Reserve Bank of India Role and Exchange Control

Reserve Bank of India (RBI)

  • The Reserve Bank of India (RBI) is the central bank of India. It was established on April 1, 1935, in accordance with the Reserve Bank of India Act, 1934.
  • The RBI is responsible for the formulation and implementation of monetary policy in India. It also regulates the banking system and the financial markets.
  • The RBI is also the custodian of India’s foreign exchange reserves.

Exchange Control

  • Exchange control refers to the regulations imposed by a government on the inflow and outflow of foreign exchange.
  • The objective of exchange control is to manage the country’s foreign exchange reserves and to protect the domestic currency from speculation.
  • Exchange control can be implemented through a variety of measures, such as:
    • Requiring permission from the government for all foreign exchange transactions
    • Imposing restrictions on the amount of foreign exchange that can be held by individuals and businesses
    • Allowing only certain types of foreign exchange transactions, such as imports and exports

RBI’s Role in Exchange Control

  • The RBI is the sole authority for administering exchange control in India.
  • The RBI has the power to grant or refuse permission for all foreign exchange transactions.
  • The RBI also publishes a list of permissible and prohibited foreign exchange transactions.
  • The RBI can impose penalties on individuals and businesses that violate the exchange control regulations.

Mcq Questions on RBI’s Role in Exchange Control

  1. Which of the following is not a function of the Reserve Bank of India?
    • A. Custodian of foreign exchange reserves
    • B. Regulator of the banking system
    • C. Formulator of monetary policy
    • D. Manager of the stock market
    • The correct answer is D. The RBI does not manage the stock market. It is the Securities and Exchange Board of India (SEBI) that regulates the stock market in India.
  2. Which of the following is not a permissible foreign exchange transaction in India?
    • A. Import of goods
    • B. Export of goods
    • C. Remittance of money to a foreign country
    • D. Investment in foreign securities
    • The correct answer is D. Investment in foreign securities is a prohibited foreign exchange transaction in India.
  3. What is the penalty for violating the exchange control regulations in India?
    • A. Fine of up to Rs. 100,000
    • B. Imprisonment of up to 3 years
    • C. Both a fine and imprisonment
    • D. None of the above
    • The correct answer is C. The penalty for violating the exchange control regulations in India is both a fine and imprisonment. The fine can be up to Rs. 100,000 and the imprisonment can be up to 3 years.