Balance of Payments and Foreign Trade — GK Questions with Answers

1. What is the best way to describe the Balance of Payments (BoP)
   1. Only a record of capital flows
   2. Only transactions relating to exports and imports
   3. Only the receipts and payments of invisible items
   4. A systematic record of all of a country's economic transactions with the rest of the world
   Show answer

   Answer: (D) A systematic record of all of a country's economic transactions with the rest of the world

   BoP is not limited to trade or to capital alone — it is the complete record of every kind of economic transaction.

2. Which one of the following is not part of the current account of the Balance of Payments
   1. Export and import of goods
   2. Export and import of services
   3. Income receipts and payments
   4. Capital receipts and payments
   Show answer

   Answer: (D) Capital receipts and payments

   Capital receipts and payments belong to the capital account, not the current account, which carries only goods, services and income.

3. Which of these describes an investment made purely for financial gain, which creates no lasting interest in, or effective management control over, an enterprise
   1. Foreign Direct Investment
   2. Portfolio Investment
   3. Equity Direct Investment
   4. Both (a) and (c)
   Show answer

   Answer: (B) Portfolio Investment

   Portfolio Investment carries no control, only the intent of financial gain — that is exactly what separates it from FDI.

4. In which years was India's trade balance favourable — (BPSC, 2015)
   1. 1970-71 and 1974-75
   2. 1972-73 and 1976-77
   3. 1972-73 and 1975-76
   4. 1971-72 and 1976-77
   Show answer

   Answer: (B) 1972-73 and 1976-77

   In these two years India's exports exceeded its imports, which was unusual for that period.

5. Which of these is not a recommendation of the Arvind Mayaram Committee (June 2014) on rationalising the FDI/FPI definition
   1. Foreign investment of 10% or more in a listed company will be treated as FDI
   2. In a given company, an investor can hold investment under either the FPI route or the FDI route, but not both
   3. Investment of less than 10% of post-issue paid-up equity, through equity shares or compulsorily convertible preference shares/debentures, will be treated as FPI
   4. For NRI investors, the committee recommended treating non-repatriable investment as FDI
   Show answer

   Answer: (D) For NRI investors, the committee recommended treating non-repatriable investment as FDI

   The committee actually recommended treating such investment as domestic investment, not as FDI — which makes this option the wrong one.

6. Which country is the largest source of Foreign Direct Investment into India
   1. The United States
   2. Switzerland
   3. Singapore
   4. Mauritius
   Show answer

   Answer: (C) Singapore

   Singapore led as the source of FDI into India in 2020-21, followed by the United States.

7. Which of the following is/are not FDI policy changes made after 2010 — (NDA, 2016) 1. Permission of 100% FDI in the automotive sector. 2. Permitting foreign airlines to make FDI of up to 49%. 3. Permission of up to 51% FDI in multi-brand retailing under the government approval route, subject to conditions. 4. Amendment of the single-brand retail FDI policy to align with global practice.
   1. Only 1
   2. 2 and 4
   3. 1 and 2
   4. 1, 2 and 3
   Show answer

   Answer: (A) Only 1

   100% FDI in the automotive sector had already been allowed before 2010, so it is not a change that came after 2010.

8. Which factor is taken into account while calculating a country's Balance of Payments
   1. The current account
   2. Changes in foreign exchange reserves
   3. Errors and omissions
   4. All of the above
   Show answer

   Answer: (D) All of the above

   BoP is built from all three together — the current account, the capital account (which includes reserve changes), and net errors and omissions.

9. Which statement about India's Balance of Payments in 2013-14 is not correct
   1. India's exports were less than its imports
   2. The trade balance was negative
   3. Net invisibles were positive
   4. The capital account balance was negative
   Show answer

   Answer: (D) The capital account balance was negative

   The capital account balance was actually positive (in surplus) in 2013-14, which makes this the incorrect statement.

10. With which of these countries does India run a negative bilateral trade balance — 1. China 2. Switzerland 3. South Korea
    1. Only 2
    2. 1 and 2
    3. Only 3
    4. 1, 2 and 3
    Show answer

    Answer: (D) 1, 2 and 3

    India runs a deficit with all three — China, Switzerland and South Korea are all among its top deficit partners.

11. Which item has seen the fastest growth in India's import basket over the last decade
    1. Project goods
    2. Iron and steel
    3. Petroleum products
    4. Cotton accessories
    Show answer

    Answer: (C) Petroleum products

    Of everything India buys from abroad, it is Petroleum, Oil and Lubricants (POL) whose import value has climbed the most.

12. Measures to reduce imports will directly
    1. Boost injections into the economy
    2. Reduce withdrawals from the economy
    3. Decrease injections into the economy
    4. Increase withdrawals from the economy
    Show answer

    Answer: (B) Reduce withdrawals from the economy

    Imports are counted as a withdrawal from the circular flow of the economy, so cutting imports cuts this withdrawal.

13. Five separate earlier schemes were merged into which single scheme
    1. Service Exports from India Scheme
    2. Merchandise Exports from India Scheme
    3. Pradhan Mantri Swasthya Suraksha Yojana
    4. National Urban Health Mission
    Show answer

    Answer: (B) Merchandise Exports from India Scheme

    MEIS merged the Focus Product, Market Linked Focus Product, Focus Market, Agri Infrastructure Incentive and VKGUY schemes into one.

14. International trade is most likely to create short-term unemployment in
    1. Industries with neither imports nor exports
    2. Import-competing industries
    3. Industries selling to both domestic and foreign buyers
    4. Industries selling only to foreign buyers
    Show answer

    Answer: (B) Import-competing industries

    Cheap imports hit import-competing domestic industries first, since they compete directly with what is being imported.

15. Free traders argue that an open economy is advantageous in every way except
    1. Increased competition among world producers
    2. A wider choice of products for consumers
    3. Relatively high wage levels for all domestic workers
    4. The use of the most efficient methods of production
    Show answer

    Answer: (C) Relatively high wage levels for all domestic workers

    Open trade is held to be beneficial overall, but it offers no guarantee that every domestic worker will always earn a high wage — some industries do lose out.

16. The "terms of trade" between two countries refers to a ratio of
    1. Export prices to import prices
    2. Currency values
    3. Exports to imports, by quantity
    4. Balance of trade to Balance of payments
    Show answer

    Answer: (A) Export prices to import prices

    Terms of trade is the ratio of the average price of exports to the average price of imports.

17. Which of these are part of India's "bulk imports" — 1. Edible oil 2. Sugar 3. Medicinal and pharma products 4. Fertilisers 5. Petroleum crude and products
    1. 1, 3, 4, 5
    2. 1, 2, 4, 5
    3. 2, 3, 4, 5
    4. All of the above
    Show answer

    Answer: (B) 1, 2, 4, 5

    Edible oil, sugar, fertilisers and petroleum are bought in bulk; medicinal and pharma products are high-value but low-volume imports.

18. What was India's approximate share in world trade exports, at the time the book was written
    1. Less than 1%
    2. More than 1 but less than 4%
    3. More than 4 but less than 5%
    4. More than 5 but less than 7%
    Show answer

    Answer: (B) More than 1 but less than 4%

    India's share at that time stood in the 1-4% range; by the latest WTO figures it has risen to roughly 1.8-2.2%.

19. Which country had the largest trade surplus with India in 2020-21
    1. China
    2. The United States
    3. The UAE
    4. Singapore
    Show answer

    Answer: (B) The United States

    The United States gave India its largest trade surplus that year; China, by contrast, gives India its largest deficit.

20. In which budget did India declare the rupee fully convertible on the current account
    1. 1991-92
    2. 1994-95
    3. 1999-2000
    4. 2005-06
    Show answer

    Answer: (B) 1994-95

    Full convertibility on the current account, under IMF Article VIII, was declared in the 1994-95 budget.

21. On whose recommendation was the 10% line between FDI and FII fixed in 2013
    1. The Tarapore Committee
    2. The Arvind Mayaram Committee
    3. The Rangarajan Committee
    4. The Bimal Jalan Committee
    Show answer

    Answer: (B) The Arvind Mayaram Committee

    The Arvind Mayaram Committee (reporting in June 2014, though the process began in 2013) suggested this same 10% line.

22. From when did the SEZ Act, 2005 come into force
    1. 1 April 2005
    2. 10 February 2006
    3. 1 January 2007
    4. 15 June 2006
    Show answer

    Answer: (B) 10 February 2006

    The SEZ Act was passed in 2005 and came into force on 10 February 2006.

23. Where was Asia's first Export Processing Zone (EPZ) set up in India
    1. Surat
    2. Kandla
    3. Kochi
    4. Visakhapatnam
    Show answer

    Answer: (B) Kandla

    Kandla, in Gujarat, was Asia's first EPZ, set up in 1965.

24. In which year was the World Trade Organisation (WTO) established
    1. 1947
    2. 1991
    3. 1994
    4. 1995
    Show answer

    Answer: (D) 1995

    The WTO replaced GATT in 1995; GATT itself ran from 1947 to 1994.

25. Which NRI deposit account stays in foreign currency, rather than in rupees
    1. NRE
    2. FCNR-B
    3. NRO
    4. None of these
    Show answer

    Answer: (B) FCNR-B

    FCNR-B deposits are held in currencies such as the pound, the dollar, the yen or the euro; both NRE and NRO stay in rupees.

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