Which of the following best describes the term 'import cover', sometimes seen in the news?
- A.It is the ratio of value of imports to the Gross Domestic Product of a country
- B.It is the total value of imports of a country in a year
- C.It is the ratio between the value of exports and that of imports between two countries
- D.It is the number of months of imports that could be paid for by a country's international reserves
Correct answer
Explanation
The correct answer is D, It is the number of months of imports that could be paid for by a country's international reserves. Import cover is the number of months of imports a country could pay for with its foreign exchange reserves.
It is worked out by dividing a country's total international reserves by its average monthly import bill. The figure shows how long a country could keep buying essential goods such as oil if its export earnings and capital inflows suddenly stopped, so it is a key measure of external safety. As a rule of thumb, at least three months of cover is seen as the minimum. India's reserves fell to about three weeks of imports in the 1991 balance of payments crisis.
A is wrong: the ratio of imports to GDP measures openness to imports, not import cover.
B is wrong: the total import bill for a year is just the value of imports.
C is wrong: the ratio of exports to imports between two countries describes bilateral trade, not reserve adequacy.
Exam tip: import cover = forex reserves ÷ monthly imports; 1991 crisis = about three weeks of cover.
Practice Questions
View allIn 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.
- A.1 and 2
- B.2 only
- C.2 and 3
- D.3 only
Show answer
Explanation
The correct answer is B, 2 only. As lender of last resort, the RBI provides liquidity to banks facing a temporary crisis, so only statement 2 fits.
A bank in sound health can still run short of cash if many depositors withdraw at once. When it cannot raise funds in the market, the central bank lends to it, usually against good collateral, to stop a panic from spreading through the banking system. In India the RBI does this through tools such as the Marginal Standing Facility and special liquidity windows. The idea comes from Walter Bagehot's rule: lend freely to solvent banks in a crisis, against good security.
A is wrong: the RBI does not lend to trade and industry; that is the job of commercial banks.
C is wrong: lending to governments through ways and means advances is its role as banker to the government, not as lender of last resort.
D is wrong: it names only government lending, which is a different function.
Exam tip: lender of last resort = to banks in trouble; banker to government = ways and means advances.
With reference to 'WaterCredit', consider the following statements :
1. It puts microfinance tools to work in the water and sanitation sector.
2. It is a global initiative launched under the aegis of the World Health Organization and the World Bank.
3. It aims to enable the poor people to meet their water needs without depending on subsidies.
Which of the statements given above are correct?
- A.1 and 2 only
- B.2 and 3 only
- C.1 and 3 only
- D.1, 2 and 3
Show answer
Explanation
The correct answer is C, 1 and 3 only. Statements 1 and 3 are correct; WaterCredit is not a WHO or World Bank initiative.
WaterCredit was created by Water.org, the non-profit co-founded by Gary White and Matt Damon. It works through local microfinance institutions, which give small loans to poor households to build a toilet or get a household water connection. Because families repay the loans, the money is recycled into new loans, so the poor can meet their water and sanitation needs without waiting for subsidies or charity. In India it works with many microfinance partners.
A is wrong: statement 2 is incorrect, since the initiative is run by Water.org, not WHO and the World Bank.
B is wrong: it includes the false statement 2 and leaves out the correct statement 1.
D is wrong: all three cannot be correct when statement 2 is false.
Exam tip: WaterCredit = Water.org + microfinance loans for water and toilets, no subsidy needed.
Which was the first integrated programme of rural development in independent India?
- A.The Integrated Rural Development Programme
- B.The Community Development Programme
- C.The Jawahar Rozgar Yojana
- D.The Employment Assurance Scheme
Show answer
Explanation
The correct answer is B, the Community Development Programme, started in 1952 as the first integrated attempt at rural development, followed by the National Extension Service in 1953. Its weaknesses led to the Balwant Rai Mehta Committee of 1957, whose recommendation of democratic decentralisation gave India panchayati raj. A is wrong because the Integrated Rural Development Programme came at the end of the 1970s and aimed at self employment for families below the poverty line. C is wrong because the Jawahar Rozgar Yojana of 1989 was formed by merging the National Rural Employment Programme of 1980 and the Rural Landless Employment Guarantee Programme of 1983. D is wrong because the Employment Assurance Scheme began in 1993 for the agricultural lean season in backward blocks. The chain to remember runs 1952, 1957, 1980, 1983, 1989, 1993, 2001 and then MGNREGA in 2005.
Which rural development mission organises rural women into self help groups for livelihood support?
- A.DAY-NRLM, also called Aajeevika
- B.PMAY-Gramin
- C.DDU-GKY
- D.SPMRM
Show answer
Explanation
The correct answer is A, DAY-NRLM, the Deendayal Antyodaya Yojana National Rural Livelihoods Mission, launched in 2011 as Aajeevika in place of the Swarnajayanti Gram Swarozgar Yojana. It organises poor rural women into self help groups, federates them at the village and block level, and supports them with a revolving fund, a community investment fund and interest subvention on bank loans. B is wrong because PMAY-Gramin provides pucca houses with basic amenities to the rural homeless and to households living in kutcha houses. C is wrong because DDU-GKY gives placement linked skill training to rural youth. D is wrong because the Shyama Prasad Mukherji Rurban Mission develops clusters of villages with urban amenities. One mission for groups, one for houses, one for skills and one for clusters.
The Pradhan Mantri Gram Sadak Yojana, meant for all weather rural roads, was launched in which year?
- A.1996
- B.2000
- C.2005
- D.2014
Show answer
Explanation
The correct answer is B, 2000. The Pradhan Mantri Gram Sadak Yojana was launched on 25 December 2000 to connect unconnected habitations with all weather roads, generally those with a population above five hundred in the plains and above two hundred and fifty in hill, tribal and desert areas, and it later added the upgradation of existing rural roads in further phases. A is wrong because 1996 is not associated with any rural roads programme of this kind. C is wrong because 2005 is the year of the National Rural Employment Guarantee Act and of the National Rural Health Mission. D is wrong because 2014 belongs to the Sansad Adarsh Gram Yojana and the Deen Dayal Upadhyaya Grameen Kaushalya Yojana. Pair each scheme with its purpose: roads, houses, livelihoods and skills are four separate programmes.