Module: | MODULE A: INTERNATIONAL BANKING
Q178: Consider the following statements regarding the entities permitted to deal in foreign exchange in India:
1. Under the Foreign Exchange Management Act, an Authorized Person includes an Authorized Dealer, a money changer, or an off-shore banking unit.
2. Only the Reserve Bank of India is permitted to deal directly in foreign exchange; commercial banks are strictly prohibited from participating.
3. Authorized Dealers Category 1 are commercial banks permitted to handle all types of current and capital account foreign exchange transactions for their customers.
Which of the statements given above is or are correct?
2. Only the Reserve Bank of India is permitted to deal directly in foreign exchange; commercial banks are strictly prohibited from participating.
3. Authorized Dealers Category 1 are commercial banks permitted to handle all types of current and capital account foreign exchange transactions for their customers.
Which of the statements given above is or are correct?
✅ Correct Answer: C
🎯 Quick Answer:
Option C is correct because only statements 1 and 3 are accurate.Structural Breakdown: The Reserve Bank of India categorizes Authorized Persons into different tiers based on their permitted activities.
Authorized Dealers Category 1 consists of major commercial banks equipped to handle all foreign exchange transactions.
Category 2 includes upgraded full-fledged money changers, and Category 3 includes restricted financial institutions.
Statement 2 is entirely incorrect because the Reserve Bank of India does not deal directly with the retail public; it delegates this power to commercial banks acting as Authorized Dealers.
Historical Context: This tiered delegation system was designed to decentralize foreign exchange operations, reducing bottlenecks and making it easier for citizens and businesses to access foreign currency across the country.
Causal Reasoning: The central bank delegates this authority because it lacks the retail branch network necessary to serve millions of citizens.
By using commercial banks as intermediaries, it ensures widespread access while maintaining strict regulatory oversight through regular reporting.