UPSC Prelims Practice Questions — ‘MPC to revise growth, inflation dynamics at next meet’

Q1. Under the statutory arrangement governing the Monetary Policy Committee, the Search-cum-Selection Committee that recommends candidates for appointment as its external members is headed by which one of the following?

  • A. The Governor of the Reserve Bank of India, as the ex officio Chairperson of the Committee
  • B. The Union Finance Minister, assisted by the Chief Economic Adviser to the Government
  • C. The Cabinet Secretary to the Government of India
  • D. The Secretary, Department of Economic Affairs, Ministry of Finance

Q2. The third Reserve Bank representative on the Monetary Policy Committee, who serves as an ex officio member alongside the Governor and a Deputy Governor, is nominated by which one of the following?

  • A. The Central Board of the Reserve Bank of India
  • B. The Central Government on the advice of the Financial Stability and Development Council
  • C. The Department of Financial Services, Ministry of Finance
  • D. The Governor of the Reserve Bank of India in consultation with the Central Government

Q3. The 'Indian Basket' crude oil price, whose recent rise prompted the Governor's statement that the MPC would reassess growth and inflation dynamics, is computed and published by which one of the following?

  • A. The Directorate General of Hydrocarbons under the Ministry of Petroleum and Natural Gas
  • B. The Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry
  • C. The Department of Economic and Policy Research of the Reserve Bank of India
  • D. The Petroleum Planning and Analysis Cell under the Ministry of Petroleum and Natural Gas

Q4. The increase in the Indian crude basket price between July 2026 and August 2026, cited as the trigger for the Reserve Bank's reassessment of the growth-inflation outlook, was closest to how many US dollars per barrel?

  • A. About 3 dollars per barrel
  • B. About 8 dollars per barrel
  • C. About 15 dollars per barrel
  • D. About 22 dollars per barrel

Q5. Which one of the following is the principal feature that distinguishes a Foreign Currency Non-Resident (Bank) — FCNR(B) — deposit from a Non-Resident External (NRE) deposit?

  • A. FCNR(B) deposits alone are freely repatriable, whereas NRE deposits are not repatriable in any circumstance
  • B. FCNR(B) deposits can be opened exclusively out of funds remitted from abroad and never by transfer from an existing account
  • C. FCNR(B) deposits are denominated and maintained in a permitted foreign currency, whereas NRE deposits are maintained in rupees
  • D. FCNR(B) deposits can be accepted only as savings accounts, whereas NRE deposits can be accepted as term deposits

Q6. With reference to the Foreign Currency Non-Resident (Bank) — FCNR(B) — deposit scheme, consider the following: 1. Accounts under the scheme are opened in the form of term deposits. 2. Accounts may be opened with funds remitted from abroad in convertible foreign currency through normal banking channels. 3. Accounts may be opened by transfer of funds from an existing NRE or FCNR account at the time of its maturity or premature withdrawal. 4. Deposits under the scheme can be accepted only in US Dollars and Euro. Which of the statements given above is/are correct?

  1. Accounts under the scheme are opened in the form of term deposits.
  2. Accounts may be opened with funds remitted from abroad in convertible foreign currency through normal banking channels.
  3. Accounts may be opened by transfer of funds from an existing NRE or FCNR account at the time of its maturity or premature withdrawal.
  4. Deposits under the scheme can be accepted only in US Dollars and Euro.
  • A. 1 and 2 only
  • B. 2 and 4
  • C. 1, 2 and 3
  • D. 3 and 4 only

Q7. With reference to the special USD-INR forex swap facility introduced by the Reserve Bank of India in June 2026, consider the following categories of foreign currency inflow: 1. Fresh FCNR(B) deposits 2. Foreign direct investment into the banking sector 3. External Commercial Borrowings 4. Overseas Foreign Currency Borrowings Which of the above is/are correctly identified as covered under the facility?

  1. Fresh FCNR(B) deposits
  2. Foreign direct investment into the banking sector
  3. External Commercial Borrowings
  4. Overseas Foreign Currency Borrowings
  • A. 1 and 2 only
  • B. 1, 3 and 4
  • C. 2, 3 and 4
  • D. 3 and 4 only

Q8. In the context of the Reserve Bank of India's swap facility for fresh FCNR(B) deposits, what exactly does the expression 'swap with the Reserve Bank' mean for a participating bank?

  • A. The bank sells the mobilised foreign currency to the Reserve Bank at the prevailing spot rate and agrees to buy it back at the end of the swap tenor, the arrangement covering only the principal amount
  • B. The Reserve Bank guarantees the depositor a minimum rate of return in foreign currency, with any shortfall met from the country's foreign exchange reserves
  • C. The Reserve Bank directly accepts the deposits from non-resident depositors and passes the rupee proceeds on to the bank as a refinance line
  • D. The bank exchanges its holdings of government securities with the Reserve Bank for an equivalent value of foreign currency for the duration of the deposit

Q9. Under India's flexible inflation targeting framework, the inflation target and its tolerance band are notified in the Official Gazette by which one of the following?

  • A. The Monetary Policy Committee of the Reserve Bank of India, which alone determines the target it is required to meet
  • B. The Reserve Bank of India exclusively, through a resolution of its Central Board of Directors
  • C. The Department of Financial Services, Ministry of Finance, on the recommendation of the Reserve Bank
  • D. The Central Government, through the Department of Economic Affairs, Ministry of Finance

Q10. Which one of the following is the nominal anchor against which the inflation target of 4 per cent has been notified under India's monetary policy framework?

  • A. The Wholesale Price Index, all commodities
  • B. The Consumer Price Index (Combined)
  • C. The Consumer Price Index for Industrial Workers
  • D. The implicit price deflator of gross domestic product

Q11. As per recent assessments of India's external sector exposure to the West Asia crisis, imports meet how much of India's crude oil requirement?

  • A. About 55 per cent
  • B. About 70 per cent
  • C. More than 85 per cent
  • D. Virtually the entire requirement, close to 100 per cent