UPSC Prelims Practice Questions — Currency conundrum
Q1. The BRICS leaders' declaration sub-titled "Building for Resilience, Innovation, Cooperation and Sustainability" was adopted at which one of the following?
- A. The 16th BRICS Summit, held under the Chairship of Russia in October 2024
- B. The 17th BRICS Summit, held under the Chairship of Brazil in July 2025
- C. The 18th BRICS Summit, held under the Chairship of India in September 2026
- D. The 15th BRICS Summit, held under the Chairship of South Africa in August 2023
Q2. In the BRICS New Delhi Declaration, the members encouraged the 'BPTF' to carry its work forward. The mandate of this body is best described as:
- A. Pooling a part of members' foreign exchange reserves to provide mutual short-term liquidity support during balance of payments pressures
- B. Appraising and sanctioning local-currency denominated infrastructure lending proposals placed before the New Development Bank
- C. Framing a common BRICS negotiating position on tariffs and non-tariff barriers for use in World Trade Organization negotiations
- D. Working out practical solutions for cross-border payments among BRICS countries that are fast, low-cost, more accessible, efficient, transparent and safe
Q3. In January 2025, the Reserve Bank of India permitted overseas branches of Authorised Dealer banks to open rupee accounts for persons resident outside India. This was effected by liberalising regulations framed under which one of the following statutes?
- A. The Reserve Bank of India Act, 1934, which governs the Bank's note issue and monetary functions
- B. The Foreign Exchange Management Act, 1999, which governs cross-border payments and dealings
- C. The Banking Regulation Act, 1949, which governs licensing and business of banking companies
- D. The Foreign Exchange Regulation Act, 1973, which governed exchange control in the pre-reform era
Q4. Consider the following statements regarding the measures announced by the Reserve Bank of India in January 2025 to encourage the use of the Indian Rupee and other local currencies in settling cross-border transactions:
1. Overseas branches of Authorised Dealer banks were permitted to open rupee accounts for persons resident outside India for settling permissible current and capital account transactions.
2. Persons resident outside India were permitted to settle bona fide transactions with other persons resident outside India using balances held in their repatriable rupee accounts.
3. Balances in repatriable rupee accounts of non-residents were permitted to be used for foreign investment, including foreign direct investment, in non-debt instruments.
4. Indian exporters were barred from maintaining foreign currency accounts with banks overseas, so that all export proceeds would necessarily be routed through rupee settlement.
Which of the above is/are NOT correct?
- Overseas branches of Authorised Dealer banks were permitted to open rupee accounts for persons resident outside India for settling permissible current and capital account transactions.
- Persons resident outside India were permitted to settle bona fide transactions with other persons resident outside India using balances held in their repatriable rupee accounts.
- Balances in repatriable rupee accounts of non-residents were permitted to be used for foreign investment, including foreign direct investment, in non-debt instruments.
- Indian exporters were barred from maintaining foreign currency accounts with banks overseas, so that all export proceeds would necessarily be routed through rupee settlement.
- A. 1 only
- B. 2 and 3
- C. 3 and 4
- D. 4 only
Q5. Consider the following statements comparing a Special Rupee Vostro Account (SRVA) with an ordinary Rupee Vostro Account maintained by a correspondent bank in India:
1. Unlike an ordinary Rupee Vostro Account, surplus balances in an SRVA may be deployed in permissible investments, such as Government of India securities including Treasury Bills.
2. Existing Rupee Vostro Accounts of correspondent banks must invariably be converted into SRVAs, since the two accounts are identical in nature.
3. Where a direct exchange rate quote between the two currencies concerned is not available, the rate applicable to an SRVA transaction is derived as a cross-currency rate through major currencies.
Which of the statements given above is/are correct?
- Unlike an ordinary Rupee Vostro Account, surplus balances in an SRVA may be deployed in permissible investments, such as Government of India securities including Treasury Bills.
- Existing Rupee Vostro Accounts of correspondent banks must invariably be converted into SRVAs, since the two accounts are identical in nature.
- Where a direct exchange rate quote between the two currencies concerned is not available, the rate applicable to an SRVA transaction is derived as a cross-currency rate through major currencies.
- A. 1 only
- B. 1 and 3 only
- C. 2 and 3 only
- D. 1, 2 and 3
Q6. Under the revised procedure notified in 2025, a Special Rupee Vostro Account of a correspondent bank of a partner country may now be opened in India by whom, and subject to whose prior clearance?
- A. By any scheduled commercial bank in India, subject to the prior clearance of the Department of Financial Services in each case
- B. By an Authorised Dealer bank in India, subject to the prior approval of the Reserve Bank of India in each case
- C. By an Authorised Dealer bank in India, without any prior reference to the Reserve Bank of India in individual cases
- D. By the Export-Import Bank of India, subject to the prior approval of the Ministry of Commerce and Industry
Q7. In the context of the India–UAE arrangement operationalised through two central bank Memoranda of Understanding signed in July 2023, the 'Local Currency Settlement System' is best described as:
- A. An arrangement restricted to crude oil and petroleum imports, under which Indian refiners pay in Rupees while the seller's receipts are converted into US dollars
- B. A framework enabling bilateral transactions to be invoiced and settled in the Indian Rupee and the UAE Dirham, covering all current account and permitted capital account transactions
- C. A swap line under which the two central banks exchange agreed amounts of Rupees and Dirhams to meet each other's short-term balance of payments requirements
- D. A linkage of the two countries' retail fast payment systems so that residents of either country can make person-to-person remittances in the local currency
Q8. Consider the following statements regarding India–UAE trade settlement in local currencies:
1. India and the UAE concluded a Comprehensive Economic Partnership Agreement in February 2022, before the local currency settlement arrangement between their central banks was put in place.
2. The two Memoranda of Understanding signed by the Reserve Bank of India and the Central Bank of the UAE in July 2023 covered, respectively, a local currency settlement system and the interlinking of payment and messaging systems.
3. The first crude oil transaction executed under this arrangement was between the Abu Dhabi National Oil Company and Indian Oil Corporation Limited.
4. Since the arrangement came into force, the entire bilateral trade between India and the UAE has been settled exclusively in the Rupee and the Dirham, the use of any third currency having been prohibited.
Which of the above is/are NOT correct?
- India and the UAE concluded a Comprehensive Economic Partnership Agreement in February 2022, before the local currency settlement arrangement between their central banks was put in place.
- The two Memoranda of Understanding signed by the Reserve Bank of India and the Central Bank of the UAE in July 2023 covered, respectively, a local currency settlement system and the interlinking of payment and messaging systems.
- The first crude oil transaction executed under this arrangement was between the Abu Dhabi National Oil Company and Indian Oil Corporation Limited.
- Since the arrangement came into force, the entire bilateral trade between India and the UAE has been settled exclusively in the Rupee and the Dirham, the use of any third currency having been prohibited.
- A. 1 and 2
- B. 3 only
- C. 4 only
- D. 2 and 4
Q9. As stated by the Reserve Bank of India in January 2025, with the central banks of how many countries had it by then signed Memoranda of Understanding to encourage cross-border transactions in local currencies?
- A. Two
- B. Six
- C. Three
- D. Nine
Q10. Consider the following statements regarding BRICS work on cross-border payments in 2026:
1. The New Delhi Declaration encouraged the BRICS Payment Task Force to continue its work towards practical solutions for cross-border payments that are fast, low-cost, more accessible, efficient, transparent and safe.
2. BRICS Finance Ministers and Central Bank Governors acknowledged the work done to study the cross-border interoperability of payment and messaging channels, while respecting national priorities.
3. India proposed the linking of the Central Bank Digital Currencies of BRICS countries for cross-border transactions.
4. India's proposal was carried into the leaders' declaration as a dedicated commitment, which mandated the creation of a single bloc-wide BRICS payment network.
Which of the above is/are NOT correct?
- The New Delhi Declaration encouraged the BRICS Payment Task Force to continue its work towards practical solutions for cross-border payments that are fast, low-cost, more accessible, efficient, transparent and safe.
- BRICS Finance Ministers and Central Bank Governors acknowledged the work done to study the cross-border interoperability of payment and messaging channels, while respecting national priorities.
- India proposed the linking of the Central Bank Digital Currencies of BRICS countries for cross-border transactions.
- India's proposal was carried into the leaders' declaration as a dedicated commitment, which mandated the creation of a single bloc-wide BRICS payment network.
- A. 1 and 3
- B. 4 only
- C. 2 only
- D. 3 and 4
Q11. India's Chairship of BRICS in 2026, including the Sherpa-level preparatory meetings and the issue of the Summit's outcome documents, was coordinated by which one of the following?
- A. NITI Aayog, in its capacity as the Government's policy think tank
- B. The Department of Commerce in the Ministry of Commerce and Industry
- C. The Department of Economic Affairs in the Ministry of Finance
- D. The Ministry of External Affairs, which conducts India's multilateral diplomacy
Q12. Consider the following statements regarding the relative size of the components of India's foreign exchange reserves, as reported by the Reserve Bank of India for April 2026:
1. Foreign currency assets exceeded the value of gold holdings by more than four times.
2. India's holdings of Special Drawing Rights exceeded its reserve position in the International Monetary Fund.
3. Gold constituted the smallest of the four components of the reserves.
Which of the statements given above is/are correct?
- Foreign currency assets exceeded the value of gold holdings by more than four times.
- India's holdings of Special Drawing Rights exceeded its reserve position in the International Monetary Fund.
- Gold constituted the smallest of the four components of the reserves.
- A. 1 and 2 only
- B. 1 only
- C. 2 and 3 only
- D. 1, 2 and 3