Banking Regulation & Compliance and Legal Aspects MCQ Quiz - Objective Question with Answer for Banking Regulation & Compliance and Legal Aspects - Download Free PDF

The correct answer is June 2000.

Key Points

• The Foreign Exchange Management Act (FEMA) was introduced in India as a replacement for the older Foreign Exchange Regulation Act (FERA).
• FEMA officially came into force on June 1, 2000, marking a significant change in India's approach to foreign exchange management.
• It was enacted to facilitate external trade, payments, and promote orderly development and maintenance of the foreign exchange market in India.
• The Act applies to all branches, offices, and agencies outside India owned or controlled by an Indian resident, as well as Indian citizens residing abroad.
• FEMA is administered by the Reserve Bank of India (RBI) and the central government to regulate foreign exchange transactions.

Additional Information

• Key Terminology under FEMA:
  • Capital Account Transactions: Transactions that alter the assets or liabilities outside India.
  • Current Account Transactions: Transactions involving payments for goods, services, and short-term credits.
  • Authorized Dealer: Entities authorized by the RBI to deal in foreign exchange.
  • Foreign Exchange: All currency transactions involving foreign nations.
• Difference between FERA and FEMA:
  • FERA was a restrictive law, while FEMA is more liberal and promotes foreign trade.
  • FERA's violation was considered a criminal offense, whereas FEMA treats violations as civil offenses.
• Objectives of FEMA:
  • To facilitate external trade and payments.
  • To promote orderly development and maintenance of the foreign exchange market.
  • To ensure the conservation and effective utilization of foreign exchange resources.
• Penalties under FEMA:
  • For violations, FEMA imposes fines up to thrice the sum involved in the contravention.
  • In case of non-payment, further penalties may include imprisonment of up to six months.

The correct answer is Granting of loans and Services.

Key Points

• Collateral
  • The term collateral refers to an asset that a lender accepts as security for a loan.
  • Collateral may take the form of real estate or other kinds of assets, depending on the purpose of the loan. Hence, Option 4 is correct.
  • The collateral acts as a form of protection for the lender.
  • That is, if the borrower defaults on their loan payments, the lender can seize the collateral and sell it to recoup some or all of its losses.
  • Collateral is an item of value used to secure a loan.
  • Collateral minimizes the risk for lenders.
  • Mortgages and car loans are two types of collateralized loans.
  • Other personal assets, such as a savings or investment account, can be used to secure a collateralized personal loan.

The correct answer is MORE THAN OF THE ABOVE

• Important Points
• The money market is a market for short-term funds that deal in monetary assets having a maturity period up to one year.
• They are close substitutes for money.
• It is a market of low risk, unsecured, and short term debt instruments that are highly liquid.
• It has no physical location as such.
• It helps in the raising of short-term funds for meeting the temporary shortages of cash and obligations and the temporary deployment of excess funds for earning returns.
• The major participants in the money market are the Reserve Bank of India(RBI), Commercial Banks, NonBanking Finance Companies, State Governments, Large Corporate Houses, and Mutual Funds. 
• Instruments: 
  • Treasury bill
  • Commercial paper
  • Certificate of deposits
  • Call money
  • Commercial bill

The correct answer is 1, 4, and 5 only.

Key Points

• The Principal Officer is tasked with filing STRs with FIU-IND.
• Acts as the contact point for regulatory or law enforcement inquiries.
• Ensures KYC/AML policies are consistently applied during customer onboarding.
• Does not conduct investigations but coordinates between departments for compliance.

Additional Information

• Principal Officer: Serves as the compliance lead for AML activities.
• STRs: Suspicious Transaction Reports for transactions that deviate significantly from customer profiles.
• FIU-IND: Responsible for receiving and analyzing financial intelligence in India.

The correct answer is 7 days.

Key Points

• Suspicious transaction reports must be submitted within 7 days of detection.
• Delays in reporting may lead to penalties and regulatory action.
• This timeline ensures prompt action against money laundering activities.
• FIU-IND is the primary authority for analyzing such reports in India.

Additional Information

• FIU-IND: Financial Intelligence Unit of India analyzes high-risk financial activities.
• Suspicious Transactions: Include those deviating from customer risk profiles or involving illegal activities.
• 7 days is the standard reporting window for suspicious activity under AML regulations.

The correct answer is Foreign Exchange Management Act.

Foreign Exchange Regulations Act (FERA) is an act that imposes strict regulations on

• Foreign exchange dealings
• Securities and transactions having an indirect impact on foreign exchange
• Import and export of foreign currency
• On conservation and optimal utilization of foreign exchange so as to promote economic development and growth
• Certain kinds of payment in foreign currency.
• FERA was passed in India in the year 1973 and it came into effect from 1st January 1974.

Foreign Exchange Management Act (FEMA) is the act of the Parliament of India

• To amend and consolidate regulations and laws related to foreign exchange
• To facilitate external trade and payments for promoting the orderly maintenance
• To develop foreign exchange markets in India.
• FEMA was passed in the winter session of Parliament on 29th December 1999.
• FEMA paved the way for the introduction of the Prevention of Money Act, 2002 which became effective from 1st July 2005.
• FEMA acts as a regulatory mechanism enabling the Reserve Bank of India (RBI) and the Central Government to pass rules related to Foreign exchange as per the Foreign Trade Policy of India.
• FERA was replaced by FEMA in 1998 by the Government of Atal Bihari Vajpayee.

The correct answer is Collateral.

Key Points

• Collateral
  • An asset that the borrower owns and uses as a guarantee to the lender until the loan is repaid is called collateral.
  • Collateral is a type of security that banks take from their clients.
  • The collateral can be in the form of fixed deposits, property papers etc.
  • The collateral reduces the risk to the lenders.
  • If a borrower defaults on the loan, the lender can seize the collateral and sell it to cover his loss.
  • Mortgage and car loans are two types of collateralized loans.
  • Other personal assets, such as a savings or investment account, can be used to secure a collateralized personal loan.

The correct answer is Cheque.

Key Points

• Cheque
  • A cheque is a bill of exchange in which one party instructs the bank to transfer funds to another party's bank account. It's a negotiable instrument protected by the 1881 Negotiable Instruments Act.
  • There are three parties involved in the transaction - The drawer is the person who writes the cheque, the drawee is the bank that has to transfer the funds, and the payee is the person whose name is on the cheque. 
  •  A cheque can be issued against a savings account or a current account.
  • A cheque is drawn from a particular bank and is always payable on demand.
  • A cheque is valid for three months from the date of issuing (the date is indicated on the top right-hand corner of the cheque).
  • There are two main types of cheques –
    • Bearer Cheque – is a type of cheque in which the bearer can encash the sum on presentation of the cheque before the authorized bank.
    • Order Cheque – is a type of cheque in which only the payee, whose name has been written on the cheque, can encash over the counter.

Additional Information

•  Passbook
  • ​A passbook, sometimes known as a bankbook, is a paper book used to record bank or building society transactions on a deposit account. 
  • These were traditionally used for accounts with minimal transaction volumes, such as savings accounts.
• ​Currency
  • ​Currency is a kind of payment that can be used to buy and sell products and services. In a nutshell, it's money, usually in the form of paper or coins, issued by a government and widely accepted as a means of payment at face value.

  • There are 180 currencies recognized as legal tender in United Nations (UN) member states, UN observer states, partially recognized or unrecognized states, and their dependencies.​

The correct answer is Granting of loans and Services.

Key Points

• Collateral
  • The term collateral refers to an asset that a lender accepts as security for a loan.
  • Collateral may take the form of real estate or other kinds of assets, depending on the purpose of the loan. Hence, Option 4 is correct.
  • The collateral acts as a form of protection for the lender.
  • That is, if the borrower defaults on their loan payments, the lender can seize the collateral and sell it to recoup some or all of its losses.
  • Collateral is an item of value used to secure a loan.
  • Collateral minimizes the risk for lenders.
  • Mortgages and car loans are two types of collateralized loans.
  • Other personal assets, such as a savings or investment account, can be used to secure a collateralized personal loan.

The correct answer is Section 66C.

Key Points Under the Information Technology Act, 2000 (IT Act 2000), if anyone fraudulently or dishonestly makes use of the electronic signature, password, or any other unique identification feature of another person, the relevant section that deals with the offense and punishment is Section 66C.

Section 66C of the IT Act 2000 is titled "Identity Theft" and states the following:

• "Whoever, fraudulently or dishonestly makes use of the electronic signature, password or any other unique identification feature of any other person, shall be punished with imprisonment of either description for a term which may extend to three years and shall also be liable to fine which may extend to rupees one lakh."
• This section is designed to address offenses related to identity theft, where an individual unlawfully uses someone else's electronic signature, password, or other unique identification features to carry out fraudulent activities, impersonate the person, or gain unauthorized access to their digital accounts or systems.
• It's important to note that the specific penalties and punishment may vary depending on the jurisdiction and the severity of the offense. It is always advisable to consult the relevant legal authorities or legal professionals for precise interpretation and application of the law in a particular situation.

The correct answer is option 1 i.e Trust and Commitment

Key concepts in relationship marketing:

• Trust:
  • Trust is a critical factor fostering commitment among supply chain partners. 
  • The presence of trust improves measurably the chance of successful supply chain performance.
  • Trust is a belief in the reliability.
  • In other words, it is one party expectation that other party will behave in a certain predictable way in a given situation.
• Commitment :
  • Commitment is one party in a relationship feels motivated to do business with another party.
  • It is also defined as a long-term desire to maintain a valued relationship.
  • A customer is committed to a supplier similarly expected loyalty from the supplier or service provider.
• Attraction:
  • The attraction is a third key concept in relationship marketing.
  • It means there should be something which makes the supplier or service provider interesting to give the customer.
  • Attraction can be based on the financial, technological or social factor.

The correct answer is mutually opposite.

Key Points

• The relationship between demand and price is generally "mutually opposite", which is often referred to as an inverse relationship in economics.
• This relationship is based on the law of demand, which states that, all else being equal, as the price of a product increases, quantity demanded falls; likewise, as the price of a product decreases, quantity demanded increases.
• However, this is a simplified explanation and actual market conditions might be influenced by many other factors including income levels, tastes and preferences, the accessibility of substitutes, and many others.

Additional Information

Law of demand 

•  According to the law of demand a consumer demand shares an inverse relationship with the price of the good and vice versa
• law of demand can not explain the extent of the relationship.

The correct answer is June 2000.

Key Points

• The Foreign Exchange Management Act (FEMA) was introduced in India as a replacement for the older Foreign Exchange Regulation Act (FERA).
• FEMA officially came into force on June 1, 2000, marking a significant change in India's approach to foreign exchange management.
• It was enacted to facilitate external trade, payments, and promote orderly development and maintenance of the foreign exchange market in India.
• The Act applies to all branches, offices, and agencies outside India owned or controlled by an Indian resident, as well as Indian citizens residing abroad.
• FEMA is administered by the Reserve Bank of India (RBI) and the central government to regulate foreign exchange transactions.

Additional Information

• Key Terminology under FEMA:
  • Capital Account Transactions: Transactions that alter the assets or liabilities outside India.
  • Current Account Transactions: Transactions involving payments for goods, services, and short-term credits.
  • Authorized Dealer: Entities authorized by the RBI to deal in foreign exchange.
  • Foreign Exchange: All currency transactions involving foreign nations.
• Difference between FERA and FEMA:
  • FERA was a restrictive law, while FEMA is more liberal and promotes foreign trade.
  • FERA's violation was considered a criminal offense, whereas FEMA treats violations as civil offenses.
• Objectives of FEMA:
  • To facilitate external trade and payments.
  • To promote orderly development and maintenance of the foreign exchange market.
  • To ensure the conservation and effective utilization of foreign exchange resources.
• Penalties under FEMA:
  • For violations, FEMA imposes fines up to thrice the sum involved in the contravention.
  • In case of non-payment, further penalties may include imprisonment of up to six months.

Key Points

• "NSF" stands for "Not Sufficient Funds".
• When a cheque is returned by the bank with this mark, it means that the account holder did not have enough funds in their account to cover the amount of the cheque.
• This can happen for various reasons, such as the account holder writing a cheque for an amount greater than their account balance, or the account holder having too many outstanding cheques.
• The cheque will not be honouredd and the person or organization to whom the cheque was written will not receive the payment.

Hence, a cheque returned by bank marked "NSF" means that there are not sufficient funds in your account.

The correct answer is Foreign Exchange Management Act.

Foreign Exchange Regulations Act (FERA) is an act that imposes strict regulations on

• Foreign exchange dealings
• Securities and transactions having an indirect impact on foreign exchange
• Import and export of foreign currency
• On conservation and optimal utilization of foreign exchange so as to promote economic development and growth
• Certain kinds of payment in foreign currency.
• FERA was passed in India in the year 1973 and it came into effect from 1st January 1974.

Foreign Exchange Management Act (FEMA) is the act of the Parliament of India

• To amend and consolidate regulations and laws related to foreign exchange
• To facilitate external trade and payments for promoting the orderly maintenance
• To develop foreign exchange markets in India.
• FEMA was passed in the winter session of Parliament on 29th December 1999.
• FEMA paved the way for the introduction of the Prevention of Money Act, 2002 which became effective from 1st July 2005.
• FEMA acts as a regulatory mechanism enabling the Reserve Bank of India (RBI) and the Central Government to pass rules related to Foreign exchange as per the Foreign Trade Policy of India.
• FERA was replaced by FEMA in 1998 by the Government of Atal Bihari Vajpayee.