Hawala Logic

The Seventy-eighth Sir Osborne Smith Memorial

Chief Economic Advisor to the Prime Minister of India Entrance Examination, 2013

(sponsored by the International Monetary Fund)

August 23, 2013                                                                                                                                                     9:00 – 10:00 am

(i) Candidates are advised to switch off their mobile phones

(ii) Candidates are not allowed to leave the examination hall unless in an emergency

(iii) All questions carry equal Marks

(iv)Candidates must answer all questions. Negative marking applicable.

(v)Candidates must have at least a hint of an accent suggesting overseas residence for a while.

1. Please look at the series of figures given below, of the Rupee – Dollar exchange rate for the months immediately preceding the Indian General election.

A.

B.

C.

D.

E.

F.

G.

H.

The Rupee was devalued because of:

(i) Impending political instability

(ii) Nervous foreign investors

(iii) Capital flight courtesy US quantitative easing

(iv) Huge profitability gained by bringing back black money stashed abroad in order to cover Election expenses.

2. Study the series of figures below of Pakistani Rupee – Dollar exchange rate in the months preceding the Pakistani General elections.

A.

B.

The Pakistani rupee was devalued because of:

(i) Impending political instability

(ii) Increasing worries of terrorism

(iii) Fleeing foreign investors

(iv) Pakistani politicians are just like their Indian counterparts and want to gain from the favourable exchange rate and bring back black money stashed abroad in order to cover Election expenses.

3. Study carefully the figure provided below

The only occasion in the past 30 years when this trend was reversed in South Asia was in the months preceding the 2004 Indian General elections when the BJP-led NDA was in power. The rupee appreciated against the dollar because:

(i) India was shining and the sentiment was sky-high

(ii) The BJP had less black money stashed abroad compared to the Congress and therefore wanted the Congress to lose heavily on the exchange rate

(iii) The BJP was confident of winning the 2004 election and didn’t bother to bring back its black money stashed abroad

(iv) Mr LK Advani was so sure of becoming the Prime Minister that he forbade any wasteful election expenditure

Please submit your correct answers below in the comments section in the following format:

1. – (i) or as appropriate

2. – (i) or as appropriate

3. – (i) or as appropriate

*****

* All data correct and sourced from http://www.tradingeconomics.com/

** Research borne out of a tea-time conversation with a cynical scientist who attributed the current exchange rate to the homecoming of black money for the 2014 elections.