Module: | MODULE A: INTERNATIONAL BANKING
Q194: Consider the following statements regarding the relationship between the Reserve Bank of India and the Foreign Exchange Dealers Association of India:
1. All commercial banks categorized as Authorized Dealers are legally required by the central bank to become members of the Association.
2. The rules and guidelines drafted by the Association must be formally approved by the Reserve Bank of India before implementation.
3. In the event of a regulatory conflict, the rules of the Association supersede the statutory directives issued by the Reserve Bank of India under the Foreign Exchange Management Act.
Which of the statements given above is or are INCORRECT?
2. The rules and guidelines drafted by the Association must be formally approved by the Reserve Bank of India before implementation.
3. In the event of a regulatory conflict, the rules of the Association supersede the statutory directives issued by the Reserve Bank of India under the Foreign Exchange Management Act.
Which of the statements given above is or are INCORRECT?
✅ Correct Answer: C
🎯 Quick Answer:
Option C is correct because only statement 3 is incorrect.Structural Breakdown: The Reserve Bank of India mandates that any bank wishing to operate as an Authorized Dealer must join the Association to ensure market uniformity, making statement 1 correct.
The central bank also reviews and approves the Association's rulebook, validating statement 2. Statement 3 is false because the Association is a subordinate, self-regulatory body.
Its rules are purely operational and can never override or supersede the sovereign, statutory directives issued by the central bank under the Foreign Exchange Management Act.
Historical Context: This hierarchical structure ensures that while the banking industry has the freedom to design efficient operational protocols, the central bank retains absolute macroeconomic control over the foreign exchange market.
Causal Reasoning: The causal necessity for this hierarchy is national security and monetary stability.
If an industry association could override the central bank, commercial profit motives could subvert national economic policies, leading to unregulated capital flight.