Module: | Transactions, Facilities and Authorized Persons
Q7: Consider the following foreign exchange transactions, undertaken by Indian residents. Which of the following correctly classifies the nature of the transaction, under FEMA?
1. Sending money abroad, for a son's university tuition fee: Current Account Transaction.
2. Buying shares of a company listed on the New York Stock Exchange: Capital Account Transaction.
3. Opening a fixed deposit in US Dollars, with a bank in London: Current Account Transaction.
4. Paying for a personal holiday in Europe: Capital Account Transaction.
2. Buying shares of a company listed on the New York Stock Exchange: Capital Account Transaction.
3. Opening a fixed deposit in US Dollars, with a bank in London: Current Account Transaction.
4. Paying for a personal holiday in Europe: Capital Account Transaction.
✅ Correct Answer: A
Under FEMA, a Current Account Transaction is one that does not alter assets or liabilities outside India (e.g., tuition fees, travel expenses, trade payments). A Capital Account Transaction is one that alters assets or liabilities outside India (e.g., buying shares/property abroad, opening foreign bank accounts). Therefore, Statement 1 is correct (Tuition = Current) and Statement 2 is correct (Shares = Capital/Asset creation). Statement 3 is incorrect because opening a deposit creates an asset abroad, making it a Capital Account transaction.
Statement 4 is incorrect because travel is an expense, making it a Current Account transaction.
Statement 4 is incorrect because travel is an expense, making it a Current Account transaction.