IAI Actuarial Core Principles · Business Economics · Relationship between economics and business
A mixed economy such as India's is moving towards greater market orientation. Which of the following developments would most clearly represent a shift from a state-directed towards a market-based system for the financial sector?
Allowing private and foreign insurers to compete, with prices set by competition under regulation, moves the financial sector towards a market system. Nationalisation, administered prices, compulsory state savings and quotas all increase state control instead.
- AAllowing private and foreign participation in insurance, with premium rates set by competition within regulatory limitsCorrect
- BNationalising private banks to direct lending to priority sectors
- CIntroducing administered prices on all insurance products
- DRequiring all savings to be placed with state-owned institutions
- Setting production quotas for financial institutions through central plans
Explanation
Opening the sector to private and foreign entrants and relying on competition for pricing moves resource allocation towards markets, while keeping regulation. The other options increase state ownership, control or planning, which move the system the other way.
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