Module: | MODULE A: INTERNATIONAL BANKING
Q12: Analyze the following statements classifying the Authorized Dealers appointed under the Foreign Exchange Management Act in India. Identify the correct and incorrect combinations.
Statement 1. Category I Authorized Dealers comprise major commercial banks and state cooperative banks that are permitted to handle all current and capital account foreign exchange transactions.
Statement 2. Full Fledged Money Changers are categorized as Category III dealers and are restricted purely to the purchase and sale of foreign currency notes and traveler cheques for private and business travel.
Statement 3. Category II Authorized Dealers include upgraded Full Fledged Money Changers and regional rural banks that are permitted to undertake specified non trade related current account transactions.
Statement 2. Full Fledged Money Changers are categorized as Category III dealers and are restricted purely to the purchase and sale of foreign currency notes and traveler cheques for private and business travel.
Statement 3. Category II Authorized Dealers include upgraded Full Fledged Money Changers and regional rural banks that are permitted to undertake specified non trade related current account transactions.
✅ Correct Answer: D
🎯 Quick Answer:
Option D is the correct choice as all statements precisely reflect the Reserve Bank of India categorization of foreign exchange entities.Structural Breakdown: Statement I is correct.
Category I Authorized Dealers are the giants of the system.
They include public and private sector banks authorized to conduct the entire spectrum of complex trade finance, letters of credit, external commercial borrowings, and derivatives.
Statement II is correct.
Category III Authorized Dealers, primarily Full Fledged Money Changers, operate at the retail level.
They serve tourists and travelers, exchanging physical cash, but they cannot open letters of credit or execute corporate wire transfers.
Statement III is correct.
Category II Authorized Dealers occupy the middle ground.
They handle personal remittances, educational loan transfers abroad, and medical expenses, but they do not handle heavy corporate trade finance like imports and exports.
Historical and Related Context: This tiered system ensures that foreign exchange services are widely accessible across India through smaller entities, while systemic risk from complex capital account transactions is confined to heavily regulated Category I banks.