UPSC Indian Economy – Chapter 18: Balance of Payments and Foreign Exchange Reserves (30 MCQs)
UPSC Indian Economy – Chapter 18: Balance of Payments and Foreign Exchange Reserves (30 MCQs) – 30 questions, subject: Indian Economy. Every question has the correct answer with a one-line explanation; tap "Show Answer". Free practice for TNPSC, UPSC, SSC, Bank and RRB exams – Shanmugam IAS Academy, Coimbatore.
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Which one of the following is a part of India's current account?
Correct Answer: C [Remittances from Indians working abroad]
Explanation:
secondary income.
India's current account deficit in 2025-26 was about:
Correct Answer: B [0.6 per cent of GDP]
Explanation:
US$ 25.2 billion.
Which one of the following is NOT a component of India's foreign exchange reserves?
Correct Answer: D [Loans from the World Bank]
Explanation:
World Bank loans are borrowings (liabilities); reserves are only foreign currency assets, gold, SDRs and the IMF reserve tranche.
The largest component of India's foreign exchange reserves is:
Correct Answer: A [foreign currency assets]
Explanation:
about US$ 598 billion.
India's external debt at end-March 2026 was about:
Correct Answer: A [20.8 per cent of GDP]
Explanation:
US$ 762.8 billion.
Consider the following statements about India's external debt (March 2026):
1. More than half is denominated in US dollars.
2. Most of it is owed by the general government.
Which of the statements given above is/are correct?
Correct Answer: B [1 only]
Explanation:
55.5 per cent in dollars; government owes about 22 per cent.
Which country was the largest source of India's inward remittances in 2023-24?
Correct Answer: A [United States]
Explanation:
27.7 per cent.
If a country's reserves are US$ 600 billion and its average monthly imports are US$ 60 billion, its import cover is:
Correct Answer: A [10 months]
Explanation:
600 ÷ 60.
In 2025-26, net foreign portfolio investment into India was:
Correct Answer: D [an outflow of US$ 16.4 billion]
Explanation:
RBI data for 2025-26 show foreign portfolio investors took out US$ 16.4 billion net, a net outflow.
Assertion (A): India runs a current account deficit despite a large surplus in services.
Reason (R): India's merchandise trade deficit and its net outgo of primary income (interest and dividends) together exceed its surplus on services and remittances.
Correct Answer: A [Both A and R are true, and R is the correct explanation of A]
Explanation:
Both are true: the goods deficit plus primary-income outgo exceed the services and remittance surplus, which is exactly why a CAD remains.
The rupee became convertible on the current account in:
Correct Answer: C [1994]
Explanation:
August 1994.
The High Level Committee on Balance of Payments (1993) that suggested a sustainable CAD of about 1.6 per cent of GDP was chaired by:
Correct Answer: A [C. Rangarajan]
Explanation:
C. Rangarajan chaired the 1993 High Level Committee on Balance of Payments, which set a sustainable CAD of about 1.6 per cent of GDP.
Which of the following are generally covered in the capital account as presented by the RBI?
1. External commercial borrowings
2. Foreign portfolio investment
3. Software exports
Select the correct answer:
Correct Answer: C [1 and 2 only]
Explanation:
External commercial borrowings and portfolio investment create claims on or liabilities to foreigners, so the RBI shows them in the capital account.
Arrange the following in chronological order:
1. FEMA replaces FERA
2. Current account convertibility
3. Market-determined exchange rate
4. Taper tantrum
Select the correct answer:
Correct Answer: D [3-2-1-4]
Explanation:
1993, 1994, 2000, 2013.
At end-March 2026, India's foreign exchange reserves were about what share of its total external debt?
Correct Answer: B [90.6 per cent]
Explanation:
RBI's external debt release put reserves at 90.6 per cent of total external debt at end-March 2026.
Which one of the following is likely to INCREASE a country's vulnerability to a sudden stop of capital?
Correct Answer: B [A rising share of short-term external debt]
Explanation:
Short-term debt must be repaid or rolled over within a year, so a rising share raises exposure to a sudden stop.
The Gold Monetisation Scheme aims mainly to:
Correct Answer: C [mobilise idle household gold and reduce gold imports]
Explanation:
The scheme brings idle household gold into use, reducing the need for gold imports that widen the current account deficit.
In Q1 2026-27 (April–June), India's current account showed:
Correct Answer: C [a deficit of US$ 4.2 billion]
Explanation:
0.5 per cent of GDP.
Personal transfer receipts in the balance of payments mainly consist of:
Correct Answer: D [remittances from Indians working abroad]
Explanation:
Personal transfer receipts in secondary income are mainly money sent home by Indians working abroad.
Which State received the largest share of India's inward remittances in 2023-24?
Correct Answer: B [Maharashtra]
Explanation:
20.5 per cent.
If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India?
1. Not depending on the short-term foreign borrowings
2. Opening up to more foreign banks
3. Maintaining full capital account convertibility
Select the correct answer using the code given below:
Correct Answer: A [1 only]
Explanation:
Avoiding dependence on short-term foreign borrowing limits rollover risk when global credit dries up; foreign banks and full convertibility add exposure.
Consider the following statements:
1. Most of India's external debt is owed by governmental entities.
2. All of India's external debt is denominated in US dollars.
Which of the statements given above is/are correct?
Correct Answer: D [Neither 1 nor 2]
Explanation:
Most external debt is owed by non-government borrowers, and about 29 per cent is rupee-denominated, so both statements are false.
In the context of India, which of the following factors is/are contributor/contributors to reducing the risk of a currency crisis?
1. The foreign currency earnings of India's IT sector.
2. Increasing government expenditure.
3. Remittances from Indians abroad.
Select the correct answer using the code given below:
Correct Answer: B [1 and 3 only]
Explanation:
IT-sector foreign-currency earnings and remittances bring steady dollar inflows; higher government expenditure does not reduce currency-crisis risk.
Which of the following best describes the term 'import cover', sometimes seen in the news?
Correct Answer: D [It is the number of months of imports that could be paid for by a country's international reserves.]
Explanation:
Import cover equals reserves divided by average monthly imports, the months of imports reserves can finance.
What is/are the purpose/purposes of the Government's 'Sovereign Gold Bond Scheme' and 'Gold Monetization Scheme'?
1. To bring the idle gold lying with Indian households into the economy
2. To promote FDI in the gold and jewellery sector
3. To reduce India's dependence on gold imports
Select the correct answer using the code given below.
Correct Answer: C [1 and 3 only]
Explanation:
Both schemes aim to bring idle household gold into the economy and reduce gold imports; FDI in jewellery is not a purpose.
The problem of international liquidity is related to the non-availability of:
Correct Answer: C [dollars and other hard currencies]
Explanation:
International liquidity means the availability of internationally accepted means of payment such as dollars and other hard currencies.
With reference to Balance of Payments, which of the following constitutes/constitute the Current Account?
1. Balance of Trade
2. Foreign Assets
3. Balance of Invisibles
4. Special Drawing Rights
Select the correct answer using the code given below:
Correct Answer: C [1 and 3 only]
Explanation:
The current account is the balance of trade plus the balance of invisibles; foreign assets and SDRs are not current items.
The Balance of Payments of a country is a systematic record of
Correct Answer: A [all import and export transactions of a country during a given period of time, normally a year]
Explanation:
The BoP is a systematic record of a country's transactions with the rest of the world over a period, normally a year; (a) comes closest.
Which of the following constitute Capital Account?
1. Foreign Loans
2. Foreign Direct Investment
3. Private Remittances
4. Portfolio Investment
Select the correct answer using the code given below:
Correct Answer: B [1, 2 and 4 only]
Explanation:
Foreign loans, FDI and portfolio investment are capital flows; private remittances are current transfers.
Which one of the following groups of items is included in India's foreign-exchange reserves?
Correct Answer: B [Foreign-currency assets, gold holdings of the RBI and SDRs.]
Explanation:
India's reserves comprise foreign currency assets, RBI gold, SDRs and the IMF reserve tranche; loans are not reserves.
➤ Full notes, maps, tables, a reason for every option and Mains PYQs – U15 · Indian Economy (UPSC book, ₹249): www.shanmugamiasacademy.in/study-materials/upsc-indian-economy
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