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CS Professional · Strategic Management and Corporate Finance · Foreign Funding - Institutions

Under the Foreign Exchange Management Act, 1999, which of the following best describes the nature of the Act compared with the law it replaced?

FEMA is a facilitative, regulatory law meant to promote external trade, payments and an orderly foreign exchange market. Unlike the earlier FERA, its contraventions are generally met with civil penalties rather than criminal prosecution as the main remedy.

  1. AIt treats contravention of the Act as a criminal offence punishable with imprisonment as the primary remedy
  2. BIt is a regulatory law facilitating external trade and payments, with contraventions generally attracting civil penaltiesCorrect
  3. CIt prohibits all dealings in foreign exchange unless the Central Government gives prior approval
  4. DIt applies only to residents of India and never to persons outside India

Explanation

FEMA replaced the Foreign Exchange Regulation Act, 1973, which was restrictive and had criminal consequences. FEMA is aimed at facilitating external trade and payments and promoting orderly development of the foreign exchange market, and contraventions are primarily dealt with through civil penalties. The option describing criminal imprisonment reflects the old FERA approach.

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