Indian Overseas Bank LBO Mock 03 – Question 62

Directions (Q1-Q10): Read the following passage carefully and answer the questions that follow.

Global trade dynamics are undergoing a structural shift driven by geopolitical realignments, supply chain diversification (‘China+1’ strategy), and heightened protectionism. For emerging market economies like India, these global shifts present dual challenges and opportunities. On one hand, foreign direct investment (FDI) inflows into manufacturing sectors have accelerated under government initiatives such as the Production Linked Incentive (PLI) scheme. On the other hand, elevated global crude oil prices and fluctuating commodity costs continue to exert pressure on India’s merchandise trade balance, widening the trade deficit and impacting the external value of the Indian Rupee (INR).

The Reserve Bank of India has actively managed exchange rate volatility through strategic interventions in the foreign exchange market, using its substantial forex reserves to prevent disorderly currency depreciation. Additionally, to reduce reliance on the US Dollar for international trade settlements, the RBI introduced a mechanism allowing invoicing, payment, and settlement of exports and imports in Indian Rupees through Special Rupee Vostro Accounts (SRVAs) opened by partner banks. Commercial institutions such as Indian Overseas Bank have operationalized SRVA accounts to facilitate bilateral trade with partner nations, including Russia, Sri Lanka, and Mauritius.

While trade in INR reduces transaction costs and exchange rate risks for domestic exporters, expanding its international acceptance requires deeper domestic financial markets, full capital account convertibility, and sustained low inflation. Economists argue that structural reforms in logistics, power infrastructure, and trade facilitation are critical to boosting export competitiveness and achieving a sustainable Current Account Deficit (CAD).

Question 2: According to the passage, why are multinational corporations shifting toward ‘nearshoring’ and ‘friendshoring’?

(a) Due to strict mandate by the World Trade Organization

(b) Driven by geopolitical friction, protectionist trade barriers, and supply chain resilience strategies

(c) To reduce global workforce salaries by 50%

(d) Because single-source manufacturing hubs have become legally banned worldwide

(e) To eliminate digital payment systems

The passage explicitly states in the first sentence that structural reallocation is ‘driven by geopolitical friction, protectionist trade barriers, and post-pandemic resilience strategies.’ Option (b) is correct.