USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Accounting & Financial

Management for Bankers
Paper III

CAIIB New Selection Batch Foreign Exchange FEMA /FERA-1,

May_June 2023:
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD
 The delivery of FX deals can be settled in one or more of the following ways
Ready or Cash
Settlement of funds takes place on the same day (date of deal), e.g., if the date of
Ready/Cash deal is 3 October 2016 (Monday), settlement date will also be 3 October 2016.
Tom
Settlement of funds takes place on the next working day of the date of deal, e.g., if the date
of TOM deal 3 October 2016 (Monday), settlement date would be 4 October 2016 (Tuesday,
provided it is a working day for the markets dealing as well as where currency is to be settled).
If Tuesday is a holiday, in either of the 2 countries, the settlement date will be next common
working day in both the countries. Intervening Saturdays and Sundays will also postpone the
settlement date to next working day
 SPOT
Settlement of funds takes place on the second working day after/following the date of
contract/deal, e.g., if the date of Spot deal is 3 October 2016 (Monday), settlement date
will be 5 October, 2016. (Presuming all markets are working on 3, 4 and 5 October 2016).

If not, it will the next working day in both the countries. Intervening Saturdays and
Sundays will also postpone the settlement date to next working day.
 Forward
Delivery of funds takes place on any day after Spot date, e.g., if the date of
forward deal is 3 October 2016 (Monday), for value settlement date 30 October
2016 or 30 November 2016, it is a forward deal.
❖ Forward Point Let us suppose that spot rate of US$/Euro is Spot Euro 1=
US$ 1.3180
❖ The exchange rate three months forward is
❖ 3 months Euro 1= US $1.3330
❖ The difference of 150 points referred to is the forward point
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

2
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

C
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

In simple words, the process of converting foreign

currency liability of the exporter into Indian Rupee
liability is called 'crystallization of foreign currency
export bills'
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

C
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

D
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Forward rate = spot rate (+) ________ (−−) ____________:?

(a) discount, commission
(b) premium, discount
(c) premium, commission B
(d) discount, premium

In general, a spot rate refers to the current price or bond

yield, while a forward rate refers to the price or yield for
the same product or instrument at some point in the
future
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

What is FEMA?
It is a set of regulations that empowers the Reserve Bank of India to pass
regulations and enables the Government of India to pass rules relating to foreign
exchange in tune with the foreign trade policy of India.
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

❑ In 1973, the Foreign Exchange Regulation Act (FERA) was enacted. On

January 1, 1974, it went into effect.
❑ The Foreign Exchange and Securities Regulation Act (FERA) was enacted
to govern financial transactions involving foreign exchange and securities.
❑ FERA was implemented while the country’s foreign exchange reserves
were extremely low.
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD
FERA’s Most Important Features:
The purpose of FERA, which applied to all Indian citizens, was to conserve the country’s foreign currency
resources, among other things
Money changers are
permitted to convert Import/export restrictions
currencies at the rates set by on currencies
the RBI.

Persons other than authorized dealers are Issue of bearer securities is

prohibited from engaging in financial subject to several
currency transactions. restrictions.

Outside India, there are Payment restrictions when

restrictions on owning or sending/receiving money from/to a non-
acquiring immovable assets. Indian resident
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Why was FERA replaced?

FERA did not comply with the post-liberalization policies of
the Government.
 USE CODE RAJEEV TO GET MAXIMUM
FERA DISCOUNT ON OLIVEBOARD
The main objective of the Foreign Exchange Regulation Act, 1973 (FERA) was
to:
Consolidate and amend the law Regulate certain payments

The import and export of currency,

Dealing in foreign exchange for the conservation of the foreign
exchange resources of the country

And finally the proper utilization of

this foreign exchange so as to
promote economic development of
the Company.
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Foreign Exchange Management Act, 1999 (FEMA)

❑ Foreign Exchange Management Act, 1999 (FEMA) came into

force by an act of Parliament.
❑ It was enacted on 29 December 1999.
❑ This new Act is in consonance with the frameworks of the World
Trade Organization (WTO). It also paved the way for the
Prevention of Money Laundering Act, 2002 which came into effect
from July 1, 2005.
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

What is the main change brought in FEMA compared to FERA?

It made all the criminal offences as civil offences.

 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Main Features of Foreign Exchange Management Act, 1999

❑ It gives powers to the Central Government to regulate the flow of
payments to and from a person situated outside the country.
❑ All financial transactions concerning foreign securities or exchange
cannot be carried out without the approval of FEMA.
❑ All transactions must be carried out through “Authorized Persons.
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

In the general interest of the public, the

Government of India can restrict an authorized
individual from carrying out foreign exchange
deals within the current account.

Empowers RBI to place restrictions on

transactions from capital Account even if it is
carried out via an authorized individual.
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD
Regulation and Management of Foreign Exchange
1. Deal transfer any foreign exchange / foreign security to any person other than an
authorized person
2. Makes any payment to any person resident outside India.
3. Receive any payment on behalf of any person resident outside India
4. Enter into any financial transaction in India in relation to a right to acquire any asset
outside India by any person.
Powers of RBI with Respect to Authorised Persons
1. To appoint authorized person deals in foreign exchange.
2. RBI has the power to inspect the authorized persons so appointed to ensure that the said
person complies with all the rules and regulations of RBI.
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Contravention, Penalties, Adjudication and Appeals

1. An adjudicating Authority can enquire contravention under FEMA only if
complaint is filed by Central Government.
2. Adjudicating Authority[निर्णायक प्रणनिकरर्] has to endeavor to dispose off the
complaints within one year from the date of receipt of the complaint.
3. Penalty can be levied up to thrice the sum involved in such contravention
where such amount is quantifiable or upto Rs.2 Lakh. Where the amount is
not quantifiable and where such contravention is a continuing one, further
penalty of Rs.5 thousand per day
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

If there was a need for transferring For External trade and

of funds for external operations, remittances, there is no need for
then prior approval of the Reserve prior approval from the Reserve
Bank of India (RBI) is required. Bank of India (RBI).
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

CONCLUSION:
❑ To summaries, the Foreign Exchange Regulation Act governed everything related to
foreign exchange.
❑ Even though it was enacted with the greatest intentions, the unnecessarily rigorous
limitations it imposed hampered the expansion of Indian industries.
❑ However, with the implementation of FEMA, the situation quickly shifted from
control to management, allowing for the development and orderly regulation of
India’s foreign exchange market
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

What are the prohibited items under the Scheme?

1. Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery
tickets/sweep stakes, proscribed magazines, etc.) or any item restricted under Schedule II of
Foreign Exchange Management (Current Account Transactions) Rules, 2000.
2. Remittances for purchase of FCCBs issued by Indian companies in the overseas secondary
market.
3. Capital account remittances, directly or indirectly, to countries identified by the Financial Action
Task Force (FATF) as “non- cooperative countries and territories”, from time to time.
4. Remittances directly or indirectly to those individuals and entities identified as posing significant
risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Is it mandatory for resident individuals to have Permanent Account Number (PAN) for
sending outward remittances under the Scheme?
क्या निवासी व्यनियों के निए योजिा के तहत जावक प्रेषण भेजिे के निए स्थायी खाता संख्या (पैि) होिा
अनिवायय है?
Ans. Yes It is mandatory for the resident individual to provide his/her Permanent
Account Number (PAN) for all transactions under LRS made through Authorized
Persons
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Are there any restrictions towards remittances to Mauritius and Pakistan for
permissible current account transactions?
Ans. No, there are no restrictions towards remittances for current account transactions to Mauritius
and Pakistan.
Remittances directly or indirectly to countries identified by the Financial Action Task Force (FATF)
as “non- cooperative countries and territories”, from time to time; and remittances directly or
indirectly to those individuals and entities identified as posing significant risk of committing acts of
terrorism as advised separately by the Reserve Bank to the banks are not permissible.
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD
Can a resident individual make a rupee gift to a NRI/PIO who is a close relative of
resident individual, by of crossed cheque/ electronic transfer?
क्या कोई निवासी व्यनि नकसी अनिवासी भारतीय/भारतीय मूि के व्यनि को, जो निवासी व्यनि का
निकट संबंधी है, क्रास चेक/इिेक्रॉनिक अंतरण द्वारा रुपये का उपहार दे सकता है
Ans. A resident individual can make a rupee gift to a NRI/PIO who is a close relative of
the resident individual [relative’ as defined in Section 2(77) of the Companies Act, 2013]
by way of crossed cheque /electronic transfer.
The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO)
a/c of the NRI / PIO and credit of such gift amount may be treated as an eligible credit
to NRO a/c. The gift amount would be within the overall limit of USD 250,000 per
financial year as permitted
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

‘Forex reserves’
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Reserve Bank of India - Role And Exchange Control Regulations

In India
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Reserve Bank of India, being the central bank of the country, is

empowered under the statute to control and regulate the foreign
exchange reserves and policies related to international trade,
inflow/outflow of foreign exchange, as also has supervisory powers over
the persons authorized to deal in foreign exchange.
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

FEMA Regulations
As per Section 11(1) of FEMA 1999, Reserve Bank of India, is empowered to
issue any direction with regard to making payment or doing or desist from
doing any act relating to foreign exchange or foreign security, for the purpose
of securing compliance with the provisions of the FEMA, and any rules,
regulations, notifications or directions made thereunder.
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

❑ Under Section 11(3) of FEMA 1999 RBI may, after giving reasonable
opportunities of being heard, impose on the authorized person a penalty
which may extend to Rs. 10,000.00 (Rupees Ten thousand) for
contravention of any direction given under FEMA or failure to file any
return under this Act.
❑ In case of continuing contraventions, an additional penalty, which may extend
up to Rs. 2,000.00 per day, for which such contravention continues, may be
imposed.
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Sunday Special MCQ

USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Objective of FEMA is (a) to facilitate external trade (b) to promote

orderly development of forex markets (c) to maintain forex markets (d)
to conserve foreign exchange. Which of these is correct?
(a) a, b, c
(b) a, c, d A
(c) b, c, d
(d) a, b, d
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Q:-For contraventions of any direction given by RBI under FEMA or to file any return
under the Act, RBI can impose fine that may extend up to?
(a) Rs.10000
(b) Rs.25000
(c) Rs.50000
A
(d) Rs.1 lac
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Q:-If the contraventions of any direction given by RBI under FEMA or to file any
return under the Act, continues, RBI can impose additional fine that may extend up to?
(a) Rs.100 per day
(b) Rs.500 per day
(c) Rs.1000 per day D
(d) Rs.2000 per day
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

Which of the following does not match?

(a) Withdrawal of forex for Nepal & Bhutan - not allowed
(b) out of total foreign exchange, the maximum amount of currency notes
and coins allowed = $ 3000
C (c) for Iran and Iraq, the amount of foreign currency notes maximum could
be = Rs.5000
(d) Maximum amount of Indian currency that can be taken (exported) to
countries other than Nepal and Bhutan = Rs.25000
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

What is the maximum amount (other than coins) that can be retained by
resident Indian in the form of foreign exchange?
(a) $1000
(b) $2000
(c) Rs.2000 B
(d) Pound 2000
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

What is the maximum amount of coins that a resident Indian can retain?
(a) $ 1000
(b) $2000
(c) Rs. 2000 D
(d) no ceiling
 USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD

While selling foreign exchange to a person, endorsement on the passport?

(a) is mandatory
C
(b) is requirement of FEMA
(c) can be on the request of the person concerned
(d) it is optional on the part of AD and AD cannot be forced
USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD