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            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.

            Foreign 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 markets, is that the post-crisis expansion of foreign presence in India’s debt markets must be seen as the result of the sharp increase in liquidity in the international financial system 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 of August 2012 and $41 billion on August 27, 2014.

            One reason for the growing foreign investor interest in Indian debt was the liberalization of policy with regard to permitting foreign portfolio investment in the debt market.  It was 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 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 2004, the limit on aggregate debt was at $1 billion, with a cap of $100 million for investments 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 in debt instruments subject to the aggregate ceiling of $1-1.5 billion.
        a) Only A and B     b) Only B and C       c) Only A and C         d) Only A        e) Only B

2. What is/are the reasons behind the growth of foreign investors’ interest in India?
a)      The ability of Indian entrepreneurs to convince the government for PPP model of investment
b)      The realization of importance of FDI in Indian economy for better infrastructure
c)      Increase in opportunities in the private placement market
d)     Liberalization of policy with regard to permitting foreign portfolio investment in the debt market
e)      All the above

3. Which of the following statements is/are false according to the given passage?
a)      After the global fiscal crisis the presence of foreign investors in India’s debt market has increased
b)      The increase in foreign investors can be seen the result of increase in liquidity in the international financial system.
c)      The exit of portfolio capital led to financial crisis in the Securities and Exchange Board of India.
d)     The exit of FPIs from the debt market in 2013 was related to the fears of liquidity generated in the US.
e)      All the above

4. What, according to the passage, is the effect of exit portfolio capital from Indian economy?
a)      Acceleration of inflow of capital
b)      Strengthening of Indian rupee
c)      Increase in outflow
d)     Increase in foreign investment
e)      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 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.
a)      Only A and B                         b) Only B and C                     c) Only A and C        
d)  All A, B and C                                    e) 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
      a) cause     b) origin                       c) source          d) result           e) foundation

7. Exposure
      a) risk        b) concealment            c) hiding          d) covering      e) acceptance

8. Which of the following is the antonym of the word ‘taper’ as used in the passage?
      a) die away            b) thin out       c) wind down              d) dwindle      e) 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 percent.

In the US, monetary policy has two basic 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 the issue of Bank notes and the keeping of reserves with a view to securing monetary stability in India and generally to operate the currency can 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 adequate flow of credit to sustain growth; and securing financial stability.

Modernizing 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, prominent amongst them being Australia, Canada, New Zealand 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 binds 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 modernized by a number of initiatives which are successfully followed in other countries.  In the UK, every month, the Agent’s Summary compiled 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, the Beige Book, published eight times every year, 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.
a)      To operate the credit system and currency of India
b)      To secure financial stability in the country.
c)      To regulate the issue of banknotes and keep the reserves
d)     To ensure adequate fund outflow
e)      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 attract FIIs and set up new industries
      B. to ensure price stability and maintain low inflation
      C. To support the government’s economic objectives for growth and employment
      a) Only A and B      b) Only B and C      c) Only A and C         d) Only B        e) All A, B and C

11. Find the incorrect statement in the context of the given passage.
A. The goal of the 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 Reserve Banks.
      a) Only A and B      b) Only B and C       c) Only A and C         d) Only C        e) All A, B and C

12. What initiative(s) is/are followed in different countries for the modernization of the monetary policy framework?
A. Agent’s summary compiled 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 modernization of the monetary policy framework.
C.  In the US, the Beige Book, based on anecdotal information on current economic conditions collected by Federal Reserve Banks, is published eight times every year.
      a) Only A  b) Only B        c) Only C        d) Only A and C         e) Only B and C

13. Which of the following factors does not help frame monetary policy?  Answer in the context of the passage.
      a) Transparency in operations
      b) Accountability mechanism      
      c) Foreign funds inflow
      d) Inflation forecast
      e) None of these

14. What is the antonym of the word ‘conjunction’ as used in the passage?
      a) combination                  b) tie-up           c) juxtaposition           d) affiliation    e) dissociation

15. What is the synonym of the word ‘absolves’ as used in the passage?
      a) convicts                         b) discharges   c) impeaches                d) condemns   e) 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 e).  (Ignore errors of punctuation, if any.)

16. a) One of the most essential and major asset / b) for India right now is electricity, / c) therefore it is important that / d) electricity should reach the end customer. / e) No error

17. a) In India, there is still / b) no widespread repugnance at / c) the thought of little hands / d) toil to make the stuff we buy. / e) No error

18. a) It has been proven, time and time / b) again, that eggs and dietary cholesterol / c) does not adversely affect / d) cholesterol levels in the blood. e) No error

19. a) The man who killed an orthopaedic surgeon, /b) his domestic help and the later’s son said that / c) he was unhappy with the unnecessary diagnostic tests / d) the surgeon had recommended for his daughter. / e) No error


20. a) “Love Jihad” had come to be / b) one of the latest additions / c) to a meaningless polarized debate / d) on a sensitive issue. / e) No error

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ANSWERS

1.b       2.d       3.c       4.c       5.c       6.d       7.a       8.e       9.d       10.b     11.d     12.d     13.c     14.e

15.b    

16.a; Replace ‘asset’ with ‘assets’
17.d; Replace ‘toil’ with ‘toiling’
18.c; Replace ‘does’ with ‘do’
19.b; Replace ‘later ‘s’ with latter ‘s’
20.c; Replace ‘meaningless’ with ‘meaninglessly’

ENGLISH --- 1 to 20 Reviewed by sambasivan srinivasan on 10:14:00 PM Rating: 5

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