External sector and international economic institutions: previous-year questions
62 real UPSC Prelims questions (2011–2026) with the official answer and a clear explanation. 20 of them came in the last five papers.
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"Gold Tranche" (Reserve Tranche) refers to
Answer (d) & explanation
The Gold Tranche is an IMF credit system for members (d). Each IMF member has a quota, which sets its contribution, its voting power and how much it can borrow. Part of the quota, originally 25%, is paid in gold or hard currency; this is the reserve tranche, once called the gold tranche. A member can draw it at any time, with no conditions and no interest, because it is really its own money. It is not a World Bank loan system (a), a central bank operation (b), or a WTO credit (c).
Notice that the reserve tranche counts as part of India's forex reserves, with gold, foreign currency assets and SDRs. India's IMF quota share is about 2.75%, and the 16th review aims at a quota increase.
the word "gold" points to a central bank vault. The tranche is a slice of the member's IMF quota.
Answer as per the official UPSC answer key.
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 :
Answer (a) & explanation
Only statement 1 is correct (a). In a crisis, short-term foreign loans are the first to leave or not be renewed. This happened in the East Asian crisis of 1997, when countries such as Thailand and Indonesia had borrowed heavily short-term. So avoiding them gives protection (1). Statement 2 is wrong because more foreign banks would tie India more closely to world markets. In a crisis, they may pull money back to their home countries. Statement 3 is wrong because full capital account convertibility would let money flow out freely, spreading a shock faster.
India's partial convertibility and large forex reserves helped it weather the 2008 crisis. Notice the Tarapore Committees (1997, 2006), which set preconditions for full convertibility, such as low inflation and a strong banking system.
Answer as per the official UPSC answer key.
With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic ?
Answer (b) & explanation
FDI is largely a non-debt creating flow (b). Foreign Direct Investment buys ownership (equity) in an Indian business, usually with a say in management. There is no fixed interest to pay and no loan to return, so it adds no external debt and is a stable source of capital. Option (a) is wrong because FDI can go into listed or unlisted companies; in a listed company, a holding of 10% or more counts as FDI, below that as portfolio investment. Option (c) describes External Commercial Borrowings, which need debt-servicing. Option (d) describes FPI in government securities, which is portfolio debt.
Notice the two FDI routes: automatic (no prior approval) and government approval. Singapore and Mauritius have long been the top sources of FDI into India.
option (a) says "essentially in a listed company". FDI often goes into unlisted companies too.
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Answer as per the official UPSC answer key.
With reference to the international trade of India at present, which of the following statements is/are correct ?
- 1. India's merchandise exports are less than its merchandise imports.
- 2. India's imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.
- 3. India's exports of services are more than its imports of services.
- 4. India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below :
No official answer (question dropped) & notes
UPSC dropped this question, so no answer was scored. The likely reason is statement 4: India usually runs a current account deficit, but in 2020–21 it posted a small surplus as imports collapsed during COVID. The lasting facts are clear. Statement 1 is right: India's merchandise imports (crude oil, gold, electronics) exceed its exports, giving a large trade deficit. Statement 3 is right: India has a big services surplus from software and IT exports. Statement 2 is wrong: imports of iron and steel, chemicals, fertilisers and machinery have generally risen, not fallen.
Notice the full balance of payments: the current account (goods, services, remittances) and the capital account (FDI, FPI, loans). India is the world's largest receiver of remittances.
UPSC did not evaluate this question, so no official answer exists. Use it for practice only.
UPSC dropped this question from evaluation; there is no official answer.
The term 'West Texas Intermediate', sometimes found in news, refers to a grade of
Answer (a) & explanation
WTI is a grade of crude oil (a). West Texas Intermediate is a light, sweet (low-sulphur) crude from US oilfields, priced at the delivery hub of Cushing, Oklahoma. It is one of the three main world price benchmarks, along with Brent (North Sea) and Dubai/Oman (Gulf). In April 2020, WTI futures briefly traded below zero as storage ran out during COVID. It has nothing to do with bullion (b), which means gold and silver bars; rare earth elements (c), which are metals such as neodymium; or uranium (d).
Notice that the Indian crude basket is mostly Dubai-Oman (sour grades) and Brent (sweet). Light, sweet crude is easier and cheaper to refine into petrol and diesel.
Answer as per the official UPSC answer key.
With reference to Trade-Related Investment Measures (TRIMS), which of the following statements is/are correct ?
- 1. Quantitative restrictions on imports by foreign investors are prohibited.
- 2. They apply to investment measures related to trade in both goods and services.
- 3. They are not concerned with the regulation of foreign investment.
Select the correct answer using the code given below :
Answer (c) & explanation
Statements 1 and 3 are correct (c). The WTO's TRIMs Agreement bans investment rules that distort trade in goods. Statement 1 is right because it prohibits quantitative restrictions on what a foreign investor may import, along with local content requirements and trade-balancing rules. Statement 3 is right because TRIMs does not regulate foreign investment itself; a country may still decide who may invest and how much, as long as the rules do not distort trade. Statement 2 is wrong because TRIMs covers goods only; investment in services falls under GATS.
Notice the other Uruguay Round agreements: TRIPS (intellectual property), GATS (services) and the Agreement on Agriculture. The US once challenged India's solar mission at the WTO over local content rules.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. The value of Indo-Sri Lanka trade has consistently increased in the last decade.
- 2. "Textile and textile articles" constitute an important item of trade between India and Bangladesh.
- 3. In the last five years, Nepal has been the largest trading partner of India in South Asia.
Which of the statements given above is/are correct ?
Answer (b) & explanation
Only statement 2 is correct (b). Statement 1 is wrong because India–Sri Lanka trade rose and fell with Sri Lanka's troubles, including its 2022 economic crisis; it did not rise "consistently". Statement 2 is right because cotton, yarn and textiles are a major part of India's exports to Bangladesh, which is one of the world's biggest garment exporters and needs raw material. Statement 3 is wrong because Bangladesh, not Nepal, is India's largest trading partner in South Asia.
Notice the India–Sri Lanka Free Trade Agreement (1998, in force 2000) and SAFTA (2004/2006) for South Asia. Nepal is a landlocked country that depends heavily on India for transit and trade, but its total trade is smaller than Bangladesh's.
"consistently" in statement 1. One bad year breaks the claim.
Answer as per the official UPSC answer key.
In which one of the following groups are all the four countries members of G20 ?
Answer (a) & explanation
Argentina, Mexico, South Africa and Turkey are all G20 members (a). The G20 has 19 countries plus the European Union, and the African Union joined in 2023 at India's New Delhi summit. The 19 are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the UK and the USA. Option (b) fails because of Malaysia and New Zealand. Option (c) fails because of Iran and Vietnam. Option (d) fails because of Singapore.
Notice that the G20 began in 1999 as a meeting of finance ministers after the Asian financial crisis and became a leaders' summit in 2008. It has no permanent secretariat; the troika of past, present and next presidencies guides it.
each wrong option has three members and one outsider. Find the outsider: Malaysia, Iran, Singapore.
Answer as per the official UPSC answer key.
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.
Answer (b) & explanation
Statements 1 and 3 are correct (b). A currency crisis happens when a country runs short of foreign exchange to pay for imports and debts, and its currency crashes. IT and services exports (1) bring in large, steady dollar earnings; India's services exports are over $380 billion a year. Remittances (3) from Indians abroad add to this: India is the world's largest recipient, at about $135 billion in 2024–25. Statement 2 is wrong because higher government spending raises the fiscal deficit and demand for imports, which adds to the risk instead of reducing it.
Notice the history: India's 1991 crisis, when reserves fell to about two weeks of imports and gold was pledged. This led to the LPG reforms.
Answer as per the official UPSC answer key.
With reference to Asian Infrastructure Investment Bank (AIIB), consider the following statements :
- 1. AIIB has more than 80 member nations.
- 2. India is the largest shareholder in AIIB.
- 3. AIIB does not have any members from outside Asia.
Which of the statements given above is/are correct?
Answer (a) & explanation
Only statement 1 is correct (a). Statement 1 is right because the AIIB, set up in 2016 with its headquarters in Beijing, had more than 80 approved members by 2019, and now has about 110. Statement 2 is wrong because China is the largest shareholder, with about 26% of the voting power. India is the second-largest shareholder and the bank's biggest borrower. Statement 3 is wrong because the AIIB has many members from outside Asia, such as the UK, Germany, France, Brazil and Egypt. The USA and Japan are not members.
Notice the comparison: the Asian Development Bank (Manila, 1966) is led by Japan and the USA. The New Development Bank of the BRICS is in Shanghai.
Answer as per the official UPSC answer key.
Which one of the following is not the most likely measure the Government/RBI takes to stop the slide of Indian rupee?
Answer (d) & explanation
An expansionary monetary policy is not a likely measure (d). To support a falling rupee, the government and the RBI try to reduce dollar outflows and attract inflows. Curbing non-essential imports and promoting exports (a) cut demand for dollars. Masala bonds (b), issued abroad in rupees, bring in foreign money without currency risk for the borrower. Easing external commercial borrowing rules (c) lets companies bring in foreign loans. An expansionary monetary policy lowers interest rates, which pushes foreign money out and raises inflation, weakening the rupee further.
The RBI also sells dollars from its reserves to steady the rupee. Notice the push for rupee trade settlement (2022) and Special Rupee Vostro Accounts to reduce dependence on the dollar.
Answer as per the official UPSC answer key.
The Global Competitiveness Report is published by the
Answer (c) & explanation
The World Economic Forum published it (c). The WEF, based in Geneva and known for its Davos meeting, brought out the Global Competitiveness Report, which ranked countries on 12 pillars such as institutions, infrastructure and innovation. It was paused after 2019 because of COVID. The WEF also publishes the Global Gender Gap Report and the Global Risks Report. The IMF (a) publishes the World Economic Outlook, UNCTAD (b) the World Investment Report, and the World Bank (d) the World Development Report and the now-discontinued Ease of Doing Business rankings, replaced by B-READY.
India ranked 68th in the 2019 report. Notice that India ranked 131st in the WEF's Gender Gap Report 2025, a frequent Prelims topic.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. Most of India's external debt is owed by governmental entities.
- 2. All of India's external debt is denominated in US dollars.
Which of the statements given above is/are correct?
Answer (d) & explanation
Neither statement is correct (d). Statement 1 is wrong because most of India's external debt is owed by the non-government sector. This includes commercial borrowings by companies, NRI deposits and short-term trade credit. Sovereign (government) debt makes up only about a fifth of the total. Statement 2 is wrong because only about half of the debt is in US dollars. The rest is in Indian rupees (such as masala bonds and NRI rupee deposits), Japanese yen, SDRs and euros.
India's external debt was about $736 billion in March 2025, around 19% of GDP, which is low by global standards. Notice the forex reserves of about $700 billion, which cover most of this debt and protect against crises.
"All" in statement 2. The rupee itself is a major currency of India's external debt.
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Answer as per the official UPSC answer key.
The term 'Domestic Content Requirement' is sometimes seen in the news with reference to
Answer (a) & explanation
Domestic Content Requirement is linked to solar power (a). Under the Jawaharlal Nehru National Solar Mission (2010), some projects had to use solar cells and modules made in India. The USA challenged this at the WTO. In 2016, the Appellate Body ruled the DCR against India's national treatment duties under GATT Article III and the TRIMs Agreement, and India changed the rule. DCR has nothing to do with foreign TV channels (b), food exports (c), or foreign university campuses (d).
India now backs local manufacturing differently: the ALMM list of approved modules, the PLI scheme for high-efficiency modules, and DCR only for government-funded projects such as PM-KUSUM and PM Surya Ghar, which WTO rules allow under government procurement.
Answer as per the official UPSC answer key.
The Global Infrastructure Facility is a/an
Answer (b) & explanation
The Global Infrastructure Facility is a World Bank collaboration for infrastructure PPPs (b). It was launched in 2014, endorsed by the G20, and is hosted by the World Bank. It helps governments prepare and structure complex public-private partnerships so that private and institutional investors, such as pension funds and insurers, will put money into them. It is not an ASEAN or ADB initiative (a), it is not a group of banks working with the OECD (c), and UNCTAD does not fund it (d).
The basic problem it tackles is that there is plenty of money, but there are few "bankable" projects. Notice the Indian versions: the India Infrastructure Project Development Fund, the Viability Gap Funding scheme, and the NIIF.
Answer as per the official UPSC answer key.
'Broad-based Trade and Investment Agreement (BTIA)' is sometimes seen in the news in the context of negotiations held between India and
Answer (a) & explanation
The BTIA was negotiated between India and the European Union (a). The Broad-based Trade and Investment Agreement was the name for the India–EU free trade talks that began in 2007. They stalled in 2013 over car and wine tariffs, data security and the movement of professionals. They were relaunched in 2022 as three tracks: a trade agreement, an investment protection agreement, and a geographical indications pact. India and the EU concluded the FTA on 27 January 2026 at the 16th India–EU Summit. The GCC (b), OECD (c) and SCO (d) are not linked to the BTIA.
The FTA still needs signing and ratification, and is expected to take effect around 2027. Notice the sticking point that remains: the EU's CBAM carbon border tax.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. India has ratified the Trade Facilitation Agreement (TFA) of WTO.
- 2. TFA is a part of WTO's Bali Ministerial Package of 2013.
- 3. TFA came into force in January 2016.
Which of the statements given above is/are correct ?
Answer (a) & explanation
Statements 1 and 2 are correct (a). The Trade Facilitation Agreement, part of the WTO's Bali Ministerial Package (2013) (2), simplifies and speeds up customs procedures to cut trade costs. It is the WTO's first multilateral agreement since 1995. India ratified it in April 2016 (1), after linking its support to a permanent solution on food stockholding. Statement 3 is wrong because it came into force on 22 February 2017, once two-thirds of WTO members had ratified it.
India uses the SWIFT single-window and Turant Customs under its National Trade Facilitation Action Plan. Notice the Bali "peace clause", which protects India's public food stocks for the MSP and PDS from legal challenge.
a date one year early. Remember: TFA needed two-thirds ratification and got it in February 2017.
Answer as per the official UPSC answer key.
Which of the following best describes the term 'import cover', sometimes seen in the news?
Answer (d) & explanation
Import cover is the number of months of imports a country could pay for with its international reserves (d). It is not the ratio of imports to GDP (a), the total value of imports (b) or an export–import ratio between two countries (c).
In 1991 India's reserves covered barely two weeks of imports, which led to the balance-of-payments crisis. In recent years they have covered about 10–11 months. A cover of at least three months is usually seen as safe. Notice how this indicator links trade, the rupee and economic stability.
Answer as per the official UPSC answer key.
Consider the following statements :
- 1. New Development Bank has been set up by APEC.
- 2. The headquarters of New Development Bank is in Shanghai.
Which of the statements given above is/are correct?
Answer (b) & explanation
Only statement 2 is correct (b). The New Development Bank (NDB) was set up by BRICS, not APEC, so statement 1 is wrong. The agreement was signed at the Fortaleza summit (2014), and the bank started work in 2015. Its headquarters is in Shanghai (2), and India's K. V. Kamath was its first president. Fortaleza also created the Contingent Reserve Arrangement for balance-of-payments support. APEC is an Asia-Pacific economic forum, and India is not a member.
The NDB has since added Bangladesh, the UAE, Egypt and Algeria, and Brazil's Dilma Rousseff now leads it. Notice the contrast with the AIIB (Beijing), which is a different, China-led bank, even though India is its second-largest shareholder.
APEC is an Asia-Pacific trade forum. The NDB is a BRICS bank.
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Answer as per the official UPSC answer key.
'Global Financial Stability Report' is prepared by the
Answer (b) & explanation
The IMF prepares the Global Financial Stability Report (b). It comes out twice a year and judges risks to the world financial system. It is one of the IMF's flagship reports, along with the World Economic Outlook and the Fiscal Monitor. The ECB (a) publishes its own Financial Stability Review for the euro area. The IBRD (c), part of the World Bank, publishes reports such as Global Economic Prospects. The OECD (d) puts out its own Economic Outlook.
In India, the RBI publishes a Financial Stability Report twice a year, drawing on the FSDC sub-committee. Notice a common trap: the Global Competitiveness Report belongs to the WEF, and the World Development Report belongs to the World Bank. Learn these by heart.
Answer as per the official UPSC answer key.