Q.1 Which among the following assets in the Exchange Traded Funds can be traded on

stock exchanges ?
1) Bonds
2) Commodities
3) Stocks
Codes:
A) 1 & 3
B) 2 & 3
C) 1 & 2
D) 1,2,3
Ans. D
An exchange-traded fund (ETF) is an investment fund traded on stock exchanges,

much like stocks.
Most ETFs track an index, such as a stock index or bond index. ETFs may be

attractive as investments because of their low costs, tax efficiency, and stock-

like features. ETFs are the most popular type of exchange-traded product.
Only authorized participants, which are large broker-dealers that have entered

into agreements with the ETF's distributor, actually buy or sell shares of an ETF

directly from or to the ETF, and then only in creation units, which are large

blocks of tens of thousands of ETF shares, usually exchanged in-kind with baskets

of the underlying securities.

Q.2 Consider the following statements:
In competitive markets, incidence of tax
1. Is shared by buyers and sellers.
2. On buyers increases if elasticity of supply decreases.
3. Is fully borne by buyers if elasticity of demand is zero.
4. Is independent of elasticities.
Which of the following statements are correct?
A) 1 & 2 only
B) 1,2 & 3 only
C) 3 & 4 only
D) 2 & 4only
Ans. B
A competitive market is one in which a large numbers of producers compete with

each other to satisfy the wants and needs of a large number of consumers. In a

competitive market no single producer, or group of producers, and no single

consumer, or group of consumers, can dictate how the market operates. Nor can

they individually determine the price of goods and services, and how much will be

exchanged. Competitive markets will form under certain conditions.

Q.3 Demographic dividend refers to a rise in population
A) Between the age group of 1 to 14 years.
B) Between the age group of 15 to 64 years.
C) Between the age group of 65 to 74 years.
D) Above 74 years.
Ans. B

Q.4 Which of the following are the limitations of National Income estimation in

India?
1. Output of non-monetized sector.
2. Non-availability of data about income of small producers or household

enterprises.
3. Unreported legal income.
4. Inflation.
Select the correct answer using the code given below:
A) 1,2 & 3 only
B) 1,2,3 & 4
C) 2 & 3 only
D) 1 & 4 only
Ans. A

Q.5 Consider the following statements regarding argument for free trade:
1. Free trade leads to maximization of output, income and employment.
2. Free trade prevents monopoly.
3. Free trade protects domestic industries.
Select the correct answer using the code given below:
A) 1 only
B) 1,2 & 3
C) 1 & 2 only
D) 2 & 3 only
Ans. C
Free trade is a policy in international markets in which governments do not

restrict imports or exports. Free trade is exemplified by the European Union /

European Economic Area and the North American Free Trade Agreement, which have

established open markets. Most nations are today members of the World Trade

Organization(WTO) multilateraltrade agreements. However, most governments still

impose some protectionist policies that are intended to support local employment,

such as applying tariffs to imports or subsidies to exports. Governments may also

restrict free trade to limit exports of natural resources. Other barriers that may

hinder trade include import quotas, taxes, and non-tariff barriers, such as

regulatory legislation.

Q.6 Which one of the following is implied by interest parity?
A) Interest rates are at par in all the countries.
B) Movements in spot rates and forward rates in the foreign exchange market are

same.
C) Potential holders of foreign currency deposits view them as not equally

desirable asset.
D) A condition that the expected returns on deposits of any two countries are

equal when measured in the same currency.
Ans. A

Interest rate parity is a no-arbitrage condition representing an equilibrium state

under which investors will be indifferent to interest rates available on bank

deposits in two countries. The fact that this condition does not always hold

allows for potential opportunities to earn riskless profits from covered interest

arbitrage. Two assumptions central to interest rate parity are capital mobility

and perfect substitutability of domestic and foreign assets. Given foreign

exchange market equilibrium, the interest rate parity condition implies that the

expected return on domestic assets will equal the exchange rate-adjusted expected

return on foreign currency assets. Investors then cannot earn arbitrage profits by

borrowing in a country with a lower interest rate, exchanging for foreign

currency, and investing in a foreign country with a higher interest rate, due to

gains or losses from exchanging back to their domestic currency at maturity.

Interest rate parity takes on two distinctive forms: uncovered interest rate

parity refers to the parity condition in which exposure to foreign exchange risk

(unanticipated changes in exchange rates) is uninhibited, whereas covered interest

rate parity refers to the condition in which a forward contract has been used to

cover (eliminate exposure to) exchange rate risk. Each form of the parity

condition demonstrates a unique relationship with implications for the forecasting

of future exchange rates: the forward exchange rate and the future spot exchange

rate.

Q.7 Which one of the following best describes the nineteenth century gold standard

system?
A) Regulated system with floating exchange rates.
B) Automatic system with fixed exchange rates.
C) Regulated system with fixed exchange rates.
D) Automatic system with floating exchange rates.
Ans. B

A gold standard is a monetary system in which the standard economic unit of

account is based on a fixed quantity of gold. Three types can be distinguished:

specie, exchange, and bullion.
• In the gold specie standard the monetary unit is associated with the value

of circulating gold coins or the monetary unit has the value of a certain

circulating gold coin, but other coins may be made of less valuable metal.
• The gold bullion standard is a system in which gold coins do not

circulate, but the authorities agree to sell gold bullion on demand at a fixed

price in exchange for the circulating currency.
• The gold exchange standard usually does not involve the circulation of

gold coins. The main feature of the gold exchange standard is that the government

guarantees a fixed exchange rate to the currency of another country that uses a

gold standard (specie or bullion), regardless of what type of notes or coins are

used as a means of exchange. This creates a de facto gold standard, where the

value of the means of exchange has a fixed external value in terms of gold that is

independent of the inherent value of the means of exchange itself.

Q.8 Tariffication refers to
A) Replacement of quotas by tarifs only.
B) Replacement of all existing non- tariff restrictions by tariff.
C) Scaling down of tariffs in general.
D) Obtaining sanction to increase tariff rates.
Ans. B

Q.9 The cost of factors of production, supplied by the enterprenuer himself are

known as:
A) Implicit cost
B) Explicit cost
C) Fixed cost
D) Variable cost
Ans. B

Q.10 Effective demand is that level of demand at which
A) Aggregate demand is more than aggregate supply.
B) Aggregate demand is less than aggregate supply.
C) Aggregate demand is equal to aggregate supply.
D) Output is maximum.
Ans. C

Effective demand is a representation of the actual amount of goods or services

that buyers are purchasing in a given market. Effective demand is the difference

between notional demand and latent demand. Effective demand is a reflection of the

extent to which buyers' income, perceptions and needs combine to result in an

actual purchase rather than a mere desire to purchase.

iibm

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