Module: | MODULE A: INTERNATIONAL BANKING
Q46: Consider the following statements regarding complex financial instruments and derivative trading under the Liberalised Remittance Scheme:
Statement 1: Resident individuals are strictly prohibited from utilizing the scheme to remit funds for meeting margin calls on overseas derivative exchanges.
Statement 2: The scheme permits residents to trade in foreign exchange on international platforms to hedge against currency fluctuations related to their personal travel funds.
Statement 3: Residents can legitimately remit funds under the scheme to purchase guaranteed return foreign currency bonds in international markets, provided the investments are completely un-leveraged.
Which of the statements given above are incorrect?
Statement 2: The scheme permits residents to trade in foreign exchange on international platforms to hedge against currency fluctuations related to their personal travel funds.
Statement 3: Residents can legitimately remit funds under the scheme to purchase guaranteed return foreign currency bonds in international markets, provided the investments are completely un-leveraged.
Which of the statements given above are incorrect?
✅ Correct Answer: A
The correct answer is A. Statement 2 is incorrect.
The central bank strictly regulates the types of financial risks resident individuals can expose themselves to globally.
Structurally, the remittance scheme allows for portfolio investments, such as buying foreign stocks or debt instruments like guaranteed return foreign currency bonds.
This is permitted provided these investments are fully funded by the remitter's own capital and involve zero leverage or borrowing, validating Statement 3. However, the central bank maintains an absolute prohibition against any form of speculative trading or leveraged transactions.
Resident individuals cannot use the scheme for trading in foreign exchange on overseas platforms, even if the stated intention is hedging personal travel funds.
Any form of foreign exchange trading abroad by residents is banned, making Statement 2 false.
By extension, because leveraged trading is prohibited, remitting funds to meet margin calls on overseas derivative exchanges is also strictly illegal, validating Statement 1 as a correct representation of the law.
The central bank strictly regulates the types of financial risks resident individuals can expose themselves to globally.
Structurally, the remittance scheme allows for portfolio investments, such as buying foreign stocks or debt instruments like guaranteed return foreign currency bonds.
This is permitted provided these investments are fully funded by the remitter's own capital and involve zero leverage or borrowing, validating Statement 3. However, the central bank maintains an absolute prohibition against any form of speculative trading or leveraged transactions.
Resident individuals cannot use the scheme for trading in foreign exchange on overseas platforms, even if the stated intention is hedging personal travel funds.
Any form of foreign exchange trading abroad by residents is banned, making Statement 2 false.
By extension, because leveraged trading is prohibited, remitting funds to meet margin calls on overseas derivative exchanges is also strictly illegal, validating Statement 1 as a correct representation of the law.