International Economics Flashcards
Which committee set up to decide full cap A/C convertibility
SS Tarapore committee
Export competitiveness increases by
Depreciation of currency
Which account is fully convertible
Current Account
Appreciation and depreciation done by
Market prices
Devaluation and Revaluation done by
Govt
Three types of exchange rate systems XRS
Fixed
Floating
Fixed float/ dirty float
Mundell Fleming Trilemma
When making fundamental decisions about managing international monetary policy, a trilemma suggests that countries have three possible options from which to choose.
- Setting a fixed currency exchange rate
- Allowing capital to flow freely with no fixed currency exchange rate agreement
- Autonomous monetary policy
How to increase demand of USD
Increase Money supply/ Cent bank should buy USD
How to decrease demand of USD
Decrease Money supply of your currency
How to increase supply of USD
Sell from forex reserves
How to decrease supply of USD
Trade barriers, export bans.
Though has limited effect.
Balance of Payment is, what does it consist of
It is a statement of all transactions between a country and the outside world.
It consists of two accounts:
1. Current Account: Deals with the import and export of goods and services.
- Capital Account: Involves cross-border movement of capital via investments and loans.
Capital Account Convertibility (CAC) is
Freedom to convert currencies for investments i.e. conduct investment transactions without constraints.
CAC refers to the degree of freedom to convert foreign financial assets into domestic financial assets and vice versa at market-determined exchange rate.
No limits on converting rupees to foreign currency for asset acquisition.
No limits on NRIs bringing in foreign currency to acquire assets in India.
Current Account Convertibility
Freedom to convert rupees to other currencies for payments without restrictions.
refers to the degree of freedom to convert your rupees into other internationally accepted currencies and vice versa without any restrictions whenever payments are made.
In India, Current Account is today fully convertible since August 19, 1994.
Prior to this date, India had partial Current Account Convertibility.
It means that the full amount of foreign exchange required for current purposes will be available at the official exchange rate, allowing for an unrestricted outflow of foreign exchange.
Currency Convertibility means, its two components
That a country’s currency can be freely exchanged for foreign currency at an exchange rate, which is determined by the market forces i.e. demand for and supply of the currency.
It has two components:
- Current Account Convertibility
- Capital Account Convertibility
Current Account means
the account is settled and doesn’t include any future obligations.
Current Account constitutes
- Balance of trade and
- Balance of invisibles wh includes services, factor income, remittances.
Capital account means
that account which creates a future asset or liability. Has an unsettled transaction.
Private remittances are a part of which BoP account
Current Account.
Forex Reserves includes
Foreign currency assets (FCA)
Gold holdings of RBI
Special Drawing Rights (SDRs)
Reserve Tranche Position (RTPs) in IMF
Special Drawing Rights (SDRs)
Special drawing rights (SDRs, code XDR) are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF).[1] SDRs are units of account for the IMF, and not a currency per se.[2] They represent a claim to currency held by IMF member countries for which they may be exchanged.[3] SDRs were created in 1969 to supplement a shortfall of preferred foreign exchange reserve assets, namely gold and U.S. dollars.[3] The ISO 4217 currency code for special drawing rights is XDR and the numeric code is 960.
What are Foreign Exchange Reserves
They are assets held on reserve by a central bank in foreign currencies, which can include bonds, treasury bills and other government securities.
These assets serve many purposes but are most significantly held to ensure that the central bank has backup funds if the national currency rapidly devalues or becomes altogether insolvent.
Reserve Tranche Position
The reserve tranche is a segment of an International Monetary Fund member country’s quota that is accessible without fees or economic reform conditions.
Although reserve tranches are 25% of the member nations’ quota, this position can change according to IMF lending from its holdings of the member’s currency.
The reserve tranches with the IMF are considered their facilities of first resort, meaning they can tap into them before seeking a formal credit tranche that charges interest.
Reserve tranche is basically an emergency account that IMF members can access at any time without agreeing to conditions or paying a service fee. Tranche literally means a slice or a portion.
Each member of the IMF is assigned a quota (membership fee). A country’s Reserve Tranche Position (RTP) is the difference between IMF’s holdings of that country’s currency and the country’s IMF-designated quota.
Reserve Tranche Position is accounted for among a country’s foreign-exchange reserves. Part of the quota can be withdrawn from the IMF without any interest during critical situations of a country such as BOP crises.
Gold Tranche
Prior to 1978, the reserve tranche was paid in gold, which was non-interest bearing and known as the gold tranche.
5 Basket Currencies of SDRs
- U.S. dollar (USD)
- Euro (EUR)
- Japanese yen (JPY)
- pound sterling (GBP)
- Chinese yuan renminbi (CNY)
This was enacted in August 2022.
What is a Reserve Tranche needed
If there’s ever a time of need, such as a balance of payment issue or a liquidity crisis, a member nation can tap into a certain percentage of their IMF holdings. This is known as the reserve tranche, which is accessible without fees or conditions.
Difference Between a Reserve Tranche and an SDR?
A reserve tranche is part of the total amount of money that a member nation provides to the International Monetary Fund. The member country can access the reserve tranche without incurring any fees or having to meet any conditions.
Special drawing rights, on the other hand, do not represent currencies. Rather, this is an international reserve asset that IMF member countries can use to supplement their reserves.
Is FDI a debt?
No
What is FDI
Non debt capital flow in the country from foreign.
A foreign direct investment (FDI) is a substantial, lasting investment made by a company or government into a foreign concern.
FDI investors typically take controlling positions in domestic firms or joint ventures and are actively involved in their management.
The investment may involve acquiring a source of materials, expanding a company’s footprint, or developing a multinational presence
Types of economies
Open - Output , financial, labour
Closed
Certificates of inspection, importer and exporter code
EIC
DGFT
Certificates of origin
End user certificate
Demurrages
If delay in loading cargo then port owner charges penalty
Bill of exchange ( import export )
NIRVIC scheme
Export credit guarantee/ letter of credit
Bop
Be residents and non residents
IMF BPM 6 Manual
Worlds net BOP
Zero
Current account includes
Visible goods
Invisible goods-
- services
- secondary income/ transfer - remittance, gift, donation, grants
- income - interest, profit, dividend, wages,
Capital account
Investment/ equity
Debt/loans
Bank deposit
Current account deficit of 2% of gdp
Positive during COVID as imports reduced
Value wise imports more and exports less
Quantity wise exports more and imports less for India
Yes
Gems, jewellery, gold petroleum products, crude oil what is exported
Gems and jewellery, petroleum products exported
Gold is imported, crude oil
Order of goods exported the most
Consumer then intermediate the capital and then raw material
Top agricultural exports orders wise
Marine products
Non basmati rice
Spices
Sugar
Buffalo meat
Basmati rice
Cotton
Wheat
Castor oil
Mis processed products
Top export destination old data
USE
UAE
Netherland
Top import destination old pata
China
UAE
USA
Saudi Arabia
Goods trade
2024 theme of Pravasi Bhartiya
What is the theme of Pravasi Bharatiya Divas 2025?
Ans. The theme for Pravasi Bharatiya Divas 2025 is “Diaspora’s Contribution to a Viksit Bharat.”
NELP policy replaced by
HELP- OLAP
Where are India’s strategic oil reserves stored
Underground rock cavern facilities
More eco friendly the above ground storage tanks
How any members in OPEC, HQ?
14
Hq - Vienna, Austria
Russia not a part of it
When ISA increases oil production
Oil prices decrease
BRENT INDEX
index to measure crude oil price mainly in NW Europe
1 barrel
159 litres of oil
USA crude oil prices are monitored thru
West Texas Intermediate Contracts
Excise duty
Largest consumer of gold
China followed by India
MMTC
Metals and Minerals trading cop
Is gold Fiat Money
No
Gold mines
Nevada
Muruntau, Uzbekistán
Grasberg
Olimpiada
Pueblo viejo
GI tag
First - Darjeeling Tea
Governed under TRIIPS
WIPO
Unity mall to sell these
GI tag VALID for
10 years
First SEZ
Kandla, 1965
Committee set up to look into SEZ
Baba Kalyani Committee
SEZ DESH Hubs
RODTEPM
EPCG AAS Remission schemes of export and import
SCOMET
ICEGATE PORTAL OF CBIC
Niryat Mitra app and India trade webportal
By comm ministry and FIEO
GIFT City
DEH ODOP, TOWNS OF EXPORT EXCELLECE
NIRYAT BANDHU SCHEME
Port Logisitics Authorised eco operator status by CPIC
KRISHI UDAAN SCHEME
K m Chandrashekhar committee
FPI
Fpi
Up to 10%
FDI VS FPI
FDI
More than 10%
Net FDI
HOT MONEY EFFECT
Min of comm and industry
DPIIT
Attached Offices
- DGFT—issues importer E code, implements WTO
-DCTR - anti dumping duty on foreign products
-DGCIS
- Eco Advisor to DPIIT - releases WPI
IFSC
Int Fin Services Centre
Variable Capital Companies
Allowed by Krishnan comitttee
Who borrows more
Pvt sector than govt
Debt components of Cap acc
FDI/FPI
EXTERNAL BORROWING
INDIAN EXTERNAL DEBT
Net Int investment position NIIP
Govt companies of Min of Comm
ECGC__NIRVIC scheme
MMTC
Invest India
Statutory bodies of comm ministry
APEDA
MPEDA
EIC
Statutory commodity boards_ coffee boards etc
Quality of exports checked by
Export Inspection Council
Forex adequacy acc to IMF
Guidotti Greenspan rule
Forex reserve ratio to import, external debt, money aggregates
Hot money
FPI> FDI> Remittances
Good money drives out bad money
Thier’s law
Bad money drives out good money
Thomas Gresham’s law
Triffin dilemma
Paper Gold is
SDR
Nostro vostro account
Nostro- foreign banks account in SBI in rupee
Vostro- foreign banks acc in SBI
If NEER increases then import increase and export decrease
If NEER had REER numeric value is more than currency is strong so less exports and more imports
NEER REER
Bank realisation certificate BRC
How to reduce money supply using forex
