Economic Sanctions and Frozen Assets
Indian Economy
- PYQs8
- Articles1
Background
Understanding economic sanctions is vital for comprehending the tools of international relations, their economic impact on target countries and global markets, and their effectiveness and ethical implications. It is relevant to India's foreign policy, trade relations, and economic interests, especially concerning global supply chains and energy security.
Economic sanctions are punitive measures imposed by one or more countries against a target country, entity, or individual to achieve specific foreign policy or national security objectives. Freezing assets is a common form of financial sanction, preventing the target from accessing or transferring funds held in financial institutions.
Facts & tables
- Tool of Foreign Policy
- Used as a coercive tool in international relations to compel compliance with international norms or agreements.
- Types of Sanctions
- Can be comprehensive (targeting entire economies) or targeted (e.g., specific sectors like oil or finance, individuals, or entities).
- Asset Freezes
- A specific measure where funds or other financial assets held by the target in foreign banks or institutions are made inaccessible.
- Negotiation Leverage
- The release of frozen assets often serves as a key demand or concession in diplomatic negotiations, as seen in the US-Iran talks.
| Type | Reference |
|---|---|
| Conceptual area | International Relations |
Prelims angle
Prelims angle: Statement-based questions
Prelims angle: Factual recall
- Punitive measures for foreign policy goals.
- Asset freezes prevent access to funds.
- Impact trade, investment, and global economy.
- Often linked to nuclear proliferation or human rights.
- Effectiveness is a subject of debate.
| Year | Framing tags |
|---|---|
| 2026 | Cause and effect relationships, Multi-statement analysis |
| 2022 | Statement-based questions, Conceptual understanding |
| 2021 | Multi-statement analysis, Conceptual understanding |
| 2020 | Conceptual understanding, Multi-statement analysis |
| 2017 | Factual recall, Terminology-based question |
| 2016 | Policy measures, Multi-statement analysis |
| 2016 | Factual recall, Institutional roles and functions |
| 2016 | Statement-based questions, Factual recall |
Timeline
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International Relations
Conceptual area
-
Prelims 2016
Policy measures, Multi-statement analysis
-
Prelims 2016
Factual recall, Institutional roles and functions
-
Prelims 2016
Statement-based questions, Factual recall
-
Prelims 2017
Factual recall, Terminology-based question
-
Prelims 2020
Conceptual understanding, Multi-statement analysis
-
Prelims 2021
Multi-statement analysis, Conceptual understanding
-
Prelims 2022
Statement-based questions, Conceptual understanding
-
Prelims 2026
Cause and effect relationships, Multi-statement analysis
-
Trump says the U.S. and Iran ‘getting along very well’
The article reports on President Trump's statement regarding positive progress in US-Iran relations, specifically mentioning successful indirect talks in Qatar concerning Iran's denuclearization. Discussions also covered the establishment of a communication channel to report violations of an initial memorandum of understanding and the release of $6 billion in frozen Iranian assets held in Qatar, which Iran demands for purchasing essential goods.
See also
Past papers
2016–2026 · 8 questions
In the news
Trump says the U.S. and Iran ‘getting along very well’
The article reports on President Trump's statement regarding positive progress in US-Iran relations, specifically mentioning successful indirect talks in Qatar concerning Iran's denuclearization. Discussions also covered the establishment of a communication channel to report violations of an initial memorandum of understanding and the release of $6 billion in frozen Iranian assets held in Qatar, which Iran demands for purchasing essential goods.
Try these PYQs
With reference to the International Monetary and Financial Committee (IMFC), consider the following statements:
1. IMFC discusses matters of concern affecting the global economy and advises the International Monetary Fund (IMF) on the direction of its work.
2. The World Bank participates as an observer in IMFC’s meetings.
Which of the statements given above is/are correct?
Statement 1 is Correct: The International Monetary and Financial Committee (IMFC) serves as a vital forum for discussing global economic issues and providing guidance to the International Monetary Fund (IMF). It brings together finance ministers, central bank governors, and other high-level officials from member countries to discuss challenges and opportunities facing the global economy. They also advise the IMF on its policy direction and work program. Statement 2 is Correct: The World Bank, while a separate institution, collaborates closely with the IMF. While not a formal member of the IMFC, the World Bank typically participates as an observer in IMFC meetings. This allows for better coordination and exchange of information between the two institutions on matters of mutual interest, such as global economic stability and development. Hence, option C is the correct answer.
Broad-based Trade and Investment Agreement (BTIA)’ is sometimes seen in the news in the context of negotiations held between India and
The Broad-based Trade and Investment Agreement (BTIA) is negotiated between India and the European Union (EU).
With reference to the Indian economy, consider the following statements:
1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.
Which of the above statements are correct?
* Statement 1 is correct. The nominal Effective Exchange Rate (NEER) is a measure of the value of a country's currency against a basket of other currencies weighted by their importance in trade. If NEER increases, it means that the value of the currency has increased relative to the currencies in the basket, indicating appreciation. * Statement 2 is incorrect. The Real Effective Exchange Rate (REER) takes into account both nominal exchange rates and relative price levels (inflation) between countries. An increase in REER means that the country's currency is overvalued relative to its trading partners, which can reduce trade competitiveness. * Statement 3 is correct. If domestic inflation is higher than inflation in other countries, the real value of the domestic currency decreases faster than the nominal value, causing a divergence between NEER and REER. Therefore, the correct statements are 1 and 3.
If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India?
1. Not depending on short-term foreign borrowings
2. Opening up to more foreign banks
3. Maintaining full capital account convertibility
Select the correct answer using the code given below:
Not depending on short-term foreign borrowings: This reduces exposure to capital flight. During a crisis, foreign investors may pull their money out of emerging markets like India, leading to rupee depreciation and financial instability. By limiting short-term foreign borrowings, India can lessen the impact of such capital flight. Opening up to more foreign banks: While this might seem beneficial, it can also increase reliance on foreign capital. During a crisis, foreign banks might be more likely to restrict credit, negatively impacting the Indian economy. Maintaining full capital account convertibility: This allows for the free movement of capital in and out of the country. While it can be beneficial in normal times, it can also exacerbate capital flight during a crisis. Therefore, the most prudent strategy is to reduce dependence on short-term foreign borrowings to minimize the vulnerability caused by potential capital flight. Hence, only statement 1 is correct. Hence, option A is the correct answer.
Consider the following
1. Foreign Currency convertible bonds
2. Foriegn Institutional investment with certain conditions
3. Global depository receipts
4. Non-resident external deposits
Which of the above can be included in Foreign Direct Investments?
Foreign Direct Investment (FDI) typically involves a long-term interest and control in a company. However, the definition includes specific instruments and thresholds. Statement 1 and 3 are correct: Foreign Currency Convertible Bonds (FCCBs) and Global Depository Receipts (GDRs) are instruments used by Indian companies to raise capital abroad. Since these are essentially precursors to equity (convertible to shares) or represent underlying shares, they are treated as part of the FDI policy framework and statistics under the "Foreign Investment" category. Statement 2 is correct: Foreign Institutional Investment (FII)—now largely subsumed under Foreign Portfolio Investment (FPI)—is generally considered short-term. However, with certain conditions, it becomes FDI. According to international standards and the Arvind Mayaram Committee recommendations adopted by India, if an FPI holds a stake of 10% or more in a company, it is reclassified and treated as FDI. Statement 4 is incorrect: Non-Resident External (NRE) deposits are simply bank accounts held by NRIs in India. These are classified as External Debt (if repatriable) or Banking Capital, not foreign investment in a productive enterprise.
Show 3 more PYQs
‘Global Financial Stability Report’ is prepared by the -
The 'Global Financial Stability Report' is prepared by the International Monetary Fund (IMF). The Global Financial Stability Report is a semiannual report published by the IMF that assesses the stability of the global financial system and emerging market financing. It highlights potential risks and vulnerabilities in the financial system and provides policy recommendations to promote financial stability.
Which of the following is/are the most significant implication(s) of obtaining Oeko-Tex certification for Eri Silk in the global textile industry?
1. It allows Indian exporters to compete in high-end markets that prioritise chemical-free products.
2. It confirms that Eri Silk meets international safety, environmental, and quality standards, enabling its entry into premium eco-conscious markets.
Select the answer using the code given below:
Statement 1 is Correct: The OEKO-TEX certification ensures that textiles are rigorously tested and proven free from harmful substances, heavy metals, and toxic chemicals. This certification acts as a major endorsement, directly enhancing the global marketability of Eri Silk and allowing Indian exporters to confidently compete in high-end international markets that prioritize sustainable, chemical-free, and ethically produced textiles. Statement 2 is Correct: The certification confirms that a textile meets strict international safety, environmental, and human health standards. This is highly valued by buyers in premium, eco-conscious global markets, particularly in Europe and North America. Combined with its Geographical Indication (GI) status and reputation as a cruelty-free "peace silk," the certification cements Eri Silk's position as a premium eco-friendly fabric, enabling its entry into these premium markets. Therefore, both statements are correct, making the correct option C.
What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and 'Gold Monetization Scheme'?
1. To bring the idle gold lying with India households into the economy
2. To promote FDI in the gold and jewellery sector
3. To reduce India’s dependence on gold imports
Select the correct answer using the code given below:
Statement 1 is correct: This is the primary objective of the Gold Monetization Scheme (GMS). The scheme encourages individuals and institutions to deposit their idle physical gold (jewellery, coins, bars) with banks. This gold is then melted, assayed, and added to the country's gold reserves, which can be lent to jewellers, thereby bringing it into the formal economy. Statement 2 is incorrect: These schemes are focused on managing domestic gold supply and demand. They are not designed to attract Foreign Direct Investment (FDI). Policies related to FDI in the jewellery sector are separate from these schemes. Statement 3 is correct: This is a core objective of both schemes.
* The Sovereign Gold Bond (SGB) Scheme provides a financial alternative to buying physical gold. By shifting demand from physical gold to paper gold, it helps reduce the demand for gold imports.
* The Gold Monetization Scheme (GMS) increases the domestic supply of recycled gold available to jewellers, thus reducing their reliance on imported gold. Both schemes aim to curb gold imports, which are a major component of India's import bill and contribute significantly to the Current Account Deficit (CAD).