foreign portfolio investment in the debt market.
It was
Lakshya Academy
English -11
Directions (Q 1 -8): Read the passage carefully and
answer the questions given below it. Certain
words/phrases are given in bold to help you locate
them while answering some of the questions.
Forgein investor presence in India's debt markets
has increased considerably after the global financial
crisis. Annual inflows over the years ending August
peaked at $3.4 billion in 2008, fell to less than $ 600
million in the immediate post-crisis year 2009, and
rose sharply to $ 10.2 billion in the year ended August
2010, $6 billion in the year ended August 2011 and $9
billion in the year ended August 2012. The year to
August 2013 was unusual inasmuch as there were net
outflows of $2.8 billion, to be followed by a surge to $
12.9 billion in the year to August 2014.
The collapse in flows and the exit of FPIs
from the debt market in 2013 were clearly related to
the fears of a liquidity squeeze generated by talk of
the "taper" in the US.
The Exit of portfolio capital weakened India's
rupee considerably, worsened sentiment and
accelerated the outflow. A corollary of this
relationship between expectations of the state of
international liquidity (influenced by the policy stance
of the US Federal Reserve), the direction of movement
of the rupee and the volume of inflows into debt
market, is that the post-crisis expansion of forgein
presence in India's debt market must be seen as the
result of the sharp increase in liquidity in the
international financial system as a result as a result of
the monetary and fiscal policies adopted in response to
the crisis,
Interest rates in India are much higher than in
international markets, and if the assessment of
exchange risk is that it is low (or that the rupee will not
depreciate by 'abnormal' margins), investment interest
in the Indian debt market would be high.
The result has been that despite the reversal in
flows in 2013, cumulative net investment by FPIs in
India's debt markets has risen from less than a billion
dollars in 2006 to $30 billion at the end if August 2012
and $41 billion on August 27, 2014. One reason for
the growing foreign investor interest in Indian debt ws
the liberasation of policy with regard to permitting
in 1995 that the Securities and Exchange Board of
India permitted FIIs to invest in debt markets, subject
to the 70:30 rule, which specified that 70 per cent of an
investor's exposure should be to equity and only 30
per cent to debt . The cap on total FII investment in
debt was set at $1-1.5 billion.
soon, in 1996, a category of FIIs that were allowed
to invest only in debt instruments were permitted into
the country's capital markets, with 100 per cent
exposure to debt securities (including corporate bonds)
subject to the aggregate ceiling of $1-1.5 billion. In
1998, such investment was permitted in unlisted
securities as well or through the private placement
market. Even as recently as 004, the limit on aggregate
under the 70-30 route and $900 million under the 100
per cent route.
1. What conditions was/were placed before a certain
category of FIIs in 1996?
(A) They were allowed 70% exposure to debt
securities.
(B) They were allowed to invest only in debt
instruments.
(C) They were allowed to invest only in debt
instruments subject to the aggregate ceiling of $1-1.5
billion.
1) Only (A) and (B) 2) Only (B) and (C)
3) Only (A) and (C) 4) Only (A)
5) Only (B)
2. What is /are the reasons behind the growth of
forge in investors' interest in India?
1) The ability of Indian entrepreneurs to convince the
government for PPP model of investment
2) The realisation of importance of PDI in Indian
economy for better infrastructure.
3) Increase in opportunities in the private placement
market
4) Liberalisation of policy with regard to permitting
foreign portfolio investment in the debt market
5) All the above
3. Which of the following statements is /are false
according to the given passage?
1) After the global fiscal crisis the presence of foreign
investors in India's debt market has increased.
2) The increase on foreign investors can be seen as the
result of increase in liquidity in the international
financial system.
3) The exit portfolio capital led to financial crisis in
the Securities and Exchange Board of India.
4) The exit of PPIs from the debt market in 2013 was
relate to the fears to liquidity generated in the US.
5) All the above
4. What according to the passage, is the effect of exit
portfolio capital from Indian economy?
1) Acceleration of inflow of capital
2) Strengthening of Indian rupee
3) Increase in outflow
4) Increase in foreign investment
5) None of these
5. Which of the following statements is/are true on the
basis of the facts mentioned in the given passage?
(A) There was sharp increase in liquidity in the
international financial system due to the monetary and
fiscal policies adopted in response to the financial
crisis.
(B) Despite the reversal in flows in 2013, the number
of foreign portfolio investors in India has increased.
(C)The SEBI permitted FIIs to invest in equity 70 per
cent of their investment.
1) Only(A) and (B) 2) Only (B) and (C)
3) Only (A) and (C ) 4) All (A), (B) and (C)
5) None of these
Directions (Q. 6-7): Choose the word which is
MOST SIMILAR in meaning to the word printed
in bold as used in the passage.
6. Corollary
1) cause 2) origin 3) source
4) result 5) foundation
7. Exposure
1) risk 2) concealment 3) hiding
4) covering 5) acceptance
8. Which of the following is the antonym of the word
'taper ' as used in the passage?
1) die away 2) thin out 3) wind down
4) dwindle 5) go up
Directions (Q. 9-15): Read the passage carefully
and answer the questions given below it. Certain
words/phrases have been given in bold to help you
locate them while answering some of the questions.
The objective of monetary policy varies in
different countries. In the UK, the objective of
monetary policy is to deliver price stability ---implying
low inflation--- and subject to that, to support the
government's economic objectives including those for
growth and employment. Price stability in the UK is
defined by the government's inflation target of two per
cent.
In the US, monetary policy has two basis goals : to
promote maximum sustainable output and
employment, and to promote stable prices.
In India according to the Reserve Bank of India
(RBI) Act, 1934, the objectives of the Reserve Bank
are "...to regulate this issue of Bank notes and the
keeping of reserves with a view o securing monetary
stability in India and generally to operate the currency
and credit system of the country to its advantage," The
formulation, framework and institutional architecture
of monetary policy in India have evolved over time
around these objectives ---maintaining price stability ;
ensuring financial stability.
modernising monetary policy framework should not
be confused with another approach popularly called
inflation targeting (IT) just because over the years,
from 1990 to 2008, about two dozen countries adopted
it, promoted amongst them being Australia, Canada,
New Zeland, and UK. IT assumes that price stability is
explicitly the mandate and a quantitative target for
inflation is publicly announced.
Overall, monetary policy is based on a wide set
of information that includes an inflation forecast ;
transparency in operations ; and accountability
mechanism. As can be easily noted, the IT approach
mounts blinkers on the central bank and absolves it
from other responsibilities : IT was in disrepute after
the onset of the great recession in 2008. India resisted
adopting IT all these years as it blinds the central
banker, and , after minting its own Multiple Indicator
Approach in 1997, demonstrated its efficiency by
following it meticulously to stave off the Southeast
Asian Crisis as well as the great recession.
The monetary policy framework can be modernised
by a number of initiatives which are successfully
followed in other countries. In the UK, every month,
the Agent's Summary complied by the Bank of
England's (BoE's)12 agents, following discussions
with 700 businesses, is published to assist the
monetary policy makers in conjunction with
intelligence from other sources. Similarly, in the US
Beige Book, published eight times every years, is
based on anecdotal information on current economic
conditions collected by each of the Federal Reserve
Banks in their respective districts through reports and
interviews with key business contacts, economists,
market experts, and other sources. The Beige Book is
an important source of real - time market intelligence
for the Federal Open Market Committee (FOMC).
9. Which of the following is not one of the objectives
of the RBI? Answer in the context of the passage .
1) To operate the credit system and currency of India.
2) To secure financial stability in the country.
3) To regulate the issue of banknotes and keep the
reserves
4) To ensure adequate fund outflow
5) None of these
10. Which of the following is/are the objectives of
monetary policy in the UK ? Answer in the context of
the passage.
(A) To attracts FIIs and set up new industries
(B) To ensure price stability and maintain low inflation
(C) To support the government economic objectives
for growth and employment
1) Only (A) and (B) 2) Only (B) and (C)
3) Only (A) and (C) 4) Only (B)
5) All (A), (B) and (C)
11. Find the incorrect statement in the context of the
given passage.
(A) The goal of monetary policy in the USA is to
maintain price stability and generate employment.
(B) Price stability in the UK is defined by the
government's inflation target of 2%
(C) The Beige Book Provides input to the Federal
Reserves Banks
1) Only (A) and (B) 2) Only (B) and (C)
3) Only (A) and (C) 4) Only (C)
5) All (A),(B) and (C)
12. What initiatives (s) is/are followed in different
countries for the modernisation of the monetary policy
framework?
(A) Agent's summary complied by the Bank of
England's 12 agents is published to assist the monetary
policy makers.
(B) In India, the Reserve Bank collects information
from PSBs for the modernisation of the monetary
policy framework.
(C) In the US, the Beige Book, based on aneedotal
information on current economic conditions collected
by Federal Reserve Bank, is published eight times
every year.
1) Only (A) 2) Only (B) 3) Only (C)
4) Only (A) and (C) 5) Only (B) and (C)
13. Which of the following factors does not help
frame monetary policy? Answer in the context of the
passage.
1) Transparency in operations
2) Accountability mechanism
3) Foreign funds inflow
4) Inflation forecast
5) None of these
14. What is the antonym of the word 'conjunction' as
used in the passage?
1) combination 2) tie-up 3) juxtaposition
4) affiliation 5) dissociation
15. What is the synonym of the word 'absolves' as
used in the passage ?
1) convicts 2) discharges 3) impeaches
4) condemns 5) binds
Directions (Q. 16-20): Read each sentence to find
out whether there is any grammatical or idiomatic error
in it. The error, if any, will be in one part of the
sentence. The number of that part is the answer. If
there is 'No error', the answer is 5. ( Ignore errors of
punctuation, if any.)
16. 1) One of the most essential and major asset / 2)
for India right now is electricity, / 3) therefore it is
important that / 4) electricity should reach the end
customer. / 5) No error
17. 1) In India, there is still / 2) no widespread
repugnance at / 3) the thought of little hands / 4) toil to
make the stuff we buy. / 5) No error
18. 1) It has been proven, time and time / 2) again,
that eggs and dietary cholesterol / 3) does not
adversely affect / 4) cholesterol levels in the blood. 5)
No error
19. 1) The man who killed an orthopaedic surgeon, /
2) his domestic help and the later's son said that/ 3) he
was unhappy with the unnecessary diagnostic tests / 4)
the surgeon had recommended for his daughter./ 5) No
error
20. 1) " Love Jihad" has come to be/ 2) one of the
latest additions / 3) to a meaningless polarised debate /
4) on a sensitive issue. / 5) No error