Weekly Current Affairs: Quizzes 03/10/2022 to 08/10/2022

EXPLANATION:

• Deposits are a liability on a commercial bank, since it must return its lenders the amount it owes them. Loans and Advances form assets of the bank. Also, Investments form the second largest component in the assets side of banks’ balance sheets after loans and advances as per a recent RBI report. So, the assets of the commercial bank in India are Cash in hand, Investments, Loans, Advances, Bills discounted and purchased, while the liabilities are Capital and Reserves, Deposits, Borrowings, and other liabilities. Hence option (b) is correct.

EXPLANATION:

• Inflation refers to the rise in the prices of most goods and services of daily or common use, such as food, clothing, housing, recreation, transport, consumer staples, etc. Inflation measures the average price change in a basket of commodities and services over time. Inflation makes goods produced abroad relatively less expensive, resulting in an increase in imports. It is more profitable for importing the goods from outside as the prices in the exporting country are the same while in the domestic market they have increased. Hence statement 1 is correct. 
• Inflation has an adverse effect on capital formation where reduction in savings as cost of living rises so less savings will lead to less investment and poor capital formation. Hence statement 2 is correct. 
• Debtors gain more from inflation because they repay creditors that are worth less in terms of purchasing power. Hence statement 3 is correct.

EXPLANATION:

• Capital-output ratio (COR) basically indicates the amount of capital required to produce one unit of output. For e.g. if 5 units of capital (machinery) is used to produce only 1 unit of cloth instead of the ideal requirement of only 2 units of capital (machinery) then we can say that the production is inefficient. If COR is high, despite saving high and generating enough capital, our output may not grow significantly because the COR is high. This may be a result of poor technology or poor management. It is also represented by the famous economic model called the Harrod-Domar Model where G x C = S Here G = Growth, C= ICOR or incremental capital output ratio and S= Savings. So, clearly with high savings growth or output may remain low because of high capital- output ratio. Hence option (d) is correct. 

EXPLANATION:

• Fiscal decentralization (FD) means devolution of power and responsibilities of national (central), government towards sub-national (local), governments. Hence statement 2 is correct. 
• Fiscal decentralization can take many forms including: 

1. a) self-financing or cost recovery through user charges, 
2. b) cofinancing or co-production arrangements through which the users participate in providing services and infrastructure through monetary or labor contributions; 
3. c) expansion of local revenues through property or sales taxes, or indirect charges. It also includes 
4. d) intergovernmental transfers that shift general revenues from taxes collected by the central government to local governments for general or specific uses; Hence statement 1 is correct.
5. e) authorization of municipal borrowing and the mobilization of either national or local government resources through loan guarantees. This is captured in the idea that spending and tax decisions must reflect local preferences as far as possible. That is, the share of own revenues (compared to devolved sources) in total revenues at lower levels of government should also reflect local preferences.

EXPLANATION:

• Income, or output, or profits of a company are concepts that make sense only when a time period is specified. These are called flows because they occur in a period of time. Therefore we need to delineate a time period to get a quantitative measure of these. Saving is measured per unit time and is a flow variable. Stocks are defined at a particular point of time. In contrast, capital goods or consumer durables once produced do not wear out or get consumed in a delineated time period. In fact, capital goods continue to serve us through different cycles of production. The buildings, machines, inventories in a factory are there irrespective of the specific time period. There can be an addition to or deduction from, if a new machine is added or a machine falls in disuse and is not replaced. These are called stocks. Hence option (a) is correct. (150 Word)

EXPLANATION:

• Minimum Support Price impacts the price of rice in India. The higher MSP would also dent Indian exporters’ competitiveness in the global markets, which have turned to be a buyers’ market. Hence statement 1 is correct.
• The government typically buys more than a third of the country's rice output at a fixed price, which also has a direct impact on prices paid by traders. With this price rise, exports will become expensive. Hence statement 2 is correct. 
• Stockpiling usually occurs at times of an actual or expected shortage of a product or in anticipation of a price rise. Hence statement 3 is correct. 
• The impact of the consumer subsidy is to lower prices for consumers but to increase the price received by producers. Hence statement 4 is correct. (128 Words)

EXPLANATION:

• Marginal standing facility (MSF) is a window for banks to borrow from the Reserve Bank of India in an emergency situation when interbank liquidity dries up completely. Banks borrow from the central bank by pledging government securities at a rate higher than the repo rate under liquidity adjustment facility or LAF in short. The MSF rate is pegged 100 basis points or a percentage point above the repo rate. Under MSF, banks can borrow funds up to one percent of their net demand and time liabilities (NDTL). In case of inflationary situations, RBI would increase the interest rate on MSF and during deflationary situations, RBI would decrease the interest rate on MSF. Hence option (a) is correct.  

EXPLANATION:

• The World Bank Group (WBG) consists of five organizations – IBRD, IDA, IFC, MIGA and ICSID. IFC is a member of the World Bank Group (WBG) and at the same time it’s called as the World Bank’s private sector lending arm with a stated objective to ensure that any financing does not result in harm to communities and the environment. Hence statement 1 is correct.
• The International Finance Corporation (IFC), the investment arm of the World Bank issued Masala bonds to fund infrastructure projects in India. They are rupee-denominated bonds issued to overseas buyers.
• IFC has been issuing offshore rupee bonds known as ‘Masala Bonds’. They provide a new source of funding for Indian companies which benefit in the longer term from comparative pricing of bonds. Hence statement 2 is correct.

EXPLANATION:

• Deficit financing is the budgetary situation where expenditure is higher than the revenue. It is a practice adopted for financing the excess expenditure with outside resources. The expenditure revenue gap is financed by either printing of currency or through borrowing. Sources of deficit financing are external aids which is the best money as a means to fulfill government deficit requirements. External grants are even better elements in this case which comes free. External borrowings are the next best way to manage fiscal deficit with the condition that the external loans are comparatively cheaper and long term. Hence option (d) is correct.

EXPLANATION:

• Global gender gap index is a part of this which measures gender equality across four pillars - they are economic opportunity, political empowerment, educational attainment, and health and survival. It has been published annually by the World Economic Forum since 2006. The report aims to serve “as a compass to track progress on relative gaps between women and men on health, education, economy, and politics”. Through this annual yardstick, the Report says, “stakeholders within each country are able to set priorities relevant in each specific economic, political and cultural context”. Hence option (a) is correct.

EXPLANATION:

• Percentage Share of GVA of Agriculture & Allied Sector to Total GVA (at current prices) 

• Percentage Share of GVA of Crop & Allied Sectors in Total Agriculture GVA (at current prices) 

• From the above figure, we can see that the GVA of the Agriculture & Allied Sector is not decreasing continuously. Hence, statement 1 is not correct.
• From the second Figure, we can see that Crop contribution in GVA is not decreasing consistently as it was stagnant in 2015-17, later decreased in 2018-19 and then again increased in 2019-20. Hence, statement 2 is not correct.

EXPLANATION: 

• India's BoP stood at US$ 634 billion on 31st December 2021 which is equivalent to 13.2 months of merchandise imports and is higher than the country’s external debt. In September 2022, India’s forex reserve reduced to US$ 553 Billion. Hence, statement 1 is correct.

• In Sep, 2022, India was the fifth largest foreign exchange reserves holder in the world after China, Japan, Switzerland and Russia. Hence, Statement 2 is not correct. 
• BoP consists of aggregate balance in both the Current Account and Capital Account. While the Current account balance is generally in deficit, the Capital Account is mostly in surplus but recently slipped to a deficit for the first time in 13 quarters. Hence, statement 3 is correct.