following about it:

1)Most domestic support measures considered to distort production and trade fall into the amber box.

2)Green box subsidies are allowed even if they distort trade.

3)At present there are no limits on spending on blue box subsidies.

Select the correct answer using the codes below?

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

Explanation:

Statement 1: All domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box, which is defined as all domestic supports except those in the blue and green boxes.These include measures to support prices, or subsidies directly related to production quantities.These supports are subject to limits: “de minimis” minimal supports are allowed (5% of agricultural production for developed countries, 10% for developing countries) Statement 2: In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion. They have to be government-funded (not by charging consumers higher prices) and must not involve price support. Statement 3: Blue Box is the “amber box with conditions” — conditions designed to reduce distortion. Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production.At present there are no limits on spending on blue box subsidies. In the current negotiations, some countries want to keep the blue box as it is because they see it as a crucial means of moving away from distorting amber box subsidies without causing too much hardship.

Q6.Which of these are included in the “Current account” transactions of India with the world?

1)Trade balance for goods

2)Flow of remittances

3)Trade in invisibles

4)Grants given by foreign governments

Select the correct answer using the code below:

1, 2 and 4 only

3 and 4 only

1 and 2 only

1, 2, 3 and 4

Explanation:

The current account records exports and imports in goods and services and transfer payments. Trade in services denoted as invisible trade (because they are not seen to cross national borders) includes both factor income (payment for inputs-investment income, that is, the interest, profits and dividends on our assets abroad minus the income foreigners earn on assets they own in India) and non-factor income (shipping, banking, insurance, tourism, software services, etc.). Transfer payments are receipts which the residents of a country receive ‘for free’, without having to make any present or future payments in return. They consist of remittances, gifts and grants. They could be official or private.

Q7.Consider the following about “Trade Secrets”:

1)It is an informal term for ‘patents’ when recognized only within national borders.

2)It confers a competitive commercial advantage to those who possess such information.

3)It is regulated under TRIPS agreement.

Select the correct answer using the codes below?

1 only

2 and 3 only

2 only

1, 2 and 3

Explanation:

Statement 1 and 2: Protection of undisclosed information (or trade secrets) is any information that has been intentionally treated as secret and is capable of commercial application with an economic interest.It protects information that confers a competitive advantage to those who possess such information, provided such information is not readily available with or discernible by the competitors (for e.g. unique psychological marketing techniques not known to all). It is different from patents, which is a recognized innovation.Statement 3: TRIPS Agreement is, by its coverage, the most comprehensive international instrument on IPRs, dealing with all types of IPRs, with the sole exception of breeders’ rights. IPRs covered under the TRIPS agreement are: copyrights, trade secrets, patents, GIs, industrial designs etc.

Q8.India’s economic openness is measured by:

1)Volume of exports and imports

2)Private sector domestic investment growth

3)Ease of doing business index

Select the correct answer using the codes below?

1 and 2 only

2 and 3 only

3 only

1 only

Explanation:

The Openness Index is an economic metric calculated as the ratio of country’s total trade, the sum of exports plus imports, to the country’s gross domestic product = (Exports + Imports) / (Gross Domestic Product).The interpretation of the Openness Index is: the higher the index the larger the influence of trade on domestic activities, and the stronger that country’s economy.Ease of doing business index is a passive indicator of openness, and openness as such is not measured by it.

Q9.The “Dutch Disease” refers to:

1)Impact of loose monetary policies on long-term growth prospects

2)Hyperinflation resulting from an inflow of foreign exchange

Which of the above is/are correct?

1 only

2 only

Both 1 and 2

None

Explanation:

When an increase in one form of net exports drives up a country’s exchange rate, it is called the Dutch Disease. Such instances make other exports non-competitive in the world market and impair the ability of domestic products to compete with imports. The term originated from the supposed effect of natural gas discoveries on the Netherlands economy. As gas started to be exported, it lead to appreciation of their currency and rendered other exports noncompetitive thereby harming the economy.

Q10.Which of the following is NOT an example of a trade barrier?

Allowing only a fixed amount of commodities to be exported or imported irrespective of supply-demand situations

Capping foreign direct investment in sensitive sectors

Imposing unreasonable standards on quality of imports

Tax on imports

Explanation:

Option 1: An import quota is a type of protectionist trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time. So, A is correct.

Option 2: FDI is related to the capital sector and overall investment policy of the nation. FDI is not considered a trade component. So, B is wrong.

Option 3: Such standards can effectively clog imports from competitor nations, for e.g. China in case of India.

Option 4: A barrier to trade is a government-imposed restraint on the flow of international goods or services. The most common barrier to trade is a tariff—a tax on imports. Tariffs raise the price of imported goods relative to domestic goods (goods produced at home). So, D is correct.

Q11.Considering the degree of economic integration, arrange the following in the increasing order of integration:

1)Free Trade Agreement

2)Economic Union.

3)Preferential trading area.

4)Customs Union.

Which of the above is/are correct?

III-I-IV-II

I-II-III-IV

III-I-II-IV

I-III-II-IV

Explanation:

The degree of economic integration can be categorized into the following seven stages:1-Preferential trading area 2-Free-trade area 3-Customs union 4-Single market 5-Economic union 6-Economic and monetary union 7-Complete economic integration

Q12.Which of the following can be the key adverse effects on the economy due to persistent trade deficit?

1)It forces a country to constantly look to foreign investors to make up the gap between its export earnings and its import payouts.

2)It leads to a steadily weakening home currency.

3)It weakens domestic industries and decreases job opportunities.

Choose correct answer:

3 only

2 and 3

1 and 2

1, 2 and 3

Explanation:

The country’s demand for dollars (foreign exchange) is usually greater than the supply. This leads to a steadily weakening home currency. Hence, statement 2 is correct.A high trade deficit also forces a country to constantly look to foreign investors to make up the gap between its export earnings and its import payouts. Hence, statement 1 is correct.In a slow-growing world, a rising trade deficit could be an indication that domestically produced goods are unable to compete against imports. If local factories shut down, that leads to job losses. Hence, statement 3 is correct.

Q13.Consider the following statements regarding Transfer payments:

1)Transfer payments are receipts which the residents of a country receive ‘for free’.

2)They consist of remittances, gifts and grants.

3)They could be given by the government or by private citizens living abroad

Which of the above statements is/are correct?

1 and 2 only

1 and 3 only

2 and 3 only

1, 2, 3

Explanation:

Transfer payments are the receipts which the residents of a country get for ‘free’, without having to provide any goods or services in return.They consist of gifts, remittances and grants.They could be given by the government or by private citizens living abroad.

Q14.Consider the following statements:

1)Between 2015 and 2019, India’s trade with USA has increased continuously.

2)Between 2015 and 2019, India’s trade with China has reduced continuously.

3)In the year 2020, India’s trade with China was higher than India’s trade with USA.

Which of the above statements is/are correct?

1 only

1 and 2 only

1 and 3 only

2 and 3 only

Explanation:

Trade between India and China from January to December 2020 stood at $77.67 billion. Though lower than the $85.47 billion traded between the countries in the 2019 calendar year, this figure was still higher than the $75.95 billion traded between India and the US last year.

Q15.An inverted duty structure for a particular product will tend to discourage its:

1)Domestic value addition

2)Associated Foreign Direct Investment

3)Import of finished goods as compared to its raw material

Select the correct answer code:

1 and 2 only

2 and 3 only

1 and 3 only

2 only

Explanation:

Inverted duty structure is a situation where import duty on finished goods is low compared to the import duty on raw materials that are used in the production of such finished goods.When the import duty on raw materials is high, it will be more difficult to produce the concerned good domestically at a competitive price. Several industries depend on imported raw materials and components. High tax on the raw materials compels them to raise price.The disadvantage of the inverted duty structure increases with the increased use of imported raw materials. An inverted duty structure discourages domestic value addition.On the other hand, foreign finished goods will be coming at a reduced price because of low tax advantage. In conclusion, manufactured goods by the domestic industry becomes uncompetitive against imported finished goods. In such a case, even foreign investors would not be interested in setting up a firm for production in the country.Statement 3: It will be just the opposite.

Q16.Which of the following is not a non-tariff measure?

Technical Barriers to Trade

Phytosanitary restrictions

Import licencing procedures

All of the above are non-tariff measures.

Explanation:

Non-tariff measure (NTMs) are defined as policy measures, other than ordinary customs tariffs, that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both.As a result, NTMs cover a broad range of policies including traditional trade policy instruments, such as quotas or price controls.However, they also comprise technical regulatory measures that pursue important non-trade objectives that relate to health and environmental protection, such as Sanitary and Phytosanitary (SPS) measures and Technical Barriers to Trade (TBT).

Q17.Consider the following statements regarding Anti-Dumping Duty:

1)Countries carry out anti-dumping probes to determine whether their domestic industries have been hurt because of a surge in cheap imports.

2)Countries impose Anti-Dumping duties outside the regime of the World Trade Organization (WTO).

3)In India, Directorate General of Trade Remedies (DGTR), under the Ministry of Commerce & Industry conducts anti-dumping investigations.

Which of the above statements is/are correct?

1 only

1 and 2 only

1 and 3 only

1, 2 and 3

Explanation:

Countries carry out anti-dumping probes to determine whether their domestic industries have been hurt because of a surge in cheap imports. Hence, statement 1 is correct.As a counter measure, they impose duties under the multilateral regime of the World Trade Organization (WTO). Hence, statement 2 is not correct.Dumping is a process wherein a company exports a product at a price that is significantly lower than the price it normally charges in its home (or its domestic) market.Directorate General of Trade Remedies (DGTR) conducts anti-dumping investigations, under the Customs Tariff Act, 1975 and the rules made thereunder, on the basis of a duly substantiated application filed by the domestic industry alleging dumping of goods into the country causing injury to the domestic industry. The basic intent of anti-dumping measures is to eliminate injury caused to the domestic industry by the unfair trade practice of dumping and to create a level playing field for the domestic industry. Hence, statement 3 is correct.

Q18.Consider the following statements regarding Generalized System of Preferences (GSP):

1)The Generalized System of Preferences (GSP) is a preferential tariff system which provides tariff reduction on various products.

2)GSP can be imposed only on developing country.

3)GSP comes outside the purview of WTO.

Which of the above statements is/are correct?

1 only

1 and 2 only

1 and 3 only

1, 2 and 3

Explanation:

The Generalized System of Preferences, or GSP, is a preferential tariff system which provides tariff reduction on various products. The concept of GSP is very different from the concept of “most favored nation” (MFN). MFN status provides equal treatment in the case of tariff being imposed by a nation but in case of GSP differential tariff could be imposed by a nation on various countries depending upon factors such as whether it is a developed country or a developing country. Hence, statement 1 is correct.Both the rules comes under the purview of WTO. Hence, statement 2 is not correct.GSP provides tariff reduction for least developed countries but MFN is only for not discriminating among WTO members.

Q19.Consider the following statements:

1)Trade-Related Aspects of Intellectual Property Rights (TRIPS) was promoted by the World Trade Organization in 1995 for uniform global IPR rules.

2)TRIPS does not have a provision to enable governments to enforce ‘compulsory licensing’.

Which of the above statements is/are correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Explanation:

Trade-Related Aspects of Intellectual Property Rights (TRIPS) regime was promoted by the World Trade Organization in 1995 for uniform global IPR rules. TRIPS is founded on the principle of “product patents”.TRIPS does have a provision to enable governments to enforce ‘compulsory licensing’. They can demand that an innovator company must allow domestic, lower cost, producers to increase the supply of the drug in an emergency, with compensation to the inventor of course.

Q20.Consider the following statements regarding Bound rates or Bound Tariffs:

1)Bound rate is the maximum rate of duty (tariff) that can be imposed by the importing country on an imported commodity.

2)Bound rate agreed for any commodity at WTO is same for all the members of WTO.

Which of the above statements is/are not correct?

1 only

2 only

Both 1 and 2

Neither 1 nor 2

Explanation:

Bound rate is the maximum rate of duty (tariff) that can be imposed by the importing country on an imported commodity. Here, each country commits itself to a ceiling on customs duties (tariff) on a certain number of products. Hence, statement 1 is correct.These rates vary from country to country and commodity to commodity. But no country can raise duties above the bound rate it has committed, and the rate of customs duty actually applied may be lower than the bound rate. Hence, statement 2 is not correct.