Foreign Exchange, FDI & External Debt (Part

Total Questions: 37

31. Which of the following authority sanctions foreign exchange for import of goods? [U.P.P.C.S (Pre) 2011]

(a) Any Nationalized Bank
(b) Exchange Bank
(c) Reserve Bank of India
(d) Ministry of Finance

Correct Answer: (b) Exchange Bank

Solution:The Foreign Exchange Management Act (FEMA), 1999 prohibits dealings in foreign exchange except through an authorized dealer. Authorized Dealer (AD) Category-I banks (Exchange banks) may allow remittance for making payments for imports into India, after ensuring that all the requisite details are made by the importer and the remittance is for bona fide trade transactions as per applicable laws in force. Except for goods included in the negative list which require licence under the Foreign Trade Policy in force, AD Category- I banks may freely open letters of credit and allow remittances for import. Where foreign exchange acquired has been utilized for import of goods info India, the AD Category-I bank should ensure that the importer furnishes evidence of import viz., Exchange Control copy of the Bill of Entry, Postal Appraisal Form or Customs Assessment Certificate, etc., and satisfy himself that goods equivalent to the value of remittance have been imported.

32. Attertion (A): Celling on foreign exchange for a host of current account transaction heads was lowered in the year 2000. [I.A.S. (Pre) 2001]

Reason (R): There was a fall in foreign currency assets also.

(a) Both and Rare individually true, and R is the correct explanation of A
(b) Both A and R are individually true, but R is not the correct explanation of A
(c) A is true, but R is false
(d) A is false, but R. is true

Correct Answer: (c) A is true, but R is false

Solution:Due to establishment of FEMA instead of FERA, the ceiling on foreign exchange for a host of current account transaction heads was lowered in the year 2000. India's foreign currency assets (FCA) increased from US$ 38036 million of end-March, 1999 to USS 42281 million in end-March, 2001.

Objectives of FEMA

Regulation & Management of Foreign Exchange: FEMA governs all aspects of foreign exchange transactions in India, including:
Acquisition & Holding of foreign exchange.
Payment & Settlement of foreign exchange transactions.
Export & Import of currency.
Liberalizing Foreign Exchange Policies: Unlike FERA, which was restrictive and criminalized violations, FEMA is more transparent and promotes globalization.
Empowerment of RBI: The Reserve Bank of India (RBI) is the key authority under FEMA. The RBI can frame rules, issue guidelines, and regulate foreign exchange transactions.
Civil nature of offences: Violations under FEMA are civil offences (unlike FERA, where they were treated as criminal offences). Penalties and fines can be imposed for non-compliance.

33. What is the correct chronological sequence of the following Indian Acts? [U.P.P.C.S. (Mains) 2017]

1. MRTP Act

2. Industries (Development and Regulation) Act

3. FERA

4. Minimum Wages Act

Select the correct answer from the codes given below:

(a) 2, 3, 4, 1
(b) 2, 3, 1, 4
(c) 4, 2, 1, 3
(d) 4, 2, 3, 1

Correct Answer: (c) 4, 2, 1, 3

Solution:The correct chronological sequence of the given Acts is as follows:

Minimum Wages Act - 1948

Industries (Development and Regulation) Act - 1951

Monopolies and Restrictive Trade Practices (MRTP) Act - 1969

Foreign Exchange Regulation Act (FERA) - 1973

34. Hawala transactions relate to payments: [I.A.S. (Pre) 1996]

(a) received in rupees against overseas currencies and vice versa without going through the official channels
(b) received for sale/transfer of shares without going through the established stock exchanges
(c) received as commission for services rendered to overseas investors/buyers/sellers in assisting them to get over the red tape and/or in getting preferential treatment
(d) made to political parties or to individuals for meeting election expenses

Correct Answer: (a) received in rupees against overseas currencies and vice versa without going through the official channels

Solution:Overseas transactions such as purchase-selling and of foreign currency should be done through authorized transfer dealers but transfer of black money generally made through using informal networks. Hawala is an informal method of transferring money without any physical money actually moving. Hawala provides anonymity in its transactions, as official records are not kept and the source of money that is transferred cannot be traced. Lets understand by an example, suppose a person (A) needs to send $200 to his wife (B), who lives in another country. He will approach a Hawala dealer H₁ (in his country) and give him the amount of money he wants wife to receive, including the details of the transaction. H, contacts a hawala dealer H, (in the recipient's country) and asks him to give $ 200 (in the value of domestic currency) to wife of (A). H₂ transfer the money from his own account, minus commission. And they (H, & H₂) settle this transaction in future. In India, under Prevention of Money Laundering Act, Hawala operations are illegal.

35. The Prevention of Money Laundering Act came into force in India during: [B.P.S.C. (Pre) 2017]

(a) 1998
(b) 1999
(c) 2001
(d) 2005
(e) None of the above / More than one of the above

Correct Answer: (d) 2005

Solution:Prevention of Money Laundering Act (PMLA), 2002 was enacted by the then NDA government to prevent money laundering and to provide for confiscation of property derived from money laundering. This Act got the assent of the President on 17 January, 2003. PMLA and the Rules notified there under came into force with effect from July 1, 2005.

Major Provisions of the Act

The Act prescribes obligation of banking companies, financial institutions and intermediaries for verification and maintenance of records of the identity of all its clients and also of all transactions.
PMLA empowers the Directorate of Enforcement (ED) to carry out investigations in cases involving offence of money laundering and also to attach the property involved in money laundering.
ED is a law enforcement agency and economic intelligence agency responsible for enforcing economic laws and fighting economic crime in India. It was formed as an Enforcement Unit, in the Department of Economic Affairs, for handling Exchange Control Laws violations under Foreign Exchange Regulation Act, 1947.
PMLA envisages setting up of an Adjudicating Authority to exercise jurisdiction, power and authority conferred by it essentially to confirm attachment or order confiscation of attached properties.
It also envisages setting up of an Appellate Tribunal to hear appeals against the order of the Adjudicating Authority
PMLA envisages designation of one or more courts of sessions as Special Court or Special Courts to try the offences punishable under the Act.
PMLA also allows Central Government to enter into an agreement with Government of any country outside India for enforcing the provisions of the PMLA.

36. Which of the following economists propagated the Pure Monetary Theory of Trade Cycle? [Uttarakhand P.C.S. (Pre) 2012]

(a) Hawtrey
(b) Hayek
(c) Keynes
(d) Hicks

Correct Answer: (a) Hawtrey

Solution:'Pure Monetary Theory of Trade Cycle' was propagated by the British economist R.G. Hawtrey. According to Hawtrey, "the trade cycle is a purely monetary phenomenon, because general demand is itself a monetary phenomenon." He took a monetary approach towards the economic ups and downs of industry and commerce, advocating changes in the money supply through adjustment in the bank rate of interest, fore- shadowing the later work of Keynes.

37. Which of the following pairs are correctly matched? [I.A.S. (Pre) 1995]

1. Increase in foreign exchange reserves-monetary expansion

2. Low import growth rate in India-Recession in Indian industry

3. Euro-issues-Shares held by Indian companies in European countries

4. Portfolio investment-Foreign institutional investors

Select the correct answer by using the following codes:

(a) 1,2 and 4
(b) 3 and 4
(c) 1, 2 and 3
(d) 1,2,3, and 4

Correct Answer: (a) 1,2 and 4

Solution:Increase in foreign exchange reserves have direct impact on monetary expansion in the country. India's industries are heavily dependent on imported goods and machinery. So decrease in imported goods and machinery can result in slowdown of industrial performance. Foreign Portfolio Investment is related to Foreign Institutional Investors (FIls) while euro issue (from the Indian perspective) is a method or mode by which Indian companies raise funds outside India in foreign currency. Euro issue denotes an issue of securities which are listed on European Stock Exchange although the subscriptions for the same may come from any part of the world other than India. Hence, option (a) is the correct answer.

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Foreign Exchange, FDI & External Debt (Part – III)