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    Question

    The Reserve Bank of India (RBI) and the Central Bank of

    UAE (CBUAE) signed two Memoranda of Understandings (MoUs). What is the purpose of the first MoU signed between RBI and CBUAE?
    A To establish a framework for bilateral trade between India and UAE Correct Answer Incorrect Answer
    B To promote the use of INR and AED in international transactions Correct Answer Incorrect Answer
    C To create a foreign exchange market for INR-AED transactions Correct Answer Incorrect Answer
    D To facilitate investments and remittances between India and UAE Correct Answer Incorrect Answer
    E To optimize transaction costs for remittances from Indians in UAE Correct Answer Incorrect Answer

    Solution

    The Reserve Bank of India (RBI) and the Central Bank of UAE (CBUAE) signed two Memoranda of Understandings (MoUs) to establish a framework to promote settle bilateral trade in respective local currencies, that Indian Rupee and UAE Dirham (AED) and interlinking payments and messaging system. ·        The first MoU, which established a framework for the use of local currencies for transactions between India and UAE, aims to put in place a Local Currency Settlement System (LCSS) to promote the use of INR and AED bilaterally. o   The MoU covers all current account transactions and permitted capital account transactions. The creation of the LCSS would enable exporters and importers to invoice and pay in their respective domestic currencies, which in turn would enable the development of an INR-AED foreign exchange market. o   This arrangement would also promote investments and remittances between the two countries. Use of local currencies would optimise transaction costs and settlement time for transactions, including for remittances from Indians residing in UAE.

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