External Sector & Trade MCQs for UPSC Prelims

106 practice questions on External Sector & Trade from the Economy section of the UPSC Prelims syllabus. 106 come with a written explanation and 43 are actual previous year questions. Try the sample set below - the answer stays hidden until you ask for it.

17 Easy 47 Medium 42 Hard 43 from past papers

Sample questions

Q1
Previous year question easy

Among the following, which one is the largest exporter of rice in the world in the last five years?

  1. A China
  2. B India
  3. C Myanmar
  4. D Vietnam
Show answer and explanation

Correct answer: B - India

India has consistently been the largest rice exporter in the world in the years preceding 2019, having overtaken Thailand, helped by large surpluses of both basmati and non-basmati rice. China, despite being the largest producer of rice, is a net importer because of its enormous domestic consumption. Vietnam and Myanmar are notable exporters but their volumes are far below India's annual exports.

Q2
Previous year question medium

Consider the following statements : Statement I : Of the two major ethanol producers in the world, i.e., Brazil and the United States of America, the former produces more ethanol than the latter. Statement II : Unlike in the United States of America where corn is the principal feedstock for ethanol production, sugarcane is the principal feedstock for ethanol production in Brazil. Which one of the following is correct in respect of the above statements?

  1. A Both Statement I and Statement II are correct and Statement II explains Statement I
  2. B Both Statement I and Statement II are correct but Statement II does not explain Statement I
  3. C Statement I is correct but Statement II is not correct
  4. D Statement I is not correct but Statement II is correct
Show answer and explanation

Correct answer: D - Statement I is not correct but Statement II is correct

The United States is the world's largest ethanol producer, ahead of Brazil, so statement I, which claims Brazil produces more, is incorrect. Statement II is correct because the US relies mainly on corn while Brazil uses sugarcane as its principal feedstock. Therefore statement I is wrong while statement II is right.

Q3
Previous year question medium

With reference to Foreign Direct Investment in India, which one of the following is considered its major characteristic?

  1. A It is the investment through capital instruments essentially in a listed company.
  2. B It is a largely non-debt creating capital flow.
  3. C It is the investment which involves debt-servicing.
  4. D It is the investment made by foreign institutional investors in the Government securities.
Show answer and explanation

Correct answer: B - It is a largely non-debt creating capital flow.

A defining feature of Foreign Direct Investment is that it is largely a non-debt-creating capital flow, since it reflects equity ownership and lasting management interest rather than a loan. It is not confined to listed companies, it does not involve debt-servicing obligations like external borrowings, and investment by foreign institutional investors in government securities is portfolio (FPI) flow, not FDI. Hence the major characteristic is that it is non-debt creating.

Q4
Previous year question medium

Consider the following statements : I. India has joined the Minerals Security Partnership as a member. II. India is a resource-rich country in all the 30 critical minerals that it has identified. III. The Parliament in 2023 has amended the Mines and Minerals (Development and Regulation) Act, 1957 empowering the Central Government to exclusively auction mining lease and composite license for certain critical minerals. Which of the statements given above are correct?

  1. A I and II only
  2. B II and III only
  3. C I and III only
  4. D I, II and III
Show answer and explanation

Correct answer: C - I and III only

India joined the Minerals Security Partnership, a US-led grouping for critical mineral supply chains, so statement I is correct. India is import-dependent for several of its identified critical minerals and is not resource-rich in all 30, so statement II is wrong. The 2023 MMDR amendment empowered the Centre to exclusively auction leases and composite licences for specified critical and strategic minerals, so statement III is correct, giving I and III.

Q5
Previous year question hard

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:

  1. A 1 and 2 only
  2. B 2 only
  3. C 1 and 3 only
  4. D 1, 2 and 3
Show answer and explanation

Correct answer: C - 1 and 3 only

Statements 1 and 3 are correct: under the WTO TRIMS Agreement, trade-distorting measures such as quantitative restrictions tied to foreign investment are prohibited, and TRIMS does not by itself regulate the entry or conduct of foreign investment as such. Statement 2 is wrong because TRIMS applies only to investment measures affecting trade in goods, not services. Hence the correct combination is 1 and 3 only.

Q6
Previous year question easy

India enacted The Geographical Indications of Goods (Registration and Protection) Act, 1999 in order to comply with the obligations to

  1. A ILO
  2. B IMF
  3. C UNCTAD
  4. D WTO
Show answer and explanation

Correct answer: D - WTO

India enacted the Geographical Indications of Goods Act, 1999 to meet its obligations under the WTO's TRIPS Agreement, so 'D' is correct. The ILO deals with labour standards, the IMF with monetary stability, and UNCTAD with trade and development policy; none of these required GI protection legislation. The TRIPS regime under the WTO mandates protection of geographical indications.

Q7
Previous year question hard

Consider the following statements: 1. Tight monetary policy of US Federal Reserve could lead to capital flight. 2. Capital flight may increase the interest cost of firms with existing External Commercial Borrowings (ECBs). 3. Devaluation of domestic currency decreases the currency risk associated with ECBs. Which of the statements given above are correct?

  1. A 1 and 2 only
  2. B 2 and 3 only
  3. C 1 and 3 only
  4. D 1, 2 and 3
Show answer and explanation

Correct answer: A - 1 and 2 only

When the US Fed tightens, higher US yields pull capital out of emerging markets, causing capital flight, so statement 1 is correct. The resulting outflows raise borrowing costs and refinancing risk for firms carrying ECBs, so statement 2 is correct. Devaluation of the rupee actually increases the cost of repaying foreign-currency ECBs and therefore raises, not lowers, currency risk, making statement 3 wrong. Hence only 1 and 2 are correct.

Q8
Previous year question medium

Consider the following countries : I. United Arab Emirates II. France III. Germany IV. Singapore V. Bangladesh How many countries amongst the above are there other than India where international merchant payments are accepted under UPI?

  1. A Only two
  2. B Only three
  3. C Only four
  4. D All the five
Show answer and explanation

Correct answer: B - Only three

UPI-based international merchant payments have been enabled in countries such as the UAE, France and Singapore through tie-ups by NPCI International, so three of the listed countries qualify. Germany and Bangladesh had not been brought under UPI international merchant acceptance at the time, so they are excluded. Hence only three countries other than India accept such payments.

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More Economy topics

Money, Banking & RBI 117 Agricultural Economy 86 Balance of Payments & Forex 85 Fiscal Policy & Budget 85 Monetary Policy 82 Financial Markets & Institutions 81 Taxation & GST 73 Inflation & Prices 73 National Income & Growth 73 Poverty, Employment & Inclusive Growth 71 Capital Markets & Investment 70 International Economic Organisations 65 Banking Reforms & NPAs 62 Government Schemes & Policies 62 Industry & Infrastructure 55 Planning & NITI Aayog 38