2016 GS Paper I, all questions

UPSC Prelims 2016 · GS Paper I

Question 8: Economy and Social Development

With reference to ‘IFC Masala Bonds’, sometimes seen in the news, which of the statements given below is/are correct?

  1. 1.The International Finance Corporation, which offers these bonds, is an arm of the World Bank.
  2. 2.They are the rupee-denominated bonds and are a source of debt financing for the public and private sector.

Select the correct answer using the code given below.

a1 only
b2 only
cBoth 1 and 2
dNeither 1 nor 2

AnswerUPSC’s answer is (c).

Masala bonds are rupee-denominated bonds issued outside India, so the investor, not the Indian borrower, bears the exchange-rate risk. The International Finance Corporation, part of the World Bank Group, issued the first one in 2014. They let Indian public and private sector borrowers raise debt overseas in rupees rather than dollars. Both statements are correct in UPSC's key.

  • 1. IFC belongs to the World Bank Group and issues these bonds; UPSC accepts it as an arm of the World Bank.
  • 2. They are rupee-denominated and give public and private borrowers debt financing.

How you could have got this

  1. If you were sure statement 1 is correct, (b) and (d) go: each of them leaves 1 out.

    What you needed to know: IFC belongs to the World Bank Group and issues these bonds; UPSC accepts it as an arm of the World Bank.

  2. Then, if you were sure statement 2 is correct, (a) goes: it leaves 2 out.

    What you needed to know: They are rupee-denominated and give public and private borrowers debt financing.

Only (c) is left. This one needs every statement.

Which options go is worked out from UPSC’s key and the options, not by a model.

Why each option is right or wrong
  • (a) Statement 2 is also correct: they are rupee-denominated debt.
  • (b) Statement 1 is also accepted as correct by UPSC.
  • (c) Right: UPSC treats both statements as correct.
  • (d) Both statements are treated as correct, so 'neither' fails.

Worth knowing: IFC is strictly a member of the World Bank Group, a sister body of the World Bank (IBRD) and not part of it; UPSC treated 'arm of the World Bank' as correct.

Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.

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Source: UPSC, Civil Services (Preliminary) Examination 2016, General Studies Paper I, Series A. The paper on upsc.gov.in.