UPSC Prelims 2024 · GS Paper I
Question 44: Economy and Social Development
Consider the following :
- 1.Exchange-Traded Funds (ETF)
- 2.Motor vehicles
- 3.Currency swap
Which of the above is/are considered financial instruments ?
AnswerUPSC’s answer is (d).
A financial instrument is a contract that creates a financial asset for one party and a financial liability or equity for another. Exchange-Traded Funds, which are units traded on a stock exchange, and currency swaps, which are derivative contracts exchanging currency cash flows, are financial instruments. Motor vehicles are real, physical assets, not financial instruments.
- 1. ETFs are traded investment units, a financial instrument.
- 2. Motor vehicles are physical assets.
- 3. A currency swap is a derivative contract, a financial instrument.
How you could have got this
- If you were sure statement 2 is not correct, (b) and (c) go: each of them includes 2.
What you needed to know: Motor vehicles are physical assets.
- Then, if you were sure statement 3 is correct, (a) goes: it leaves 3 out.
What you needed to know: A currency swap is a derivative contract, a financial instrument.
Only (d) is left. You didn’t need statement 1.
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) Wrong: a currency swap is also a financial instrument.
- (b) Wrong: motor vehicles are physical assets, and it leaves out ETFs.
- (c) Wrong: motor vehicles are not financial instruments.
- (d) Right: ETFs and currency swaps are financial instruments; motor vehicles are not.
Answer: UPSC’s key. Explanation: written by UPSC Grade, not by UPSC.
Source: UPSC, Civil Services (Preliminary) Examination 2024, General Studies Paper I, Series A. The paper on upsc.gov.in.