Question 1

With reference to investments, consider the following:
I. Bonds
II. Hedge Funds
III. Stocks
IV. Venture Capital
How many of the above are treated as Alternative Investment Funds?

Accepted Answer

Only two — Hedge Funds and Venture Capital are Alternative Investment Funds (AIFs) under SEBI regulations, while Bonds and Stocks are conventional instruments.

Question 2

Consider the following statements in respect of RTGS and NEFT:
I. In RTGS, the settlement time is instantaneous while in case of NEFT, it takes some time to settle payments.
II. In RTGS, the customer is charged for inward transactions while that is not the case for NEFT.
III. Operating hours for RTGS are restricted on certain days while this is not true for NEFT.
Which of the statements given above is/are correct?

Accepted Answer

I only — Only Statement I is correct, RTGS settles gross in real time while NEFT settles in batches; RBI has made both RTGS and NEFT available 24x7 and charges no inward transaction fees in either.

Question 3

Which of the following are the sources of income for the Reserve Bank of India?
I. Buying and selling Government bonds
II. Buying and selling foreign currency
III. Pension fund management
IV. Lending to private companies
V. Printing and distributing currency notes
Select the correct answer using the code given below.

Accepted Answer

I, II and V — RBI earns income primarily by buying/selling government bonds (open market operations) and dealing in foreign currency; it does not manage pension funds or lend to private companies, and currency printing is a cost not a revenue source.

Question 4

Consider the following countries:
I. United Arab Emirates
II. France
III. Germany
IV. Singapore
V. Bangladesh
How many countries amongst the above are there other than India where international merchant payments are accepted under UPI?

Accepted Answer

Only three — As of the 2025 prelims, UPI-based international merchant payments were accepted in UAE, France, and Singapore (three countries) among the listed options, with Germany and Bangladesh not yet covered for merchant payments.

Question 5

Consider the following statements:
Statement I: As regards returns from an investment in a company, generally, bondholders are considered to be relatively at lower risk than stockholders.
Statement II: Bondholders are lenders to a company whereas stockholders are its owners.
Statement III: For repayment purpose, bondholders are prioritized over stockholders by a company.
Which one of the following is correct in respect of the above statements?

Accepted Answer

Both Statement II and Statement III are correct and both of them explain Statement I — Bondholders are lenders (Statement II) and have repayment priority over stockholders (Statement III); together these two facts explain why bondholders face lower risk (Statement I).

Question 6

Consider the following statements:
I. India accounts for a very large portion of all equity option contracts traded globally thus exhibiting a great boom.
II. India's stock market has grown rapidly in the recent past even overtaking Hong Kong's at some point of time.
III. There is no regulatory body either to warn the small investors about the risks of options trading or to act on unregistered financial advisors in this regard.
Which of the statements given above are correct?

Accepted Answer

I and II only — India does lead globally in equity options volume (I) and overtook Hong Kong's market capitalisation at certain points (II), but SEBI exists as a regulatory body making Statement III false.

Question 7

Consider the following statements:
I. The Reserve Bank of India mandates all the listed companies in India to submit a Business Responsibility and Sustainability Report (BRSR).
II. In India, a company submitting a BRSR makes disclosures in the report that are largely non-financial in nature.
Which of the statements given above is/are correct?

Accepted Answer

II only — BRSR is mandated by SEBI (not RBI) for top-listed companies, and its disclosures are largely non-financial covering ESG metrics.

Question 8

Consider the following:
1. Exchange-Traded Funds (ETF)
2. Motor vehicles
3. Currency swap
Which of the above is/are considered financial instruments?

Accepted Answer

1 and 3 only — ETFs and currency swaps are financial instruments; motor vehicles are physical/tangible assets, not financial instruments.

Question 9

Consider the following statements:
1. In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India.
2. In India, Foreign Institutional Investors can hold the Government Securities (G-Secs).
3. In India, Stock Exchanges can offer separate trading platforms for debts.
Which of the statements given above is/are correct?

Accepted Answer

1, 2 and 3 — All three statements are correct: select NBFCs can access the LAF window, FIIs are permitted to hold G-Secs within limits, and SEBI allows exchanges to operate dedicated debt trading platforms.

Question 10

Consider the following statements in respect of the digital rupee:
1. It is a sovereign currency issued by the Reserve Bank of India (RBI) in alignment with its monetary policy.
2. It appears as a liability on the RBI's balance sheet.
3. It is insured against inflation by its very design.
4. It is freely convertible against commercial bank money and cash.
Which of the statements given above are correct?

Accepted Answer

1, 2 and 4 — The digital rupee (e₹) is sovereign legal tender issued by RBI, recorded as a liability on its balance sheet, and is fully convertible at par with cash; it offers no built-in inflation protection, making Statement 3 false.

Question 11

In India, which of the following can trade in Corporate Bonds and Government Securities?
1. Insurance Companies
2. Pension Funds
3. Retail Investors
Select the correct answer using the code given below:

Accepted Answer

1, 2 and 3 — Insurance companies, pension funds, and retail investors (through the RBI Retail Direct platform and stock exchange debt segments) are all permitted to trade in corporate bonds and G-Secs.

Question 12

With reference to the rule/rules imposed by the Reserve Bank of India while treating foreign banks, consider the following statements:
1. There is no minimum capital requirement for wholly owned banking subsidiaries in India.
2. For wholly owned banking subsidiaries in India, at least 50% of the board members should be Indian nationals.
Which of the statements given above is/are correct?

Accepted Answer

neither 1 nor 2 — Both statements are incorrect, RBI mandates a minimum capital of ₹500 crore for wholly owned banking subsidiaries and requires at least 50% of directors to be Indian nationals, but Statement 1 wrongly says there is no minimum capital requirement.

Question 13

With reference to the Indian economy, "Collateral Borrowing and Lending Obligations" are the instruments of:

Accepted Answer

Money market — Collateral Borrowing and Lending Obligations (CBLO) are short-term money market instruments where participants borrow/lend against government securities as collateral.

Question 14

Which of the following activities of Reserve Bank of India is considered to be part of 'Sterilization'?

Accepted Answer

Conducting 'Open Market Operations' — Sterilization refers to RBI using open market operations (buying/selling government securities) to offset the monetary impact of foreign exchange interventions on domestic money supply.

Question 15

Consider the following markets:
1. Government Bond Market
2. Call Money Market
3. Treasury Bill Market
4. Stock Market
How many of the above are included in capital markets?

Accepted Answer

Only two — Capital markets include long-term instruments; Government Bond Market and Stock Market qualify, while Call Money Market and Treasury Bill Market belong to the money market.

Question 16

Consider the following statements with reference to India:
1. According to the 'Micro, Small and Medium Enterprises Development (MSMED) Act, 2006', the 'medium enterprises' are those with investments in plant and machinery between 15 crore and 25 crore.
2. All bank loans to the Micro, Small and Medium Enterprises qualify under the priority sector.
Which of the statements given above is/are correct?

Accepted Answer

2 only — The MSMED Act thresholds have been revised and the 15–25 crore bracket does not accurately describe medium enterprises under current norms; however, all MSME bank loans are classified as priority sector lending under RBI guidelines.

Question 17

Consider the following statements:
1. The Self-Help Group (SHG) programme was originally initiated by the State Bank of India by providing microcredit to the financially deprived.
2. In an SHG, all members of a group take responsibility for a loan that an individual member takes.
3. The Regional Rural Banks and Scheduled Commercial Banks support SHGs.
How many of the above statements are correct?

Accepted Answer

Only two — The SHG-Bank Linkage Programme was launched by NABARD (not SBI), so Statement 1 is wrong; Statements 2 and 3 are correct, joint liability is a core SHG feature and both RRBs and commercial banks participate.

Question 18

Consider the following statements:
Statement-I: In the post-pandemic recent past, many Central Banks worldwide had carried out interest rate hikes.
Statement-II: Central Banks generally assume that they have the ability to counteract the rising consumer prices via monetary policy means.
Which of the following is correct in respect of the above statements?

Accepted Answer

Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I. — Post-pandemic inflation prompted central banks worldwide to hike rates precisely because they believe monetary tightening can curb consumer price rises, making Statement-II the direct explanation for Statement-I.

Question 19

In the context of finance, the term 'beta' refers to:

Accepted Answer

A numeric value that measures the fluctuations of a stock to changes in the overall stock market — Beta is a measure of a stock's volatility relative to the overall market; a beta above 1 means higher volatility than the market.

Question 20

With reference to Central Bank digital currencies, consider the following statements:
1. It is possible to make payments in a digital currency without using US dollar or SWIFT system.
2. A digital currency can be distributed with a condition programmed into it such as a time-frame for spending it.
Which of the statements given above is/are correct?

Accepted Answer

Both 1 and 2 — CBDCs enable direct bilateral settlements bypassing the dollar/SWIFT system, and their programmable nature allows conditions like expiry dates to be encoded, making both statements correct.

Question 21

With reference to the Indian economy, consider the following statements:
1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars.
Which of the statements given above are correct?

Accepted Answer

2 and 3 only — To fight high inflation RBI sells (not buys) securities to suck out liquidity; RBI sells dollars to defend a depreciating rupee; when US/EU rates fall, capital flows to India appreciation risk prompts RBI to buy dollars to prevent excess appreciation.

Question 22

With reference to the Indian economy, what are the advantages of 'Inflation-Indexed Bonds (IIBs)'?
1. Government can reduce the coupon rates on its borrowing by way of IIBs
2. IIBs provide protection to the investors from uncertainty regarding inflation.
3. The interest received as well as capital gains on IIBs are not taxable.
Which of the statements given above are correct?

Accepted Answer

1 and 2 only — IIBs allow the government to offer lower nominal coupon rates and protect investors against inflation, but the returns from IIBs are taxable under Indian law.

Question 23

In India, which one of the following is responsible for maintaining price stability by controlling inflation?

Accepted Answer

Reserve Bank of India — The Reserve Bank of India is mandated to maintain price stability through its monetary policy, making it the primary institution responsible for controlling inflation in India.

Question 24

Which one of the following situations best reflects "Indirect Transfers" often talked about in the media recently with reference to India?

Accepted Answer

A foreign company transfers shares and such shares derive their substantial value from assets located in India — Indirect Transfer refers to a transaction where a foreign company transfers shares whose value is substantially derived from underlying assets in India, allowing India to tax such capital gains.

Question 25

With reference to the Indian economy, consider the following statements:
1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.
Which of the above statements are correct?

Accepted Answer

1 and 3 only — NEER rising means the rupee has appreciated, and higher domestic inflation than trading partners widens the gap between NEER and REER; a rise in REER actually signals loss of trade competitiveness, making statement 2 false.

Question 26

Consider the following statements:
1. In India, credit rating agencies are regulated by the Reserve Bank of India.
2. The rating agency popularly known as ICRA is a public limited company.
3. Brickwork Ratings is an Indian credit rating agency.
Which of the statements given above are correct?

Accepted Answer

2 and 3 only — Credit rating agencies in India are regulated by SEBI, not RBI, making Statement 1 false; ICRA is indeed a public limited company and Brickwork Ratings is an Indian CRA, so Statements 2 and 3 are correct.

Question 27

With reference to the 'Banks Board Bureau (BBB)', which of the following statements are correct?
1. The Governor of RBI is the Chairman of BBB.
2. BBB recommends for the selection of heads for Public Sector Banks.
3. BBB helps the Public Sector Banks in developing strategies and capital raising plans.
Select the correct answer using the code given below:

Accepted Answer

2 and 3 only — BBB is chaired by a government-appointed chairman (not the RBI Governor), so Statement 1 is false; BBB does recommend appointments of PSB chiefs and assists banks with strategy and capital planning, making Statements 2 and 3 correct.

Question 28

With reference to Convertible Bonds, consider the following statements:
1. As there is an option to exchange the bond for equity, Convertible Bonds pay a lower rate of interest.
2. The option to convert to equity affords the bondholder a degree of indexation to rising consumer prices.
Which of the statements given above is/are correct?

Accepted Answer

Both 1 and 2 — Convertible bonds carry lower coupon rates due to the conversion privilege, and the equity conversion option provides partial inflation protection since equity prices tend to rise with prices.

Question 29

Consider the following statements:
1. Tight monetary policy of US Federal Reserve could lead to capital flight
2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs).
3. Devaluation of domestic currency decreases the currency risk associated with ECBs
Which of the statements is correct?

Accepted Answer

1 and 2 only — US Fed tightening causes capital to flow back to dollar assets (capital flight), which increases borrowing costs for ECB holders; devaluation actually increases currency risk on ECBs, making statement 3 incorrect.

Question 30

With reference to India, consider the following statements:
1. Retail investors through demat accounts can invest in 'Treasury Bills' and 'Government of India Debt Bonds' in the primary market.
2. The 'Negotiated Dealing System-Order Matching' is a government securities trading platform of the Reserve Bank of India.
3. The 'Central Depository Services Ltd' is jointly promoted by the Reserved Bank of India and the Bombay Stock Exchange.
Which of the statements given above is/are correct?

Accepted Answer

1 and 2 only — Retail investors can invest in T-Bills and G-Secs through RBI Retail Direct, and NDS-OM is RBI's electronic platform for G-Sec trading; CDSL is promoted by BSE and banks, not the RBI.

Question 31

Consider the following statements. The effect of devaluation of a currency is that it necessarily:
1. Improves the competitiveness of the domestic exports in the foreign markets
2. Increases the foreign value of domestic currency
3. Improves the trade balance
Which of the above statement is/are correct?

Accepted Answer

1 only — Devaluation makes exports cheaper for foreigners, necessarily improving export competitiveness; it does not necessarily improve the trade balance (J-curve effect) and it reduces, not increases, the foreign value of the currency.

Question 32

Consider the following statements:
1) The Governor of the Reserve Bank of India (RBI) is appointed by the Central Government.
2) Certain provisions in the Constitution of India give the Central Government the right to issue directions to the RBI in public interest.
3) The Governor of the RBI draws his power from the RBI Act.
Which of the above statements are correct?

Accepted Answer

1 and 3 only — The Central Government appoints the RBI Governor (Statement 1) and the Governor's powers derive from the RBI Act, 1934 (Statement 3); the Constitution does not directly empower the government to direct the RBI, making Statement 2 false.

Question 33

Consider the following:
1. Foreign currency convertible bonds.
2. Foreign institutional investment with certain conditions
3. Global depository receipts
4. Non-resident external deposits
Which of the above can be included in Foreign Direct Investments?

Accepted Answer

1, 2 and 3 — Foreign currency convertible bonds, FII investment exceeding threshold limits, and global depository receipts are classified as FDI components, while non-resident external deposits are debt flows.

Question 34

With reference to urban cooperative banks in India consider the following statements:
1) They are supervised and regulated by local boards set up by the state governments.
2) They can issue equity shares and preference shares.
3) They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966.
Which of the statements given above is/are correct?

Accepted Answer

2 and 3 only — Urban cooperative banks are regulated by both RBI and state registrars (not local boards alone), making Statement 1 false; they can issue shares and were included under the Banking Regulation Act via a 1966 amendment, so Statements 2 and 3 are correct.

Question 35

Indian Government Bond Yields are influenced by which of the following?
1. Actions of the United States Federal Reserve
2. Actions of the Reserve Bank of India
3. Inflation and short-term interest rates
Select the correct answer using the code given below.

Accepted Answer

1, 2 and 3 — G-Sec yields are shaped by RBI's monetary policy, domestic inflation and short-term rates, and also by US Fed actions which affect global capital flows into Indian bonds.

Question 36

The money multiplier in an economy increases with which one of the following?

Accepted Answer

Increase in the banking habit of the people — Greater banking habit means more deposits circulate through the banking system rather than being held as cash, thereby increasing the money multiplier.

Question 37

In India, the central bank's function as the 'lender of last resort' usually refers to which of the following?
1) Lending to trade and industry bodies when they fail to borrow from other sources
2) Providing liquidity to the banks having a temporary crisis
3) Lending to governments to finance budgetary deficits
Select the correct answer using the code given below.

Accepted Answer

2 only — The lender of last resort function specifically means RBI provides emergency liquidity to commercial banks facing temporary shortfalls; it does not lend to industry bodies or finance government deficits in this role.

Question 38

If you withdraw 1,00,000 in cash from your Demand Deposit Account at your bank, the immediate effect on aggregate money supply in the economy will be:

Accepted Answer

To leave it unchanged — Withdrawing cash from a demand deposit merely converts one component of M1 (demand deposit) into another (currency in hand), leaving total money supply unchanged.

Question 39

With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

Accepted Answer

It is a largely non-debt creating capital flow — FDI is a non-debt creating capital flow because it involves equity participation rather than loans, so no repayment obligation is created.

Question 40

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 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:

Accepted Answer

1 only — Avoiding short-term foreign borrowings reduces vulnerability to sudden capital outflows during a crisis; opening to more foreign banks or full capital convertibility can increase contagion risk.

Question 41

Consider the following statements:
1. In terms of short-term credit delivery to the agriculture sector, District Central Cooperative Banks (DCCBs) deliver more credit in comparison to Scheduled Commercial Banks and Regional Rural Banks.
2. One of the most important functions of DCCBs is to provide funds to the Primary Agricultural Credit Societies.
Which of the statements given above is/are correct?

Accepted Answer

2 only — Scheduled Commercial Banks dominate short-term agricultural credit disbursement, so Statement 1 is false; DCCBs do serve as the middle tier channelling funds to Primary Agricultural Credit Societies, making Statement 2 correct.

Question 42

If the RBI decides to adopt an expansionist monetary policy, which of the following would it not do?
1. Cut and optimize the Statutory Liquidity Ratio
2. Increase the Marginal Standing Facility Rate
3. Cut the Bank Rate and Repo Rate
Select the correct answer using the code given below:

Accepted Answer

2 only — Raising the MSF rate tightens liquidity, which is the opposite of an expansionary stance; cutting SLR and repo/bank rates are standard expansionary measures.

Question 43

With reference to the Indian economy, consider the following statements:
1. 'Commercial Paper' is a short-term unsecured promissory note.
2. 'Certificate of Deposit' is a long-term instrument issued by the Reserve Bank of India to a corporation.
3. 'Call Money' is a short-term finance used for interbank transactions.
4. 'Zero-Coupon Bonds' are the interest bearing short-term bonds issued by the Scheduled Commercial Banks to corporations.
Which of the statements given above is/are correct?

Accepted Answer

1 and 3 only — Commercial Paper is a short-term unsecured promissory note (1 correct); Call Money is overnight interbank borrowing (3 correct); Certificates of Deposit are issued by banks not RBI, and Zero-Coupon Bonds pay no periodic interest.

Question 44

Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?

Accepted Answer

Following an expansionary monetary policy — An expansionary monetary policy increases liquidity and can weaken the rupee further, making it counterproductive when trying to arrest a currency slide.

Question 45

The Service Area Approach was implemented under the purview of:

Accepted Answer

Lead Bank Scheme — The Service Area Approach, under which each bank branch was assigned a specific rural service area for credit delivery, was introduced as part of the Lead Bank Scheme.

Question 46

Which of the following is issued by registered foreign portfolio investors to overseas investors who want to be part of the Indian stock market without registering themselves directly?

Accepted Answer

Participatory Note — Participatory Notes (P-Notes) are derivative instruments issued by registered FPIs to allow overseas investors exposure to Indian securities without direct SEBI registration.

Question 47

Which of the following is not included in the assets of a commercial bank in India?

Accepted Answer

Deposits — Deposits are liabilities of a commercial bank (money owed to depositors), whereas advances, investments, and money at call appear on the asset side of the balance sheet.

Question 48

Consider the following statements: The Reserve Bank of India's recent directives relating to 'Storage of Payment System Data', popularly known as data diktat, command the payment system providers that
1. they shall ensure that entire data relating to payment systems operated by them are stored in a system only in India
2. they shall ensure that the systems are owned and operated by public sector enterprises
3. they shall submit the consolidated system audit report to the Comptroller and Auditor General of India by the end of the calendar year
Which of the statements given above is/are correct?

Accepted Answer

1 only — RBI's data localisation directive requires all payment data to be stored within India only; it does not mandate public sector ownership or CAG audit reports, making only Statement 1 correct.

Question 49

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 the government expenditure
3. Remittances from Indians abroad
Select the correct answer using the code given below:

Accepted Answer

1 and 3 only — IT export earnings and remittances from the diaspora are stable sources of foreign exchange that bolster reserves and reduce currency crisis risk; higher government expenditure can worsen deficits.

Question 50

The Chairmen of public sector banks are selected by the:

Accepted Answer

Banks Board Bureau — The Banks Board Bureau (BBB) was set up specifically to recommend appointments of whole-time directors and non-executive chairpersons of public sector banks.

UPSC Economics — previous-year questions

Money and Banking

Inflation and the Economy

National Income Accounting

Sectors of the Indian Economy

Globalisation and the Indian Economy

Demand and Supply

Indian Economy 1950–1990: The Planning Era

Economic Reforms of 1991

Poverty as a Challenge

Food Security in India