Skip to content

CA Intermediate · Corporate and Other Laws · The Foreign Exchange Management Act, 1999

Under FEMA, 1999, the Reserve Bank has authorised certain banks and money changers to deal in foreign exchange. A hotel in Jaipur, not an authorised person, regularly buys US dollars from tourists at a rate it fixes and sells them to local jewellers. Which statement correctly states the legal position?

The hotel contravenes FEMA. Only an authorised person may deal in foreign exchange, unless the Act or the Reserve Bank gives permission. Buying and selling dollars at its own rates without authorisation is prohibited, and no monetary threshold or intimation to the Government cures this.

  1. AThe hotel may deal freely since the tourists are non-residents
  2. BThe hotel contravenes FEMA because no person other than an authorised person may deal in or transfer foreign exchange unless the Act or RBI permits itCorrect
  3. CThe hotel is permitted if it informs the Central Government within 30 days
  4. DThe hotel may deal in foreign exchange only for amounts below Rs 10 lakh a year

Explanation

FEMA provides that, except with general or special permission of the Reserve Bank, no person shall deal in or transfer foreign exchange or foreign security to a person not authorised, or make payments to or receive from a person outside India. Dealing in foreign exchange is reserved for authorised persons. The nationality of the tourists, notice to the Government or a monetary threshold does not remove this restriction.

Did you get it right without looking?

One question tells you little. A timed set on The Foreign Exchange Management Act, 1999 shows your real accuracy, how long you take and where you lose marks.

Practise The Foreign Exchange Management Act, 1999Free diagnostic mock

More The Foreign Exchange Management Act, 1999 questions