Static Quiz 21 October 2022 (Indian Economy)

Solution: a)
Justification: The situation in option (a) may not be socially desirable. For e.g. we may take away Rs. 10,000 from a billionaire and give it to a BPL family; it would hardly make a difference to the welfare of the rich but would matter a lot for the BPL family. So, while this transfer of Rs. 10,000 is socially desirable, it would not be considered pareto optimum, nor is it done based on democratic means. The concept is purely based on the idea that greater economic efficiency leads to more economic welfare, which as we just verified, may not be correct.

Solution: d)
Justification: Option A: Futures Contract has been permitted long back. It is a contract between two parties where both parties agree to purchase or sell a particular commodity or any other financial instrument at a predetermined price at a specified time in the future.
Option B: Commodity Exchanges have been requesting SEBI for a long time to permit options trading in commodities be allowed. It was permitted recently.
 Options Contract is a derivative product that offers an investor the right to purchase without any obligation to buy at the specified price/date. Suppose you want your dream car which as of now costs RM 100,000 (RM is a currency unit). You don’t have the money to buy the car now, but you will have after 3 months. A smart move would be to buy an “option” to purchase this car in the future (after 3 months). You pay the car owner a contract premium (say RM 1,000) to exercise this option. Remember, you have the option to buy or not buy the car. See the diagram below now. Suppose after 3 months, car prices increase to RM 150,000. This is a win case for you, since the options contract was to buy it at RM 100,000. You gain. Suppose car price reduces. Now, you won’t buy the car, because the contract was not an obligation (only a right) to buy the car. You would now pay the options premium (RM 1000 to the owner), and may be buy the car from the market.

Option C: You would heard have the Forward Markets Commission that earlier regulated forward markets. Now SEBI has subsumed the organization.
 A forward contract is a private agreement between two parties giving the buyer an obligation to purchase an asset (and the seller an obligation to sell an asset) at a set price at a future point in time.

Solution: a)
Justification: Statement 1: It is focused on long-term equity investments in a diversified portfolio of infrastructure projects.
Statement 2: IIF has been sponsored by IDFC Limited (IDFC), along with Citigroup Inc. (Citi) and India Infrastructure Finance Company Limited (IIFCL) as founder investors. The establishment of IIF has received the strong support of the Government of India.
Statement 3: IIF’s portfolio is expected to comprise greenfield, brownfield and operational assets/projects in core infrastructure sub-sectors including transport etc. The current size of IIF is INR 38 billion with investor commitments from institutional investors in India, USA, Canada, Europe, Japan and the Middle-East. China-led Asian Infrastructure Investment Bank (AIIB) has approved $150 million equity investment loan to the India Infrastructure Fund. This loan will be the bank’s first equity investment to fund private projects.

Solution: c)
Justification: Statement 1 and 2: India-INX is India’s first international exchange at IFSC Gujarat International Financial Tech (GIFT) City, Gandhinagar. It is wholly-owned subsidiary of Bombay Stock Exchange (BSE), through its global bourse. It is one of world’s most advanced and fastest trading technology platforms with turn-around time of 4 micro seconds. It trades in equity derivatives, currency derivatives, commodity derivatives including Index and Stocks. It also offers depository receipts and bonds. Its vision is “Emerge as the leading International Exchange with best-in-class global practice in technology, products innovation and customer service.”
Statement 3: The exchange being located in IFSC, GIFT City, provides competitive advantage in terms of tax structure and supportive regulatory framework. These include benefits in security transaction tax, commodity transaction tax, dividend distribution tax and long-term capital gain tax waivers and no income tax.
Statement 4: Following the International trading timings, this unique stock exchange will start when trading at Japanese stock exchange starts, and will end when US stock exchange stops, from sunrise to sunset. So, it operates for 22 hours a day allowing international investors and NRIs to trade from anywhere across globe.

Solution: d)
Justification: It also provides clearing and settlement of commodity futures transactions, thereby providing platform for risk management. It was launched in 2003 and operates within regulatory framework of Forward Contracts Regulation Act, 1952 (FCRA, 1952) under SEBI. MCX offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others). Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading.