UPSC Prelims 2024 · Question 84 of 97
UPSC Prelims 2024 question on Financial Instruments
- ExamUPSC CSE
- Year2024
- PaperGeneral Studies Paper I
- SubjectIndian Economy
- TopicMoney Market
- DifficultyMedium
- TypeDirect
Consider the following:
1. Exchange-Traded Funds (ETF)
2. Motor vehicles
3. Currency swap
Which of the above is/are considered financial instruments?
Show answer
Answer: D. 1 and 3 only
Verdict
Correct answer: 1 and 3 only → Option (d).
Analysis
A financial instrument is a real or virtual document representing a legal agreement involving any kind of monetary value.
Exchange-Traded Funds (ETFs) and mutual funds may also be equity-based instruments. Hence ETF (1) is a financial instrument.
Foreign exchange (forex or FX) instruments include derivatives such as forwards, futures, and options on currency pairs, as well as contracts for difference (CFDs). Currency swaps are another common form of forex instrument. Hence currency swap (3) is a financial instrument.
Motor vehicles are tangible physical assets. They can be owned, bought, and sold, but do not represent a financial claim or contractual agreement in the way that financial instruments do. Hence motor vehicles (2) are NOT financial instruments.