UPSC Prelims 2021 · GS Paper I: Consider the following statements :The effect of devaluation of a currency is that it…
Consider the following statements :
The effect of devaluation of a currency is that it necessarily
- 1. improves the competitiveness of the domestic exports in the foreign markets
- 2. increases the foreign value of domestic currency
- 3. improves the trade balance
Which of the above statements is/are correct?
Answer (a) & explanation
Only statement 1 is correct (a). Devaluation is a deliberate cut in the value of the currency against foreign currencies, under a fixed or managed rate. Statement 1 is right: Indian goods become cheaper abroad, so exports become more competitive. Statement 2 is wrong: devaluation reduces, not increases, the currency's foreign value. Statement 3 is wrong because of the word "necessarily": imports such as oil become dearer, and if demand does not respond quickly, the trade deficit may first widen. This is the J-curve effect.
Notice India's big devaluations in 1966 and 1991. Note the difference: devaluation is a policy step under a fixed rate; depreciation is a market fall under a floating rate.
the word "necessarily". It turns statement 3 from possible into wrong.
Answer as per the official UPSC answer key.
Same theme in UPSC Mains
- MAINS UPSC Mains 2026 · GS Paper IV · Q4bEfficiency is doing things right, while effectiveness is doing the right thing. How do you strike a balance between the two to enhance productivity?
- MAINS UPSC Mains 2026 · GS Paper IV · Q4aCiting the serious adverse effects of long-term medication, a doctor convinces the family of a female patient for surgery. This led the patient to reluctantly consent…
- MAINS UPSC Mains 2026 · GS Paper I · Q4What is the Fujiwhara effect? Explain its impact on the movement and intensity of tropical cyclones.
Related questions from other years
Which one of the following best describes the key objective of India's 'Open Network for Digital Commerce' (ONDC) initiative ?
Answer (c) & explanation
ONDC aims to break the dominance of large platforms (c). The Open Network for Digital Commerce, a DPIIT initiative (2021-22), is an open set of rules, like UPI for shopping. A buyer on one app can buy from a seller listed on another app. This interoperability lets small sellers reach buyers without joining a giant platform. Option (a) is wrong: it does not give the government control of transactions. Option (b) is wrong: private players can join; they are not replaced. Option (d) is wrong: it does not force UPI payments.
Notice ONDC's design: it is a not-for-profit company and part of India's Digital Public Infrastructure, along with Aadhaar, UPI and DigiLocker. It now covers food, groceries and mobility too.
options (a), (b) and (d) use strong words: "all", "replace", "mandate". A public digital platform usually opens a market; it does not take it over.
Answer as per the official UPSC answer key.
Which one of the following statements about Unified Payments Interface (UPI) and Central Bank Digital Currency (Digital Rupee) is not correct ?
Answer (d) & explanation
Statement (d) is not correct (d). Under UPI, money moves between bank accounts; the deposit is a liability of the bank. The Digital Rupee (e₹) is like a currency note in digital form, a direct liability of the RBI, not of users or banks. Option (a) is correct: UPI is a payment system, while the e-rupee is sovereign currency. Option (b) is correct: an e-rupee transfer moves value from wallet to wallet with no separate settlement. Option (c) is correct: e-rupee wallet transactions do not appear in bank statements.
Notice the legal base: the RBI Act was amended in 2022 to let the RBI issue a CBDC. Pilots began that year in wholesale (e₹-W) and retail (e₹-R) forms.
a "not correct" question. Look for the statement that puts the RBI's liability on someone else.
Answer as per the official UPSC answer key.
Which of the following statements about Real-World Assets (RWA) Tokenization are correct ?
- 1. Tokenization is the process of turning real world assets into digital tokens using blockchain technology.
- 2. Tokenization of real world assets offers 24x7 access, promoting financial inclusion.
- 3. Tokenization of real world assets will allow the access to high growth investment opportunities for individuals in India.
Select the answer using the code given below :
Answer (a) & explanation
All three statements are correct (a). Statement 1 is right: tokenization turns a real asset, like a building, bond or gold, into digital tokens recorded on a blockchain. Statement 2 is right: tokens can be traded 24x7, which widens financial inclusion. Statement 3 is right: small, fractional tokens let ordinary individuals get into high-growth investments that once needed crores. So options (b), (c) and (d) fail.
Notice the risks: unclear regulation, cyber threats and weak investor protection. In India, related steps include Fractional Ownership Platforms and REITs and InvITs, which already let small investors own slices of real estate and infrastructure. The RBI is also testing tokenized deposits and government securities in sandbox pilots.
Answer as per the official UPSC answer key.
A bond whose proceeds are used only to finance or refinance a combination of both environmental and social projects is called :
Answer (c) & explanation
This is a sustainability bond (c). Under the ICMA principles followed worldwide, a bond that funds a mix of environmental and social projects is a sustainability bond. Option (a) is wrong: a green bond funds only environmental projects, like solar power. Option (b) is wrong: a social bond funds only social projects, like affordable housing. Option (d) is wrong: a sovereign bond is any bond issued by a national government, whatever its use.
Notice India's practice: India has issued Sovereign Green Bonds since January 2023, with the money going to projects like metro rail and renewable energy. A sustainability-linked bond is different: its money can go anywhere, but its interest rate depends on meeting ESG targets.
"Green Bond" is the most familiar term. The words "both environmental and social" point to the combined label.
Answer as per the official UPSC answer key.
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