Module: | MODULE A: INTERNATIONAL BANKING
Q187: Consider the following statements regarding the prohibitions outlined under Section 3 of the Foreign Exchange Management Act:
1. No person in India is permitted to deal in or transfer any foreign exchange to any person other than an Authorized Person without general or special permission.
2. An Indian resident is strictly prohibited from making any payment to or for the credit of any person resident outside India without proper authorization.
3. Receiving a payment in Indian Rupees from a non-resident on behalf of another non-resident without authorization is entirely permitted under the Act.
Which of the statements given above is or are correct?
2. An Indian resident is strictly prohibited from making any payment to or for the credit of any person resident outside India without proper authorization.
3. Receiving a payment in Indian Rupees from a non-resident on behalf of another non-resident without authorization is entirely permitted under the Act.
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 section explicitly prohibits dealing in foreign exchange through unauthorized channels, ensuring all transactions route through banks or authorized money changers.
Statement 2 is correct, as making unapproved payments to non-residents is illegal.
Statement 3 is incorrect; the Act specifically prohibits receiving any payment by order or on behalf of a person resident outside India in any manner without the general or special permission of the Reserve Bank of India.
Historical Context: These core prohibitions were carried over from the older regime to ensure that the parallel economy, often involving illegal remittance networks, does not undermine the official banking channels.
Causal Reasoning: The causal logic for these strict baseline prohibitions is to maintain absolute systemic visibility.
By forcing every single cross-border financial movement through an Authorized Person, the central bank can accurately monitor capital flows, prevent money laundering, and maintain macroeconomic stability.