UPSC Prelims Practice Questions — NRI deposits lift rupee to a two-month high of ₹94.6

Q1. Under the Reserve Bank of India's Master Direction on Deposits and Accounts, in how many forms may a Foreign Currency Non-Resident (Bank) — FCNR(B) — account be maintained?

  • A. Only one — as a term (fixed) deposit
  • B. Two — as a term deposit or a current account
  • C. Three — as a term deposit, a savings account or a current account
  • D. Four — as a term deposit, a savings account, a current account or a recurring deposit

Q2. The rate of interest and the tenor applicable to FCNR(B) deposits are governed primarily by directions issued by which one of the following?

  • A. The Department of Regulation (erstwhile Department of Banking Regulation) of the Reserve Bank of India
  • B. The Foreign Exchange Department of the Reserve Bank of India, which administers FEMA regulations
  • C. The Financial Markets Regulation Department of the Reserve Bank of India, which regulates forex markets
  • D. The Department of Economic Affairs in the Ministry of Finance, Government of India

Q3. Consider the following statements comparing deposit accounts maintained in India by non-residents: 1. An FCNR(B) account may be maintained only as a term deposit denominated in a permissible foreign currency, whereas an NRE account may also be held as a savings or recurring deposit denominated in Indian rupees. 2. Interest earned on an NRO deposit is exempt from income tax in India, while interest earned on an NRE deposit is taxable. 3. Balances in an NRO account are repatriable only up to the limit available under the USD 1 million per financial year facility, whereas NRE and FCNR(B) balances are freely repatriable. Which of the statements given above is/are correct?

  1. An FCNR(B) account may be maintained only as a term deposit denominated in a permissible foreign currency, whereas an NRE account may also be held as a savings or recurring deposit denominated in Indian rupees.
  2. Interest earned on an NRO deposit is exempt from income tax in India, while interest earned on an NRE deposit is taxable.
  3. Balances in an NRO account are repatriable only up to the limit available under the USD 1 million per financial year facility, whereas NRE and FCNR(B) balances are freely repatriable.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q4. With reference to FCNR(B) accounts under the Foreign Exchange Management (Deposit) Regulations, 2016, consider the following: 1. Non-Resident Indians and Persons of Indian Origin are eligible to open and maintain such accounts. 2. Such a deposit may be opened by transfer of funds from an existing NRE or FCNR(B) account at the time of its maturity or premature withdrawal. 3. On maturity, the proceeds may be converted, at the depositor's option, into a Resident Foreign Currency account or a Resident Rupee Deposit. 4. Loans granted in India against the security of an FCNR(B) deposit are freely repatriable outside India. Which of the above is/are NOT correct?

  1. Non-Resident Indians and Persons of Indian Origin are eligible to open and maintain such accounts.
  2. Such a deposit may be opened by transfer of funds from an existing NRE or FCNR(B) account at the time of its maturity or premature withdrawal.
  3. On maturity, the proceeds may be converted, at the depositor's option, into a Resident Foreign Currency account or a Resident Rupee Deposit.
  4. Loans granted in India against the security of an FCNR(B) deposit are freely repatriable outside India.
  • A. 1 and 3
  • B. 2 and 4
  • C. 1, 2 and 4
  • D. 4 only

Q5. Consider the following statements regarding the Reserve Bank of India's special USD-INR swap facility of 2026: 1. It was announced on June 5, 2026 and operationalised on June 8, 2026. 2. While the window for mobilising external commercial borrowings and overseas foreign currency borrowings runs up to December 31, 2026, the window for FCNR(B) deposits was advanced to close on August 31, 2026. 3. Only FCNR(B) deposits with a minimum original tenor of five years, and external commercial borrowings with an average maturity of five years and above, are eligible under the facility. Which of the statements given above is/are correct?

  1. It was announced on June 5, 2026 and operationalised on June 8, 2026.
  2. While the window for mobilising external commercial borrowings and overseas foreign currency borrowings runs up to December 31, 2026, the window for FCNR(B) deposits was advanced to close on August 31, 2026.
  3. Only FCNR(B) deposits with a minimum original tenor of five years, and external commercial borrowings with an average maturity of five years and above, are eligible under the facility.
  • A. 1 and 2 only
  • B. 1 and 3 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q6. With reference to the design of the Reserve Bank of India's 2026 special USD-INR swap facility, consider the following: 1. Indian banks, including their overseas branches, may participate in the facility. 2. The swap covers the principal amount alone; interest components of the underlying liability are not hedged under the facility. 3. The facility offers a plain buy/sell foreign exchange swap whose tenor may extend to a maximum of five years. 4. Every FCNR(B) deposit brought under the facility must necessarily carry a residual maturity of three years or more on the date of the swap. Which of the above is/are correctly identified?

  1. Indian banks, including their overseas branches, may participate in the facility.
  2. The swap covers the principal amount alone; interest components of the underlying liability are not hedged under the facility.
  3. The facility offers a plain buy/sell foreign exchange swap whose tenor may extend to a maximum of five years.
  4. Every FCNR(B) deposit brought under the facility must necessarily carry a residual maturity of three years or more on the date of the swap.
  • A. 1, 2 and 3
  • B. 2 and 4
  • C. 1 and 3 only
  • D. 1, 2, 3 and 4

Q7. India's External Commercial Borrowings framework is notified under which one of the following?

  • A. Foreign Exchange Management (Borrowing and Lending) Regulations, 2018, notified as FEMA 3R/2018-RB
  • B. Foreign Exchange Management (Deposit) Regulations, 2016, notified as FEMA 5(R)/2016-RB
  • C. Foreign Exchange Management (Non-debt Instruments) Rules, 2019, notified by the Central Government
  • D. Foreign Exchange Management (Export of Goods and Services) Regulations, 2015, notified as FEMA 23(R)

Q8. Consider the following statements about parameters of India's External Commercial Borrowings framework: 1. The all-in-cost ceiling is the benchmark rate plus 500 basis points for foreign-currency-denominated ECB, and the benchmark rate plus 450 basis points for Indian-rupee-denominated ECB. 2. The minimum average maturity period is three years for ECBs generally, but one year for ECBs up to USD 50 million or its equivalent raised by manufacturing companies. 3. Under the automatic route, eligible borrowers may raise ECB up to USD 750 million or its equivalent per financial year. Which of the statements given above is/are correct?

  1. The all-in-cost ceiling is the benchmark rate plus 500 basis points for foreign-currency-denominated ECB, and the benchmark rate plus 450 basis points for Indian-rupee-denominated ECB.
  2. The minimum average maturity period is three years for ECBs generally, but one year for ECBs up to USD 50 million or its equivalent raised by manufacturing companies.
  3. Under the automatic route, eligible borrowers may raise ECB up to USD 750 million or its equivalent per financial year.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q9. With reference to the concessional FCNR(B) swap window opened by the Reserve Bank of India during the 2013 'taper tantrum', consider the following: 1. The window was open from September 4 to November 30, 2013. 2. Banks could swap fresh FCNR(B) dollar funds mobilised for a minimum tenor of three years at a fixed rate of 3.5 per cent per annum for the tenor of the deposit. 3. The twin swap windows together fetched about USD 34 billion, far above initial market expectations of around USD 10 billion. 4. The entire amount mobilised in 2013 came in as FCNR(B) deposits, no part of it being raised as overseas borrowing counted towards banks' Tier-I capital. Which of the above is/are correctly identified?

  1. The window was open from September 4 to November 30, 2013.
  2. Banks could swap fresh FCNR(B) dollar funds mobilised for a minimum tenor of three years at a fixed rate of 3.5 per cent per annum for the tenor of the deposit.
  3. The twin swap windows together fetched about USD 34 billion, far above initial market expectations of around USD 10 billion.
  4. The entire amount mobilised in 2013 came in as FCNR(B) deposits, no part of it being raised as overseas borrowing counted towards banks' Tier-I capital.
  • A. 1 and 4
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1, 2, 3 and 4

Q10. Consider the following statements regarding the classification of capital account inflows in India's balance of payments: 1. Foreign direct investment and foreign portfolio investment, including inflows through ADRs and GDRs, are classified as non-debt creating liabilities. 2. External commercial borrowings and NRI deposits recorded under banking capital are classified as debt-creating capital inflows. 3. Since NRI deposits are held with banks resident in India, they are entirely excluded from India's external debt statistics. Which of the statements given above is/are correct?

  1. Foreign direct investment and foreign portfolio investment, including inflows through ADRs and GDRs, are classified as non-debt creating liabilities.
  2. External commercial borrowings and NRI deposits recorded under banking capital are classified as debt-creating capital inflows.
  3. Since NRI deposits are held with banks resident in India, they are entirely excluded from India's external debt statistics.
  • A. 1 and 3 only
  • B. 2 and 3 only
  • C. 1 and 2 only
  • D. 1, 2 and 3

Q11. Consider the following statements relating to the Indian rupee and India's external position in early September 2026: 1. On September 3, 2026 the rupee opened about 69 paise stronger at around ₹94.29 per US dollar, its strongest level since late June 2026. 2. India's foreign exchange reserves had risen to a record of about USD 729.3 billion in the week ended August 28, 2026. 3. Among the inflows mobilised under the special swap facility up to August 31, 2026, external commercial borrowings contributed a larger amount than overseas foreign currency borrowings. Which of the statements given above is/are correct?

  1. On September 3, 2026 the rupee opened about 69 paise stronger at around ₹94.29 per US dollar, its strongest level since late June 2026.
  2. India's foreign exchange reserves had risen to a record of about USD 729.3 billion in the week ended August 28, 2026.
  3. Among the inflows mobilised under the special swap facility up to August 31, 2026, external commercial borrowings contributed a larger amount than overseas foreign currency borrowings.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q12. In the context of the Reserve Bank of India's foreign exchange operations, a 'buy/sell' USD-INR swap refers to which one of the following?

  • A. The Reserve Bank purchasing US dollars in the spot leg and selling them back at a pre-agreed rate on a specified future date
  • B. The Reserve Bank selling US dollars in the spot leg and repurchasing them at a pre-agreed rate on a specified future date
  • C. The Reserve Bank issuing Treasury Bills and dated securities to absorb the rupee liquidity generated by its dollar purchases
  • D. The Reserve Bank settling a forward contract in rupees on the due date without any exchange of the underlying US dollars