Module: | MODULE A: INTERNATIONAL BANKING
Q181: Consider the following statements regarding Exchange Earners Foreign Currency accounts:
1. An Exchange Earners Foreign Currency account is a facility provided to foreign exchange earners, allowing them to credit 100 percent of their eligible foreign exchange earnings to the account.
2. These accounts do not earn any interest because they are maintained strictly in the form of non-interest bearing current accounts.
3. Account holders are permitted to withdraw funds from this account only in the form of physical foreign currency notes.
Which of the statements given above is or are correct?
2. These accounts do not earn any interest because they are maintained strictly in the form of non-interest bearing current accounts.
3. Account holders are permitted to withdraw funds from this account only in the form of physical foreign currency notes.
Which of the statements given above is or are correct?
✅ Correct Answer: A
🎯 Quick Answer:
Option A is correct because only statements 1 and 2 are accurate.Structural Breakdown: The primary benefit of this account is that earners can park their foreign exchange receipts directly without converting them into Indian Rupees immediately.
By regulation, these are non-interest bearing current accounts, validating statement 2. Statement 3 is incorrect because funds from this account can be utilized for various electronic payments for permissible current and capital account transactions abroad, or converted to Indian Rupees at will; they are not restricted to physical cash withdrawals.
Historical Context: This facility was created to help Indian exporters minimize transaction costs.
Previously, exporters had to convert foreign earnings into Rupees and then convert them back to foreign currency to pay for imported raw materials, losing money on the exchange spread both times.
Causal Reasoning: The causal logic for mandating these as non-interest bearing accounts is to discourage residents from hoarding foreign currency purely as an investment yielding interest.
The account is meant strictly as a transactional buffer to mitigate exchange rate risks for active exporters.