Page 217 - DMGT401Business Environment

Business Environment

Notes

Notes Some Terms used in FEMA

Convertible Currency/Hard Currency
Some currencies are freely convertible, i.e., one can exchange these currencies with any
other currency without any restriction. The major ones are: Dollars (USA), Pound Sterling,
Euro, DM, Yen, Franc, Lira, etc. This are often referred to as hard currency
Rupee Trade
India has rupee trade with Nepal and Bhutan, i.e., payments in respect of trade with Nepal
and Bhutan are made in Indian Rupees.

Currency
Currency includes all currency notes, postal notes, postal orders, money orders, cheques,
drafts , traveller's cheques, letter of credit, Bill of Exchange and Promissory notes, credit
cards or such other similar instruments as may be notified by the RBI. The RBI has notified
'debit cards', ATM cards or any other instruments by whatever name known that can be
used to create a financial liability' as 'currency'.

Foreign Exchange
Foreign exchange means foreign currency and includes (i) deposits, credits, and balances
payable in any foreign currency (ii) drafts, traveller's cheques, letter of credit or bill of
exchange expressed or drawn in Indian currency but payable in foreign currency
(iii) drafts, traveller's cheques letter of credit or bill of exchange expressed drawn by
banks, institutions or persons outside India, but payable in Indian currency.

Overseas Corporate Bodies
OCB means any overseas company, partnership, firm, society, and other corporate body
predominantly owned directly or indirectly to the extent of at least 60% by NRIs. It also
includes overseas trusts in which at least 60% beneficial interest is irrevocably held by
NRIs.

9.2.7 Current Account Transactions

FEMA has eased the regulation over transactions in foreign exchange and security. Transactions
in current account have been made restrictions-free:
1. No restriction on current account transaction unless specified: Any person can sell or
draw foreign exchange to or from authorized persons if such sale or withdrawal is a
current account transaction. Reasonable restrictions on current account transaction can be
imposed by the Central Government in public interest, in consultation with the RBI.
2. Current Account Transaction: Section 2(j) states that current account transaction means a
transaction other than a capital account transaction. It includes the following:

(a) Payment due in connection with foreign trade, other current businesses, services
and short term banking, and credit facilities in the ordinary course of business.
(b) Payment due as interest on loans as net income from investment.

(c) Remittances for living expenses of parents, spouse and children residing abroad.
(d) Expense in connection with foreign travel, education and medical care of patents,
spouse and children.

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