Q.1 What is the primary goal of development finance?
Profit maximization
Long-term economic growth
Short-term trade gains
Currency devaluation
Explanation - Development finance aims to fund projects and policies that enhance sustainable economic growth and improve living standards.
Correct answer is: Long-term economic growth
Q.2 Which institution is known as the 'lender of last resort' for countries?
World Bank
IMF
WTO
UNDP
Explanation - The International Monetary Fund (IMF) provides emergency financing to countries facing balance-of-payments crises.
Correct answer is: IMF
Q.3 Which of the following is a source of external finance for developing countries?
Household savings
Foreign aid
Local taxation
Domestic credit
Explanation - Foreign aid is an external source of finance, while savings, taxation, and domestic credit are internal sources.
Correct answer is: Foreign aid
Q.4 Microfinance primarily targets which group?
Large corporations
Small farmers and entrepreneurs
Government agencies
Stock market investors
Explanation - Microfinance provides small loans to low-income individuals who lack access to traditional banking services.
Correct answer is: Small farmers and entrepreneurs
Q.5 Which term refers to the flow of funds from developed countries to developing ones to support growth?
Foreign Direct Investment
Remittances
Official Development Assistance
Export revenues
Explanation - ODA represents government aid aimed at promoting the economic development and welfare of developing countries.
Correct answer is: Official Development Assistance
Q.6 Which financial instrument helps governments raise funds for development projects?
Shares
Bonds
Derivatives
Mutual funds
Explanation - Governments often issue bonds to finance infrastructure and development-related projects.
Correct answer is: Bonds
Q.7 Which is a key challenge of relying on foreign debt for development?
Increased productivity
Debt trap
Technology transfer
Trade surplus
Explanation - Heavy reliance on foreign debt can lead to a cycle of borrowing and repayment difficulties, known as the debt trap.
Correct answer is: Debt trap
Q.8 Which type of investment involves establishing new businesses in developing countries?
Portfolio investment
Foreign Direct Investment
Domestic savings
Microcredit
Explanation - FDI involves long-term investment and management participation in enterprises abroad.
Correct answer is: Foreign Direct Investment
Q.9 Why are remittances important for developing economies?
They increase inflation
They decrease employment
They provide stable foreign exchange
They raise tariffs
Explanation - Remittances provide a steady inflow of foreign currency, boosting household income and national reserves.
Correct answer is: They provide stable foreign exchange
Q.10 Which financial market is most important for channeling funds to long-term development?
Bond market
Money market
Commodity market
Currency market
Explanation - Bond markets mobilize long-term funds needed for development projects, unlike money markets which handle short-term funds.
Correct answer is: Bond market
Q.11 Which is NOT a multilateral development bank?
World Bank
Asian Development Bank
African Development Bank
Federal Reserve
Explanation - The Federal Reserve is the U.S. central bank, not a development bank.
Correct answer is: Federal Reserve
Q.12 Which financing source depends mainly on voluntary contributions?
World Bank loans
Private equity
Foreign aid
Remittances
Explanation - Foreign aid largely relies on donor governments’ voluntary contributions.
Correct answer is: Foreign aid
Q.13 What is a common purpose of sovereign wealth funds in development?
Speculation
Funding infrastructure
Currency depreciation
Paying wages
Explanation - Sovereign wealth funds often invest resource revenues into infrastructure and long-term development.
Correct answer is: Funding infrastructure
Q.14 Which organization is mainly responsible for poverty reduction through financing projects?
World Trade Organization
World Bank
International Monetary Fund
OECD
Explanation - The World Bank funds projects to reduce poverty and support sustainable development.
Correct answer is: World Bank
Q.15 Which is a potential risk of depending heavily on FDI?
Inflation stability
Loss of economic sovereignty
Stronger trade balance
Improved technology
Explanation - Excessive reliance on FDI may give foreign investors undue influence over a host country’s economy.
Correct answer is: Loss of economic sovereignty
Q.16 Which financial concept describes the long-term increase in productive capacity?
Speculation
Development finance
Economic growth
Liquidity
Explanation - Economic growth refers to a sustained increase in a country's productive capacity over time.
Correct answer is: Economic growth
Q.17 What type of capital inflow is highly volatile and can destabilize economies?
Remittances
Portfolio investment
FDI
ODA
Explanation - Portfolio investments are short-term and can exit quickly, causing instability.
Correct answer is: Portfolio investment
Q.18 Which sector often receives priority in development financing?
Luxury goods
Defense
Infrastructure
Speculative trading
Explanation - Infrastructure projects like roads and power are essential for long-term growth and receive significant development financing.
Correct answer is: Infrastructure
Q.19 Which international agreement set goals for global development financing?
Paris Agreement
Monterrey Consensus
Kyoto Protocol
Doha Round
Explanation - The 2002 Monterrey Consensus emphasized mobilizing finance for development globally.
Correct answer is: Monterrey Consensus
Q.20 What is the role of development banks?
Short-term profit generation
Providing capital for long-term projects
Controlling inflation
Managing stock markets
Explanation - Development banks finance large-scale projects to promote sustainable economic growth.
Correct answer is: Providing capital for long-term projects
Q.21 Why do developing countries face difficulties attracting private finance?
Low interest rates
High political risk
Surplus of domestic capital
Overdeveloped markets
Explanation - Political instability discourages private investors from financing projects in developing countries.
Correct answer is: High political risk
Q.22 What is blended finance?
Mixing bonds and stocks
Combining public and private finance for development
Currency exchange mechanism
Merging microloans
Explanation - Blended finance uses both public and private funds to reduce risk and attract investment in development projects.
Correct answer is: Combining public and private finance for development
Q.23 Which is a key advantage of domestic resource mobilization?
Avoids external dependency
Requires foreign donors
Encourages capital flight
Reduces tax collection
Explanation - Domestic resource mobilization relies on internal savings and taxation, reducing dependency on external finance.
Correct answer is: Avoids external dependency
Q.24 Which institution provides concessional loans to the poorest countries?
IMF
World Bank’s IDA
OECD
WTO
Explanation - The International Development Association (IDA) of the World Bank provides low-interest loans and grants to the poorest nations.
Correct answer is: World Bank’s IDA
Q.25 What is the main function of capital markets in development?
Regulating inflation
Mobilizing long-term funds
Setting currency exchange rates
Controlling imports
Explanation - Capital markets channel savings into long-term investments, crucial for development projects.
Correct answer is: Mobilizing long-term funds