UPSC Prelims Practice Questions — 50 years ago: Britain to seek IMF loan

Q1. With reference to the IMF's Stand-By Arrangement (SBA), consider the following statements: Which of the statements given above is/are correct?

  1. It is a concessional facility, carrying zero interest, meant mainly for the Fund's low-income members.
  2. Resources under it are made available in instalments over the life of the arrangement rather than as a single upfront sum.
  3. Continued disbursement under it ordinarily depends on the member observing agreed quantitative performance criteria, which the Executive Board may waive.
  • A. 2 only
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1 and 3 only

Q2. Consider the following with reference to a member country of the International Monetary Fund (IMF): Which of the above are determined by the member's quota?

  1. The normal limit on the financing it can obtain from the Fund
  2. Its voting power, alongside the basic votes shared equally by all members
  3. Its share in a general allocation of Special Drawing Rights
  4. Its eligibility to borrow on concessional terms under the Poverty Reduction and Growth Trust
  • A. 1, 2 and 3 only
  • B. 1 and 4 only
  • C. 2 and 3 only
  • D. 1, 2, 3 and 4

Q3. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. When markets doubt that a currency's exchange rate is sustainable, a central bank that intervenes to support the currency runs down its foreign exchange reserves.
  2. Since the Second Amendment to the IMF's Articles of Agreement, member countries have been free to adopt the exchange rate arrangement of their choice.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q4. A country's currency comes under a sudden run, and its central bank intervenes in the foreign exchange market to support it. Consider the following statements: Which of the statements given above is/are correct?

  1. The central bank's foreign exchange reserves fall as it sells foreign currency and buys domestic currency.
  2. Such a defence can prove costly and may fail if markets continue to doubt that the exchange rate is sustainable.
  3. The intervention tends to expand the domestic money supply, since the central bank pays out domestic currency in exchange for foreign currency.
  • A. 1, 2 and 3
  • B. 1 only
  • C. 2 and 3 only
  • D. 1 and 2 only

Q5. To restore confidence during a currency crisis, a government sells part of its stake in public sector enterprises. Under India's fiscal accounting, what effect does this sale have?

  • A. It lowers the revenue deficit, as the proceeds count as revenue receipts
  • B. It raises the fiscal deficit, as the sale reduces the government's stock of assets
  • C. It lowers the fiscal deficit, as the proceeds count as non-debt capital receipts
  • D. It leaves the fiscal deficit unchanged, as the proceeds count as debt capital receipts

Q6. With reference to the international monetary system after Bretton Woods, consider the following statements: Which of the statements given above is/are correct?

  1. The classical Bretton Woods system effectively ended in 1971, when the US dollar's link to gold was abandoned.
  2. Since the Second Amendment to the IMF's Articles of Agreement, members have been required to peg their currencies to the Special Drawing Right.
  3. Once par values were abandoned, the IMF's balance of payments lending was confined to its developing-country members.
  • A. 1 only
  • B. 1, 2 and 3
  • C. 2 and 3 only
  • D. 1 and 2 only

Q7. With reference to IMF Stand-By Arrangements, consider the following statements: Which of the statements given above is/are correct?

  1. Releasing Fund resources in instalments that depend on meeting agreed policy conditions gives the borrowing member an incentive to keep implementing the adjustment programme.
  2. Because a Stand-By Arrangement addresses short-term balance of payments problems, the member must repay each drawing before the arrangement itself expires.
  • A. 1 only
  • B. 2 only
  • C. Both 1 and 2
  • D. Neither 1 nor 2