ASKiIMAN™
NEXUS / 2022 / GS1
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UPSC 2022: Nexus 61—70

Capital Flight, Web3, Geopolitics, and Regulatory Institutions. [Set A]

Question 61

Global Macroeconomics

Consider the following statements:

  1. Tight monetary policy of US Federal Reserve could lead to capital flight.
  2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
  3. Devaluation of domestic currency decreases the currency risk associated with ECBs.

Which of the statements given above are correct?

Official Verdict: (a) 1 and 2 only

The Core Concept: When the US Fed tightens monetary policy (raises interest rates), US Treasury bonds become highly attractive. Investors pull money out of emerging markets like India ("capital flight") to chase those safe yields (1 is true). As capital leaves, the Rupee depreciates against the Dollar. If an Indian firm has taken an ECB (a loan in Dollars), a weaker Rupee means they now need more Rupees to repay the same Dollar debt, increasing their interest and servicing costs (2 is true). Therefore, devaluation of the domestic currency massively increases (not decreases) the currency risk associated with ECBs (3 is false).

Tethered to: REALM 166: Global Interest Rates & India

US FED (Rates ↑) $ Indian Firm Debt Risk ↑ Devaluation INCREASES risk! (3 is false)
HP (Kangra) Tripura AP (Araku) Kerala (Munnar)

Question 62

Economic Geography

Consider the following States:

  1. Andhra Pradesh
  2. Kerala
  3. Himachal Pradesh
  4. Tripura

How many of the above are generally known as tea-producing States?

Official Verdict: (d) All four States

The Core Concept: While Assam and West Bengal dominate India's tea production, all four of these states commercially cultivate tea. Kerala is famous for Munnar tea. Himachal Pradesh produces the GI-tagged Kangra tea. Tripura is historically a significant tea producer in the Northeast. The trap is Andhra Pradesh, but AP successfully cultivates high-altitude organic tea in the Araku Valley of the Eastern Ghats. Thus, all four are correct.

Tethered to: REALM 34: Tea

Question 63

Financial Market Regulation

Consider the following statements:

  1. In India, credit rating agencies are regulated by Reserve Bank of India.
  2. The rating agency popularly known as ICRA is a public limited company.
  3. Brickwork Ratings is an Indian credit rating agency.

Which of the statements given above are correct?

Official Verdict: (b) 2 and 3 only

The Core Concept: Credit Rating Agencies (CRAs) assess the creditworthiness of corporate and government debt instruments (like bonds and debentures) which are traded in capital markets. Therefore, in India, CRAs are strictly regulated by the market regulator SEBI (Securities and Exchange Board of India), not the RBI (Statement 1 is false). ICRA is a leading CRA and is a listed public limited company (2 is true). Brickwork Ratings (BWR) is indeed an Indian CRA registered with SEBI (3 is true).

Tethered to: REALM 122: Financial Markets

ICRA (2) AAA Brickwork BBB- SEBI Not RBI ❌
BBB Not RBI Gov ❌ Recommends PSU Heads (2) Capital Strategy

Question 64

Banking Reforms

With reference to the 'Banks Board Bureau (BBB)', which of the following statements are correct?

  1. The Governor of RBI is the Chairman of BBB.
  2. BBB recommends for the selection of heads for Public Sector Banks.
  3. BBB helps the Public Sector Banks in developing strategies and capital raising plans.

Select the correct answer using the code given below.

Official Verdict: (b) 2 and 3 only

The Core Concept: The BBB was set up in 2016 (now replaced by the Financial Services Institutions Bureau - FSIB) based on the P.J. Nayak Committee's recommendations. Its primary mandate was to professionalize the management of Public Sector Banks by recommending top executives (MDs and CEOs) (2 is true) and assisting them with governance, capital raising, and business strategies (3 is true). The Chairman was an independent professional appointed by the Central Government, not the RBI Governor (1 is false).

Tethered to: REALM 132: Public Sector Banks

Question 65

Financial Instruments

With reference to Convertible Bonds, consider the following statements:

  1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest.
  2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.

Which of the statements given above is/are correct?

Official Verdict: (c) Both 1 and 2

The Core Concept: A convertible bond is a hybrid corporate debt instrument. Because it gives the investor a highly valuable "sweetener"—the right to convert the debt into company stock (equity) if the company performs well—investors are willing to accept a lower interest (coupon) rate upfront compared to plain-vanilla non-convertible bonds (1 is true). Furthermore, because equity shares intrinsically capture inflation (as companies raise product prices, their revenues and stock prices generally rise), the ability to convert into equity inherently protects the investor's real return against inflation/rising consumer prices (2 is true).

Tethered to: REALM 123: Financial Assets

BOND Low Interest (1) CONVERTS EQUITY Inflation Hedge (2)
INDIA AIIB (2016) MTCR (2016) SCO (2017)

Question 66

Multilateral Groupings

Consider the following:

  1. Asian Infrastructure Investment Bank
  2. Missile Technology Control Regime
  3. Shanghai Cooperation Organisation

India is a member of which of the above?

Official Verdict: (d) 1, 2 and 3

The Core Concept: India is a full member of all three. India is the second-largest shareholder (after China) in the Beijing-based AIIB (established 2016). After a long diplomatic campaign, India formally joined the MTCR in 2016, enabling the joint development of long-range systems like BrahMos. Finally, alongside Pakistan, India upgraded from observer to full member of the SCO in 2017 at the Astana summit.

Tethered to: REALM 209: India & General Multilateralism

Question 67

Global Value Chains

Consider the following statements:

  1. Vietnam has been one of the fastest growing economies in the world in the recent years.
  2. Vietnam is led by a multi-party political system.
  3. Vietnam's economic growth is linked to its integration with global supply chains and focus on exports.
  4. For a long time Vietnam's low labour costs and stable exchange rates have attracted global manufacturers.
  5. Vietnam has the most productive e-service sector in the Indo-Pacific region.

Which of the statements given above are correct?

Official Verdict: (c) 1, 3 and 4

The Core Concept: Vietnam's "Doi Moi" economic miracle is built on low labor costs, extreme integration into global value chains (GVCs), and massive FDI shifting away from China ("China Plus One" strategy), making 1, 3, and 4 correct. The traps: Vietnam is a strict, single-party socialist republic (Communist Party of Vietnam), not a multi-party system (2 is false). Furthermore, its economy is heavily driven by manufacturing exports (electronics, textiles); the "most productive e-service sector" in the Indo-Pacific belongs to powerhouses like India or the Philippines (5 is false).

Tethered to: REALM 71: Global Value Chains

Single-Party (Not Multi) ❌ VIETNAM Low Labor Cost ✅ GVC In Export Out
RBI Monetary Policy Committee 4% INFLATION

Question 68

Macroeconomic Governance

In India, which one of the following is responsible for maintaining price stability by controlling inflation?

  • (a) Department of Consumer Affairs
  • (b) Expenditure Management Commission
  • (c) Financial Stability and Development Council
  • (d) Reserve Bank of India

Official Verdict: (d) Reserve Bank of India

The Core Concept: As per the RBI Act, 1934 (amended in 2016), the primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth. The Reserve Bank of India (specifically through the Monetary Policy Committee) is legally mandated and solely responsible for controlling inflation by targeting a Consumer Price Index (CPI) rate of 4% (with a +/- 2% tolerance band) using policy tools like the Repo Rate.

Tethered to: REALM 119: Inflation Targeting

Question 69

Digital Assets

With reference to Non-Fungible Tokens (NFTs), consider the following statements:

  1. They enable the digital representation of physical assets.
  2. They are unique cryptographic tokens that exist on a blockchain.
  3. They can be traded or exchanged at equivalency and therefore can be used as a medium of commercial transactions.

Which of the statements given above are correct?

Official Verdict: (a) 1 and 2 only

The Core Concept: The absolute defining feature of an NFT is in its name: Non-Fungible. Fungible means interchangeable at exact equivalency (like a ₹100 note for another ₹100 note, or one Bitcoin for another Bitcoin). NFTs are unique cryptographic digital certificates (2) that represent ownership of a specific digital or physical asset (1). Because every NFT is completely unique (like the Mona Lisa), they cannot be traded at equivalency and therefore cannot function as a standard medium of commercial transaction or currency (making Statement 3 false).

Tethered to: REALM 15: Crypto Assets

Unique NFT (1,2) ₿ Bitcoin BLOCKCHAIN LEDGER
RESERVOIR MAPPING 1. Ghataprabha Telangana ❌ (Karnataka) 2. Gandhi Sagar Madhya Pradesh ✅ 3. Indira Sagar Andhra ❌ (MP) 4. Maithon Chhattisgarh ❌ (Jharkhand)

Question 70

Geographical Infrastructure

Consider the following pairs:

  • 1. Ghataprabha: Telangana
  • 2. Gandhi Sagar: Madhya Pradesh
  • 3. Indira Sagar: Andhra Pradesh
  • 4. Maithon: Chhattisgarh

How many pairs given above are not correctly matched?

Official Verdict: (c) Only three pairs

The Core Concept: Pay close attention to the word "not". Ghataprabha reservoir is in Belagavi, Karnataka (Pair 1 is incorrect). Gandhi Sagar Dam is on the Chambal river in Madhya Pradesh (Pair 2 is correct). Indira Sagar Dam is a massive multipurpose project on the Narmada river in Madhya Pradesh (Pair 3 is incorrect). Maithon Dam is located on the Barakar river in Jharkhand (Pair 4 is incorrect). Therefore, exactly three pairs are mismatched.

Tethered to: REALM 54: Dams & Infrastructure