............ 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.


A. fera
B. fema
C. gatt
D. exim

The Correct Answer Is:

  • A. fera

The correct answer to the question of what was introduced at a time when the forex (foreign exchange) reserves of the country were low is the Foreign Exchange Regulation Act (FERA), option A. FERA was enacted to manage and regulate foreign exchange reserves when they were indeed low, and it’s essential to understand why this choice is correct.

In this detailed explanation, we will delve into the reasons why FERA is the correct option and why the other choices are not appropriate.

Why FERA is the Correct Answer (Option A):

1. Introduction During Low Forex Reserves:

The Foreign Exchange Regulation Act (FERA) was introduced in India in 1973 when the country’s foreign exchange reserves were facing significant challenges.

At that time, India’s forex reserves were indeed low, and the government needed a legal framework to manage and conserve these limited reserves effectively. FERA was enacted to achieve this goal by regulating and controlling foreign exchange transactions.

2. Regulation of Foreign Exchange:

FERA was primarily designed to regulate and control foreign exchange transactions to conserve and manage the country’s limited forex reserves. It provided the government with the necessary legal tools to monitor and restrict foreign exchange dealings.

3. Enforcement of Exchange Controls:

FERA empowered the government to impose exchange controls, which allowed it to manage and prioritize the use of forex reserves for essential imports and payments. This was crucial during a period of low forex reserves to ensure that they were used efficiently.

4. Preventing Capital Flight:

One of the key objectives of FERA was to prevent the flight of capital out of India, which could further deplete forex reserves. The act included stringent provisions to deter individuals and entities from engaging in illegal or unauthorized foreign exchange transactions.

Why the Other Options Are Not Correct:

B. Foreign Exchange Management Act (FEMA):

FEMA, introduced in 1999, replaced FERA. It is a more modern and comprehensive legislation for the management of foreign exchange in India. However, FEMA was enacted when India had a more robust and stable forex reserve position.

It aimed to liberalize foreign exchange transactions and simplify regulations, which was a different objective from FERA’s goal of conserving forex reserves during a period of scarcity.

C. General Agreement on Tariffs and Trade (GATT):

GATT, now succeeded by the World Trade Organization (WTO), is an international trade agreement that primarily deals with the regulation of international trade, tariffs, and trade barriers. It does not have a direct relationship with India’s forex reserves or their management.

D. Export-Import (Exim) Bank:

The Exim Bank is a financial institution that primarily focuses on promoting and financing India’s international trade. While it plays a vital role in facilitating export and import activities, it does not have the authority or purpose of managing forex reserves during a time of low reserves. Its functions are more oriented towards providing financial support to exporters and importers.

In conclusion, the correct answer is indeed A, FERA (Foreign Exchange Regulation Act), as it was introduced during a time when India’s forex reserves were low, and its primary purpose was to regulate and manage foreign exchange transactions in the country to conserve these limited reserves.

The other options, such as FEMA, GATT, and Exim Bank, do not align with the specific historical context of low forex reserves and the need for stringent regulation and control as addressed by FERA.

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