Chapter 9: International Financial Service Centres (IFSC), GIFT City (CAIIB – Paper 2)
1. What is the main objective of establishing an IFSC in India?
A. To regulate domestic banks only
B. To reduce taxation on local businesses
C. To provide international financial services from India
D. To encourage only manufacturing exports
The primary goal of an IFSC is to enable India-based entities to conduct international financial services and transactions efficiently, bringing global financial activity to India.
2. GIFT City is located in which state of India?
A. Gujarat
B. Maharashtra
C. Karnataka
D. Tamil Nadu
GIFT City (Gujarat International Finance Tec-City) is located in Gandhinagar, Gujarat, and is India’s first operational IFSC.
3. Which of the following is an opportunity available for banks in GIFT City?
A. Only domestic lending
B. Manufacturing and production subsidies
C. Export of agricultural goods
D. Offshore banking and international financial transactions
Banks in GIFT City can provide offshore banking services, conduct international transactions, and offer global financial products to clients.
4. What is the scope of IFSC in India?
A. Limited to domestic trade settlements
B. To facilitate international financial services, capital markets, and banking
C. Only for IT and software export
D. Focused solely on government funding
IFSCs in India aim to bring international financial services, capital market activities, and banking transactions to a regulated, tax-efficient hub within India.
5. Which of the following incentives are offered to companies in GIFT City?
A. Tax exemptions, regulatory relaxations, and single-window clearance
B. Mandatory domestic sourcing of all services
C. Restrictions on foreign investment
D. Only real estate benefits
GIFT City offers tax holidays, regulatory relaxations, and single-window clearance to attract global financial companies to operate from the IFSC.
6. What is the primary purpose of establishing an IFSC Banking Unit (IBU) in India?
A. To cater exclusively to domestic banking requirements
B. To provide loans to rural areas only
C. To conduct international banking transactions from India
D. To handle only government-related transactions
IFSC Banking Units (IBUs) are set up to enable banks in India to provide international banking services, such as trade finance, foreign currency loans, and deposits from non-residents.
7. Which types of banks are allowed to set up IBUs in an IFSC?
A. Only private sector banks
B. All scheduled commercial banks, including foreign banks operating in India
C. Only regional rural banks
D. Cooperative banks only
Any scheduled commercial bank, including foreign banks having operations in India, is permitted to set up an IFSC Banking Unit to conduct offshore banking activities.
8. What is the minimum capital requirement for an IBU as per RBI guidelines?
A. ₹100 crore
B. ₹50 crore
C. ₹25 crore
D. No minimum requirement
RBI requires each IBU to have a minimum capital of ₹100 crore to ensure financial stability and credibility in conducting international banking operations.
9. Which of the following activities is permitted for IBUs under RBI guidelines?
A. Domestic lending to residents in India
B. Only government bond trading
C. Agricultural loans to rural sectors
D. Accepting deposits and lending in foreign currency to non-residents
IBUs are permitted to accept deposits and provide loans in foreign currency, exclusively to non-resident entities and for international banking operations.
10. Which regulatory framework governs the operations of IBUs in an IFSC?
A. Companies Act, 2013 only
B. Reserve Bank of India guidelines and IFSC regulatory provisions
C. SEBI regulations only
D. Foreign Exchange Management Act (FEMA) only
The operations of IBUs are governed by RBI guidelines as well as specific regulations under the International Financial Services Centres Authority (IFSCA) to ensure compliance and promote international financial activities.
11. What is the primary role of IFSCA?
A. Regulate only domestic banks in India
B. Provide loans to rural areas
C. Regulate and develop financial services, products, and institutions in IFSCs
D. Focus solely on government financial operations
IFSCA is responsible for regulating, developing, and facilitating financial services, products, and institutions operating within India’s IFSCs.
12. Which of the following entities fall under the regulatory purview of IFSCA?
A. Only domestic banks
B. Banks, insurance companies, capital markets, and financial intermediaries in IFSCs
C. Only NBFCs outside IFSC
D. Only government-owned financial institutions
IFSCA regulates all financial institutions operating in IFSCs, including banks, insurance companies, capital market intermediaries, and other financial service providers.
13. Which legislation led to the creation of IFSCA?
A. Companies Act, 2013
B. SEBI Act, 1992
C. RBI Act, 1934
D. International Financial Services Centres Authority Act, 2019
IFSCA was established under the International Financial Services Centres Authority Act, 2019 to regulate and promote financial services in India’s IFSCs.
14. Which of the following is a key function of IFSCA?
A. Granting licenses to banks and financial institutions to operate in IFSCs
B. Conducting only domestic monetary policy
C. Regulating agriculture sector financing
D. Issuing currency notes
IFSCA is empowered to grant licenses, regulate financial institutions, and oversee financial markets within IFSCs to ensure compliance and promote growth.
15. How does IFSCA facilitate international financial services?
A. By restricting foreign banks from IFSCs
B. By only regulating domestic NBFCs
C. By creating a single-window regulatory framework and providing incentives
D. By issuing government bonds for local lending
IFSCA facilitates international financial services by offering a single-window regulatory mechanism, providing incentives, and promoting global financial activities from IFSCs in India.
16. Which regulatory authority oversees the operations of IBUs in IFSCs?
A. SEBI only
B. IFSCA (International Financial Services Centres Authority)
C. RBI for domestic operations only
D. Ministry of Finance exclusively
IBUs operating in IFSCs are regulated by the IFSCA, which provides the regulatory framework for licensing, prudential norms, and permissible activities.
17. Which of the following activities is permitted for an IBU in an IFSC?
A. Domestic lending in Indian Rupees to resident individuals
B. Only investment in government bonds within India
C. Agricultural lending to rural areas
D. Lending and borrowing in foreign currency to non-residents
IBUs are permitted to conduct banking transactions exclusively in foreign currency and deal with non-resident clients to facilitate international financial services.
18. Under the regulatory framework, what type of deposits can an IBU accept?
A. Foreign currency deposits from non-resident entities
B. Domestic savings deposits from Indian residents
C. Only government securities deposits
D. Loans converted into deposits
IBUs are authorized to accept deposits in foreign currency exclusively from non-resident entities to support international banking operations.
19. Which of the following is a permissible lending activity for IBUs?
A. Lending in INR to domestic corporates
B. Loans to residents for personal use
C. Lending in foreign currency to non-resident entities
D. Agricultural and microfinance lending
IBUs are allowed to lend only in foreign currency to non-resident entities to facilitate cross-border financial activities and trade finance.
20. Which of the following activities is prohibited for IBUs?
A. Borrowing funds in foreign currency from non-residents
B. Domestic lending in Indian Rupees to resident individuals
C. Providing trade finance in foreign currency
D. Investing in foreign securities
IBUs are not permitted to lend in Indian Rupees to resident individuals; their activities are restricted to non-resident clients and international financial transactions.
21. What is the main objective of providing relaxations to FPIs at GIFT City?
A. To restrict foreign investment in India
B. To promote only domestic equity markets
C. To attract international investors and facilitate global capital flows
D. To regulate local mutual funds exclusively
FPIs at GIFT City are provided relaxations to encourage global investment into India through IFSCs, promoting international capital flows and enhancing liquidity in Indian markets.
22. Which of the following is a key relaxation provided to FPIs at GIFT City?
A. Exemption from capital gains tax on certain investments
B. Mandatory investment in government bonds only
C. Restriction to invest only in domestic mutual funds
D. Requirement to register with domestic exchanges
FPIs investing through GIFT City receive relaxations such as tax exemptions on capital gains for certain transactions, making IFSC a tax-efficient investment hub.
23. Which regulatory authority governs the FPIs operating from GIFT City?
A. RBI only
B. SEBI for domestic FPIs only
C. Ministry of Finance exclusively
D. IFSCA (International Financial Services Centres Authority)
FPIs operating from GIFT City are regulated by IFSCA, which provides a single-window regulatory framework for investment, reporting, and compliance.
24. Which of the following investments by FPIs are eligible for relaxations at GIFT City?
A. Investments in domestic savings accounts
B. Investments in Indian securities through IFSC channels
C. Loans to resident individuals in INR
D. Mandatory investment in government schemes only
FPIs investing through GIFT City can participate in Indian securities via IFSC channels and are provided relaxations such as tax benefits and simplified compliance procedures.
25. Which of the following is a reporting requirement for FPIs at GIFT City?
A. Filing periodic reports with IFSCA on investment positions and transactions
B. Filing reports with RBI for domestic deposits only
C. Reporting only to domestic stock exchanges
D. No reporting is required
FPIs operating at GIFT City must submit periodic reports to IFSCA detailing their investment positions and transactions to ensure regulatory compliance and transparency.
