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      Question

      Which of the following is the correct full form of FEMA,

      and what is its primary scope?
      A Foreign Exchange Management Act; it regulates transactions involving foreign currency and cross-border capital flows in India Correct Answer Incorrect Answer
      B Financial Entities Management Act; it governs the licensing and operations of all financial institutions in India Correct Answer Incorrect Answer
      C Federal Exchange Monitoring Authority; it oversees bilateral currency swap agreements between RBI and foreign central banks Correct Answer Incorrect Answer
      D Foreign Equity Monitoring Act; it restricts foreign ownership in Indian PSUs above 49% Correct Answer Incorrect Answer
      E Finance and Economic Management Act; it defines the fiscal responsibilities of the Union and State governments Correct Answer Incorrect Answer

      Solution

      FEMA stands for the Foreign Exchange Management Act, 1999, which replaced the Foreign Exchange Regulation Act (FERA), 1973. FEMA governs all transactions involving foreign exchange and cross-border capital flows in India. It classifies transactions into current account transactions (largely liberalised) and capital account transactions (regulated by RBI and government). FEMA is administered by the Enforcement Directorate (ED) for violations, while the RBI issues regulations under it. Budget 2026-27 announced a comprehensive review of the FEMA (Non-debt Instruments) Rules to create a more contemporary framework for foreign investments.

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