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    Question

    Under Section 3 of the Foreign Exchange Management Act,

    1999, which of the following acts is prohibited for a "person" without the general or special permission of the Reserve Bank of India?
    A Dealing in or transferring any foreign exchange or foreign security to an Authorized Person (AP). Correct Answer Incorrect Answer
    B Receiving any payment by order or on behalf of a person resident outside India (PROI) through an Authorized Person. Correct Answer Incorrect Answer
    C Entering into any financial transaction in India as consideration for the acquisition of an asset outside India by any person. Correct Answer Incorrect Answer
    D Holding foreign currency notes up to US$ 2,000 acquired during a visit abroad as honorarium for services rendered. Correct Answer Incorrect Answer

    Solution

    1. The "Hawala" Check (Section 3(d)): Option (C) refers to what is colloquially known as a "Hawala" or "compensatory" transaction. Even if the money never leaves India, if you pay someone in Rupees in India so that they (or their associate) can give you an asset/currency abroad, it is a violation of Section 3.

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