Module: | MODULE C: TREASURY MANAGEMENT
Q479: Consider the following statements regarding the overarching domestic and global regulatory framework governing capital flows and risk:
1. The Foreign Exchange Management Act, enacted in 1999, serves as the primary legislative umbrella governing the regulation of foreign exchange and cross-border transactions connecting domestic and global markets.
2. Individuals traveling from Nepal or Bhutan are permitted to bring Indian Rupees into the domestic market in any amount, provided the currency is strictly held in denominations of ₹100 or less.
3. The Prevention of Money Laundering Act is the core legislative framework deployed to prevent illicit funds from being integrated into the domestic banking system or transferred globally.
4. The Basel Accords serve as the preeminent international regulatory framework, dictating banking regulations, capital adequacy, and market risk management for institutions holding customer deposits as fundamental liabilities.
2. Individuals traveling from Nepal or Bhutan are permitted to bring Indian Rupees into the domestic market in any amount, provided the currency is strictly held in denominations of ₹100 or less.
3. The Prevention of Money Laundering Act is the core legislative framework deployed to prevent illicit funds from being integrated into the domestic banking system or transferred globally.
4. The Basel Accords serve as the preeminent international regulatory framework, dictating banking regulations, capital adequacy, and market risk management for institutions holding customer deposits as fundamental liabilities.
✅ Correct Answer: C
The regulatory architecture of the banking sector comprises domestic legislation and international compliance frameworks.
The Foreign Exchange Management Act (FEMA) of 1999 replaced the draconian FERA, shifting the focus from "conservation" of foreign exchange to "management" and facilitating external trade and payments.
Under FEMA's specific currency import rules, travelers arriving from Nepal or Bhutan are uniquely permitted to bring Indian currency into the country without a prescribed cap, but with a strict denomination limit—only notes of ₹100 or smaller are permitted, explicitly to deter the smuggling of high-value counterfeit currency.
To combat financial crime, the Prevention of Money Laundering Act (PMLA) mandates stringent KYC norms, transaction monitoring, and reporting requirements, effectively blocking the placement and integration of illicit funds into the banking network.
On a global scale, the Basel Accords (developed by the Basel Committee on Banking Supervision) provide the macro-prudential framework, enforcing minimum capital adequacy ratios, liquidity coverage rules, and market risk buffers to ensure that banks—whose primary liabilities consist of retail and corporate deposits—remain solvent during financial shocks.
A: This option incorrectly excludes statement 4. The role of the Basel Accords in dictating global capital adequacy and recognizing customer deposits as core balance sheet liabilities is completely accurate.
B: This option incorrectly excludes statement 1. FEMA, 1999, is undeniably the central legislative pillar governing all cross-border capital and current account transactions in India.
C: This is the correct option.
All four statements accurately interlock the domestic mechanisms of FEMA and PMLA with the cross-border currency rules for Nepal/Bhutan and the global Basel risk framework.
D: This option incorrectly isolates statements 1 and 4, ignoring the precise denomination rule for Nepalese/Bhutanese travelers and the fundamental purpose of the PMLA.
The Foreign Exchange Management Act (FEMA) of 1999 replaced the draconian FERA, shifting the focus from "conservation" of foreign exchange to "management" and facilitating external trade and payments.
Under FEMA's specific currency import rules, travelers arriving from Nepal or Bhutan are uniquely permitted to bring Indian currency into the country without a prescribed cap, but with a strict denomination limit—only notes of ₹100 or smaller are permitted, explicitly to deter the smuggling of high-value counterfeit currency.
To combat financial crime, the Prevention of Money Laundering Act (PMLA) mandates stringent KYC norms, transaction monitoring, and reporting requirements, effectively blocking the placement and integration of illicit funds into the banking network.
On a global scale, the Basel Accords (developed by the Basel Committee on Banking Supervision) provide the macro-prudential framework, enforcing minimum capital adequacy ratios, liquidity coverage rules, and market risk buffers to ensure that banks—whose primary liabilities consist of retail and corporate deposits—remain solvent during financial shocks.
A: This option incorrectly excludes statement 4. The role of the Basel Accords in dictating global capital adequacy and recognizing customer deposits as core balance sheet liabilities is completely accurate.
B: This option incorrectly excludes statement 1. FEMA, 1999, is undeniably the central legislative pillar governing all cross-border capital and current account transactions in India.
C: This is the correct option.
All four statements accurately interlock the domestic mechanisms of FEMA and PMLA with the cross-border currency rules for Nepal/Bhutan and the global Basel risk framework.
D: This option incorrectly isolates statements 1 and 4, ignoring the precise denomination rule for Nepalese/Bhutanese travelers and the fundamental purpose of the PMLA.