________ was introduced at a time when forex reserves of the country were low.

Looking for the answer to the question below related to Financial Management ? 

________ was introduced at a time when forex reserves of the country were low.



The Correct Answer Is:

  • A. FERA

The correct answer is A. FERA, which stands for the Foreign Exchange Regulation Act. FERA was introduced at a time when the foreign exchange reserves of the country were relatively low. Let’s explore in detail why Option A is the correct choice and why the other options (B. FEMA, C. GATT, and D. IMF) are not accurate in this context.

A. FERA (Foreign Exchange Regulation Act) (Correct):

FERA, the Foreign Exchange Regulation Act, was introduced in India in 1973. At that time, India’s foreign exchange reserves were indeed quite low, and the country was facing challenges related to managing and conserving its foreign exchange resources. FERA was enacted to regulate foreign exchange transactions, conserve foreign exchange, and curb illegal foreign exchange activities.

It imposed strict controls on various aspects of foreign exchange, including the use and possession of foreign currency, the regulation of foreign exchange dealings, and the prevention of illegal transactions.

The introduction of FERA was a response to the economic challenges India faced at the time, including a balance of payments crisis and the need to rebuild its foreign exchange reserves. FERA aimed to ensure that foreign exchange resources were used judiciously and that illegal transactions that depleted foreign exchange reserves were curbed.

Now, let’s examine why the other options are not correct in this context:

B. FEMA (Foreign Exchange Management Act) (Not Correct):

FEMA, the Foreign Exchange Management Act, was introduced in India in 1999, replacing FERA. FEMA is a more modern and liberalized framework for regulating foreign exchange transactions and managing India’s foreign exchange reserves.

Unlike FERA, which was introduced when reserves were low, FEMA was enacted in a different economic context to support economic liberalization, simplify foreign exchange regulations, and promote economic growth.

C. GATT (General Agreement on Tariffs and Trade) (Not Correct):

GATT, the General Agreement on Tariffs and Trade, is a multilateral trade agreement that was signed in 1947. It is not directly related to foreign exchange reserves or their management in a specific country.

GATT primarily focused on international trade and reducing trade barriers among participating countries. While GATT played a crucial role in global trade negotiations, it is not connected to the introduction of FERA in India.

D. IMF (International Monetary Fund) (Not Correct):

The IMF, the International Monetary Fund, is an international organization that provides financial assistance and policy advice to its member countries. While the IMF can be involved in helping countries manage their foreign exchange reserves and balance of payments, it is not an Indian legislation or act like FERA.

The introduction of FERA was a domestic policy measure aimed at addressing specific economic challenges within India.

In summary, FERA (the Foreign Exchange Regulation Act) was introduced in India at a time when the country’s foreign exchange reserves were low. FERA was enacted to regulate and manage foreign exchange transactions and reserves, with a focus on conserving foreign exchange and preventing illegal activities that could deplete reserves.

The other options, including FEMA, GATT, and IMF, do not accurately represent the specific historical and economic context in which FERA was introduced. Understanding the historical and economic context of FERA is essential for comprehending the evolution of foreign exchange regulations in India.

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