money supply, banking & financial institutions section 1 Practice Questions Answers Test with Solutions & More Shortcuts
Money Supply, Banking and Financial Institutions PRACTICE TEST [12 - EXERCISES]
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Question : 26 [UPSC (Pre) 1996]
One of the important goals of the economic liberalisation policy is to achieve full convertibility of the Indian rupee. This is being advocated because
a) it will attract more foreign capital inflow in India
b) it will help India secure loans from the world financial markets on attractive terms
c) it will help promote exports
d) convertibility of the rupee will stabilise its exchange value against major currencies of the world
Answer »Answer: (a)
Question : 28
Consider the following statements regarding ‘Advance Pricing Agreement’:
- It is an agreement between a tax authority and a taxpayer
- It is an agreement between two governments
- It is an agreement to discover the pricing methodology between related company transactions
- It helps in making a country an attractive destination for foreign investments
a) (ii) & (iii) only
b) (ii) & (iv) only
c) (i) & (iii)only
d) (i), (iii) & (iv) only
Answer »Answer: (d)
One of the disputed issues in taxation related to MNCs in the area of intra (group) company transactions. The pricing of goods and services between two related companies (companies belonging to the same owner or subsidiaries) is called transfer pricing.
Here, a parent company say in Japan may charge a convenient price from its subsidiary in India to minimise its tax payment in India. For example, suppose that Maruti Suzuki India has higher profit and has to pay higher tax to the Government of India. In this case, if Suzuki Japan charges a high price for a component it sold to Maruti, the profit of Maruti will come down and the tax payment of the company to GoI will also come down. On the other hand, the revenue of Suzuki Japan will go up. Altogether, the Suzuki Motor Corporation (SMC) group improves its position; but GoI’s tax revenue gets affected.
To avoid such manipulation, the tax department of India pre-sets the price charged for different components between Maruti Suzuki India and Suzuki Japan. But this price should follow the “arms-length principle” i.e. market-based. An arm's length transaction refers to a business deal in which buyers and sellers act independently without one party influencing the other. These types of sales assert that both parties act in their own self-interest and are not subject to pressure from the other party; furthermore, it assures others that there is no collusion between the buyer and seller.
At the beginning of the year, the price charged for intracompany transactions will be determined in advance and will be kept for the coming five years or so. This price arrangement between Maruti and India’s tax department is called an advance pricing agreement.
An APA is a contract, usually for multiple years, between a taxpayer and at least one tax authority specifying the pricing method that the taxpayer will apply to its related company transactions. These programmes are designed to help taxpayers voluntarily resolve actual or potential transfer pricing disputes in a proactive, cooperative manner, as an alternative to the traditional examination process.
APAs gives certainty to taxpayers, reduce disputes, enhance tax revenues and make the country an attractive destination for foreign investments. These agreements would be binding both on the taxpayer as well as the government. Similarly, they lower complaints and litigation costs.
Question : 29
Which one of the following statements correctly describes the meaning of legal tender money?
a) The money which a creditor is under compulsion to accept in settlement of his claims
b) The bank money in the form of cheques, drafts, bills of exchange, etc.
c) The money which is tendered in courts of law to defray the fee of legal cases
d) The metallic money in circulation in a country
Answer »Answer: (a)
As per the RBI Act 1934, Section 26, rupee notes (and coins) are legal tenders. It means that notes and coins cannot be refused by any person of the country for payment/discharge of debt.
(For example: Is an autowallah obliged to accept your currency note for a ride? Not necessarily! If you are yet to get into the auto, the autowallah can turn you down despite it being a legal tender. But once you make the trip, and you have incurred a debt, he cannot refuse to take your currency note.)
Question : 30
Consider the following statement.
- NABARD stands for National Bank for Agriculture and Rural Design
- NABARD is an apex developmental bank in India.
- Setting up of NABARD was recommended by the committee to review arrangements for institutional credit for agriculture and rural development, set up by the RBI, under the chairmanship of Shri B. Sivaraman.
a) 2 only
b) 1 only
c) 3 only
d) 4 only
Answer »Answer: (b)
NABARD stands for National Bank for Agriculture and Rural Development.
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Money Supply, Banking and Financial Institutions Shortcuts »
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indian economy MCQ CATEGORIES
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» Introduction to Indian Economy
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» Planning, Economic Development & Five year Plans
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» National Income & Human Development Index
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» Agriculture Sector, Subsidy and Food Processing
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» Industries, Manufacturing & Service Sectors
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» Inclusive growth, Sustainable development and employment
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» Poverty & Unemployment
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» Introduction to Micro Economics
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» Introduction to Macro Economics
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» Macro fundamentals, GDP, Investment, Growth
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» Demand & Supply, Profit Loss, Inflation & Price Index
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» Fiscal Policy, Public Finance and Monetary Policy
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» Money Supply, Banking and Financial Institutions
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» Taxes Types, Methods & Budgeting Process
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» Banking, Security Market & Insurance
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