1. FOREIGN EXCHANGE MANAGEMENT
EXECUTIVE SUMMARY
A Foreign exchange market is worldwide network of banks,
brokers, Multinationals corporations and central banks, all of who
buys and sells currencies. These markets participants are linked
by communications system that allow instant knowledge of factors
that affect the market and of rates as they are quoted around the
world. The market functions practically on 24-hour basis and is not
restricted to the opening and closing hours in one particular center.
The foreign exchange market is centered around the interbank
market- a large group of international commercial bank whose
transactions form the major part of the daily turnover. Central
banks occupy a key place in the market as they implement the
foreign exchange policies of the government.
Major issues confronting the market are:
Could new system satisfactorily replace floating?
Should the market remain basically unregulated or should
central bank exert more control?
Will the trend towards free trade and unrestricted capital flows
continue?
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OBJECTIVE OF THE STUDY
MAIN OBJECTIVE
This project attempt to study the intricacies of the foreign
exchange market. The main purpose of this study is to get a better
idea and the comprehensive details of foreign exchange risk
management.
SUB OBJECTIVES
To know about the various concept and technicalities in
foreign exchange.
To know the various functions of forex market.
To get the knowledge about the hedging tools used in foreign
exchange.
LIMITATIONS OF THE STUDY
Time constraint.
Resource constraint.
DATA COLLECTION
The data was collected from books, newspapers, other
publications and internet.
DATA ANALYSIS
The data analysis was done on the basis of the information
available from various sources and brainstorming.
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INTRODUCTION
Taking cue from the rise in popularity of forex trading the world
over, the Indian foreign exchange market is also growing in leaps
and bounds. At present, the annual turnover of foreign exchange
trading in India exceeds a whopping $400 billion. The volumes
included inter banking trading as well as futures and forward
trading in foreign exchange. Transactions are also made on the
basis of swapping currencies and interest rates as well.
Mumbai
The principal place where forex is transacted in big volumes is
Mumbai. The market involves intermediaries, buyers, sellers and
the monetary authority of India. Apart from Mumbai, the other
centers where forex is also traded are Kolkata, Chennai, New
Delhi, Cochin, Pondicherry and Bangalore. Even though the
markets are not linked as they are in other parts of the world, they
do perform collectively.
Authorized dealers
The Reserve Bank of India or India‟s central bank regulates the
market using the help of the exchange control department of the
bank. Only the authorized dealers in foreign exchange are allowed
to participate in trading which also included accredited brokers as
well. The entire transactions are governed by FEMA or the Foreign
Exchange Management Act of 1999, which is an updated version
of the Foreign Exchange Regulation Act or FERA.
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NEED FOR FOREIGN EXCHANGE
Let us consider a case where Indian company exports cotton
fabrics to USA and invoices the goods in US dollar. The American
importer will pay the amount in US dollar, as the same is his home
currency. However the Indian exporter requires rupees means his
home currency for procuring raw materials and for payment to the
labor charges etc. Thus he would need exchanging US dollar for
rupee. If the Indian exporters invoice their goods in rupees, then
importer in USA will get his dollar converted in rupee and pay the
exporter.
From the above example we can infer that in case goods are
bought or sold outside the country, exchange of currency is
necessary.
Sometimes it also happens that the transactions between two
countries will be settled in the currency of third country. In that
case both the countries that are transacting will require converting
their respective currencies in the currency of third country. For that
also the foreign exchange is required.
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ABOUT FOREIGN EXCHANGE MARKET.
Particularly for foreign exchange market there is no market place
called the foreign exchange market. It is mechanism through which
one country‟s currency can be exchange i.e. bought or sold for the
currency of another country. The foreign exchange market does
not have any geographic location.
Foreign exchange market is described as an OTC (over the
counter) market as there is no physical place where the participant
meets to execute the deals, as we see in the case of stock
exchange. The largest foreign exchange market is in London,
followed by the New York, Tokyo, Zurich and Frankfurt. The
market is situated throughout the different time zone of the globe in
such a way that one market is closing the other is beginning its
operation. Therefore it is stated that foreign exchange market is
functioning throughout 24 hours a day.
In most market US dollar is the vehicle currency, viz., the currency
sued to dominate international transaction. In India, foreign
exchange has been given a statutory definition. Section 2 (b) of
foreign exchange regulation ACT, 1973 states
Foreign exchange means foreign currency and includes:
All deposits, credits and balance payable in any foreign
currency and any draft, traveler‟s cheques, letter of credit
and bills of exchange. Expressed or drawn in India currency
but payable in any foreign currency.
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Any instrument payable, at the option of drawee or holder
thereof or any other party thereto, either in Indian currency or
in foreign currency or partly in one and partly in the other.
In order to provide facilities to members of the public and
foreigners visiting India, for exchange of foreign currency into
Indian currency and vice-versa. RBI has granted to various firms
and individuals, license to undertake money-changing business at
seas/airport and tourism place of tourist interest in India. Besides
certain authorized dealers in foreign exchange (banks) have also
been permitted to open exchange bureaus.
Following are the major bifurcations:
Full fledge moneychangers – they are the firms and
individuals who have been authorized to take both, purchase and
sale transaction with the public.
Restricted moneychanger – they are shops, emporia and
hotels etc. that have been authorized only to purchase foreign
currency towards cost of goods supplied or services rendered by
them or for conversion into rupees.
Authorized dealers – they are one who can undertake all types
of foreign exchange transaction. Bank are only the authorized
dealers. The only exceptions are Thomas cook, western union,
UAE exchange which though, and not a bank is an AD.
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Even among the banks RBI has categorized them as follows‟:
Branch A – They are the branches that have nostro and vostro
account.
Branch B – The branch that can deal in all other transaction but
do not maintain nostro and vostro a/c‟s fall under this category.
Nostro a/c:-
Bank in India is permitted to open foreign currency accounts with
banks abroad. Indian overseas bank‟s account with Chase
Manhattan Bank, New York is a nostro a/c. It is “our account with
u”. When an Indian bank issues a foreign currency draft payable
abroad drawn on a correspondent bank, the nostro account of the
bank maintained with the correspondent id debited and the amount
is paid beneficiary. When an export bill is sent for realization
abroad, the realized exporter bill proceeds is credited to the nostro
account.
Vostro account:
It is the account in India in Indian rupee maintained by an overseas
bank. If Chase Manhattan Bank, New York opens an account with
Indian overseas bank in India, it is a vostro account .it is “your
account with us. Any draft, issued by overseas correspondents in
Indian rupees is paid in India, to the debit of vostro account.
Loro account:
This terminology is used when one bank refers to the „nostro‟
account of another bank. If Indian Overseas bank and state bank
of India maintain nostro account with Chase Manhattan Bank, New
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York, IOB refers SBI account with Chase Manhattan Bank as loro
account. It is „their account with you‟.
Mirror account:
The banks in India maintain the replica of the Nostro account they
have with the foreign banks and these accounts are called as
mirror accounts. The mirror account mainly helps in reconciliation
of the statement of account sent by the foreign bank.
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FOREIGN EXCHANGE MARKET:
There are three types of market:
Merchant market: it is the retail market, which involves the
transaction of customers with authorized dealers.
Inter-bank market: it is the market where transaction takes
place between authorized dealers.
International market: it is the market where transaction
takes place between banks in different countries.
The base for all these types/layers of market is the need for
squaring up the position of Ads. Ads are permitted to retain
exchange only up to a certain level that means any purchase of
foreign exchange has to be disposed of and sale of foreign
exchange has to be covered by purchase.
Any AD will try to match the position. If it is not possible to match,
it has to go to another AD for purchase and sale of foreign
exchange and the market is the inter-bank market.
ADs in India move to forex markets and do the purchase / sale
transaction. This market is called as international market.
For Indian we can conclude that foreign exchange refers to foreign
money, which includes notes, cheques, bills of exchange, bank
balance and deposits in foreign currencies.
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PARTICIPANTS IN FOREIGN EXCHANGE MARKET
CUSTOMERS
COMMERCIAL
SPECULATORS
BANK
PARTICIPANTS
OVERSEAS
CENTRAL BANK
FOREX MARKET
EXCHANGE
BROKERS
The main players in foreign exchange market are as follows:
1. Customers
The customers who are engaged in foreign trade participate in
foreign exchange market by availing of the services of banks.
Exporters require converting the dollars in to rupee and imporeters
require converting rupee in to the dollars, as they have to pay in
dollars for the goods/services they have imported.
2. COMMERCIAL BANK
They are most active players in the forex market. Commercial
bank dealing with international transaction offer services for
conversion of one currency in to another. They have wide network
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of branches. Typically banks buy foreign exchange from exporters
and sells foreign exchange to the importers of goods. As every
time the foreign exchange bought or oversold position. The
balance amount is sold or bought from the market.
3. CENTRAL BANK
In all countries Central bank have been charged with the
responsibility of maintaining the external value of the domestic
currency. Generally this is achieved by the intervention of the
bank. Here the Reserve Bank of India (RBI) plays a vital role in
foreign exchange management. It has laid down some rules and
regulations to carry out foreign exchange.
4. EXCHANGE BROKERS
Forex brokers play very important role in the foreign exchange
market. However the extent to which services of foreign brokers
are utilized depends on the tradition and practice prevailing at a
particular forex market center. In India as per FEDAI guideline the
Ads are free to deal directly among themselves without going
through brokers. The brokers are not among to allowed to deal in
their own account all over the world and also in India.
5. OVERSEAS FOREX MARKET
Today the daily global turnover is estimated to be more than US
$ 1.5 trillion a day. The international trade however constitutes
hardly 5 to 7 % of this total turnover. The rest of trading in world
forex market is constituted of financial transaction and speculation.
As we know that the forex market is 24-hour market, the day
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begins with Tokyo and thereafter Singapore opens, thereafter
India, followed by Bahrain, Frankfurt, Paris, London, New York,
Sydney, and back to Tokyo.
6. SPECULATORS
The speculators are the major players in the forex market.
Bank dealing are the major speculators in the forex market with
a view to make profit on account of favorable movement in
exchange rate, take position i.e. if they feel that rate of particular
currency is likely to go up in short term. They buy that currency
and sell it as soon as they are able to make quick profit.
Corporation‟s particularly multinational corporation and
transnational corporation having business operation beyond their
national frontiers and on account of their cash flows being large
and in multi currencies get in to foreign exchange exposures. With
a view to make advantage of exchange rate movement in their
favor they either delay covering exposures or do not cover until
cash flow materialize.
Individual like share dealing also undertake the activity of
buying and selling of foreign exchange for booking short term
profits. They also buy foreign currency stocks, bonds and other
assets without covering the foreign exchange exposure risk. This
also results in speculations.
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TYPES OF TRANSACTIONS
There are different types of transaction under each market.
Merchant Market
SPOT FORWARD
Rates quoted for the Rates quoted for
transaction on the same transaction at a future
day. date.
Spot transaction in the merchant market is one where the rates are
being quoted and the transactions are being routed on the same
day. In forward transactions the rate are being quoted today for
future transactions.
INTER BANK MARKET & INTERNATIONAL MARKET
CASH VALUE SPOT FORWARD
TOMORROW
Rate today Rate today & Rate Rate today &
& settlement on settlement
Today &
Settlement the first from third
settlement
on the succeeding succeeding
on second
same working day. working day.
succeeding
day/working
working
day
day.
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Permitted currency:
It is the foreign currency which is freely convertible to major
currencies like USD (us dollar), GDP (Great Britain pounds) etc.
and for which a fairly active market exists.
Authorized dealers may open and maintain balance and
position in any permitted currency and in euro of the European
currency area.
Authorized dealer may open and maintains freely accounts with
their branches and correspondents abroad in any permitted
currency. Opening of such accounts should be reported to RBI
in the “R” return.
EURO: the single currencies of the European Union were born
In the name of „EURO‟ with effect from 1-1-1999. 11 out of the
15 members‟ countries accepted the single currency. four
countries that were unable to fulfill the set of conditions (U.K,
SWEDEN, DENMARK AND GREECE) were not participating.
Currency notes and coins in the participating countries continue
to be the legal tender for an interim period up to 30-6-2002.
Notes and coins in euro started circulating from 1-1-2002 and
the participating currency ceased to be legal tender 6 months
later. All the transaction between the member countries will be
done at the fixed exchange rates or at „‟EURO‟ until it replaces
the national currencies as the legal tender. The no of
participating countries have gone up.
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EXCHANGE RATE SYSTEM :
Countries of the world have been exchanging goods and services
amongst themselves. This has been going on from time
immemorial. The world has come a long way from the days of
barter trade. With the invention of money the figures and problems
of barter trade have disappeared. The barter trade has given way
to exchanged of goods and services for currencies instead of
goods and services.
The rupee was historically linked with pound sterling. India was a
founder member of the IMF. During the existence of the fixed
exchange rate system, the intervention currency of the Reserve
Bank of India (RBI) was the British pound, the RBI ensured
maintenance of the exchange rate by selling and buying pound
against rupees at fixed rates. The interbank rate therefore ruled
the RBI band. During the fixed exchange rate era, there was only
one major change in the parity of the rupee- devaluation in June
1966.
Different countries have adopted different exchange rate system at
different time. The following are some of the exchange rate system
followed by various countries.
THE GOLD STANDARD
Many countries have adopted gold standard as their monetary
system during the last two decades of the 19th century. This
system was in vogue till the outbreak of world war 1. under this
system the parties of currencies were fixed in term of gold. There
were two main types of gold standard:
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1.Gold piece standard
Gold was recognized as means of international settlement for
receipts and payments amongst countries. Gold coins were an
accepted mode of payment and medium of exchange in domestic
market also. A country was stated to be on gold standard if the
following condition were satisfied:
Monetary authority, generally the central bank of the country,
guaranteed to buy and sell gold in unrestricted amounts at the
fixed price.
Melting gold including gold coins, and putting it to different uses
was freely allowed.
Import and export of gold was freely allowed.
The total money supply in the country was determined by the
quantum of gold available for monetary purpose.
2.Gold Bullion Standard
Under this system, the money in circulation was either partly of
entirely paper and gold served as reserve asset for the money
supply.. However, paper money could be exchanged for gold at
any time. The exchange rate varied depending upon the gold
content of currencies. This was also known as “Mint Parity
Theory“ of exchange rates.
The gold bullion standard prevailed from about 1870 until 1914,
and intermittently thereafter until 1944. World War I brought an end
to the gold standard.
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BRETTON WOODS SYSTEM
During the world wars, economies of almost all the countries
suffered. In order to correct the balance of payments
disequilibrium, many countries devalued their currencies.
Consequently, the international trade suffered a deathblow. In
1944, following World War II, the United States and most of its
allies ratified the Bretton Woods Agreement, which set up an
adjustable parity exchange-rate system under which exchange
rates were fixed (Pegged) within narrow intervention limits (pegs)
by the United States and foreign central banks buying and selling
foreign currencies. This agreement, fostered by a new spirit of
international cooperation, was in response to financial chaos that
had reigned before and during the war.
In addition to setting up fixed exchange parities (par values) of
currencies in relationship to gold, the agreement established the
International Monetary Fund (IMF) to act as the “custodian” of the
system.
Under this system there were uncontrollable capital flows, which
lead to major countries suspending their obligation to intervene in
the market and the Bretton Wood System, with its fixed parities,
was effectively buried. Thus, the world economy has been living
through an era of floating exchange rates since the early 1970.
FLOATING RATE SYSTEM
In a truly floating exchange rate regime, the relative prices of
currencies are decided entirely by the market forces of demand
and supply. There is no attempt by the authorities to influence
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exchange rate. Where government interferes‟ directly or through
various monetary and fiscal measures in determining the
exchange rate, it is known as managed of dirty float.
PURCHASING POWER PARITY (PPP)
Professor Gustav Cassel, a Swedish economist, introduced this
system. The theory, to put in simple terms states that currencies
are valued for what they can buy and the currencies have no
intrinsic value attached to it. Therefore, under this theory the
exchange rate was to be determined and the sole criterion being
the purchasing power of the countries. As per this theory if there
were no trade controls, then the balance of payments equilibrium
would always be maintained. Thus if 150 INR buy a fountain pen
and the seamen fountain pen can be bought for USD 2, it can be
inferred that since 2 USD or 150 INR can buy the same fountain
pen, therefore USD 2 = INR 150.
For example India has a higher rate of inflation as compared to
country US then goods produced in India would become costlier as
compared to goods produced in US. This would induce imports in
India and also the goods produced in India being costlier would
lose in international competition to goods produced in US. This
decrease in exports of India as compared to exports from US
would lead to demand for the currency of US and excess supply of
currency of India. This in turn, cause currency of India to
depreciate in comparison of currency of us that is having relatively
more exports.
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EXCHANGE RATE MECHANISM
In international transaction, if we export goods to other countries,
our exporter in India would like to be paid in Indian rupees where
as the foreign buyers would like to pay in his home currency.
If the buyer is in United States, he will pay only in US Dollars. Thus
it becomes necessary to convert this US Dollars into Indian rupees
and the rate at which this conversion is done is called “Exchange
Rate.”
Exchange Rates are quoted in two methods:
1. Direct method.
2. Indirect method.
DIRECT QUOTATIONS
While quoting the exchange rate for a currency if the foreign
currency is kept constant and its value is expressed in terms of
home currency it is known as direct quotation. In this case, the
units of home currency will b varying for every unit of foreign
currency.
Example;
USD 1 = RS 45.7500
GBP 1=RS 67.8500
Effective from august 6, 1993 we have changed our system of
quoting exchange rates to direct quotation. By adopting this
system we have fallen in line with the international practice. It has
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become more transparent for the dealing public and it will be
easier for them to follow up the movement of exchange rates.
INDIRECT QUOTATIONS:
When we keep the unit of home currency constant and the value of
foreign currency is expressed in variable units then this method of
quoting exchange rate is called indirect quotation.
Prior to august 1993 we were following this system for quoting
exchange rates.
Example:
RS 100/- = USD 2.1200
RS 100/- = GBP 1.4200
TWO WAY QUOTATION:
In any other commercial transaction whenever we enquire the rate
of the commodity the seller will immediately quote the selling price.
If we enquire the rate for fruits with the fruit seller he will quote his
selling price.
But in foreign exchange market always both the rates will be
quoted that is one rate for buying and the other for selling.
Example: if the bank X calls for the rates from bank Y for USD/INR
bank will quote:
RS 45.7200/50
It means that the Bank Y is prepared to buy USD at RS 45.7200
and sell at 45.7250. This method of quoting both buying and
selling rates is known as “TWO WAY QUOTATIONS.”
For all practical purposes if we treat foreign exchange as a
commodity the logic and application of this two –way quotations
can be understood easily that is a trader will always be willing to
buy a commodity at a lesser price and sell at a higher price.
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The principle or maxim involved in this method of quotations is:
“BUY LOW – SELL HIGH “ (under DIECT QUOTATION)
The advantage of two–way quote is as under
The market continuously makes available price for buyers or
sellers
Two way prices limit the profit margin of the quoting bank and
comparison of one quote with another quote can be done
instantaneously.
As it is not necessary any player in the market to indicate
whether he intends to buy or sale foreign currency, this ensures
that the quoting bank cannot take advantage by manipulating
the prices.
It automatically insures that alignment of rates with market
rates.
Two way quotes lend depth and liquidity to the market, which is
so very essential for efficient market.
In two way quotes the first rate is the rate for buying and another
for selling. We should understand here that, in India the banks,
which are authorized dealer, always quote rates. So the rates
quoted- buying and selling is for banks point of view only. It means
that if exporters want to sell the dollars then the bank will buy the
dollars from him so while calculation the first rate will be used
which is buying rate, as the bank is buying the dollars from
exporter. The same case will happen inversely with importer as he
will buy dollars from the bank and bank will sell dollars to importer.
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DIFFERENT TYPES OF TRANSACTION
We have different types of transactions in foreign exchange:
It may be remittance Representing payment of subscription to
a foreign journal.
It can be an import payment relating to retirement of an import
bill.
It may be an inward remittance received by a resident/non-
resident Indian.
It may be an export bill, which will be presented to the
overseas buyer for payment.
Depending upon the nature and involvement of labour different
exchange rate are quoted for different transaction.
DIFFERENT TRANSACTION AND RELEVANT EXCHANGE
RATE
On an outward remittance does not involve any labour. Bank will
be recovering the rupee equivalent from the customer and issue a
draft in foreign currency drawn on their correspondent as per their
drawing arrangements. If it is a remittance relating to an import bill,
as a banker, bank will verify the documents entering them in their
register, presenting the bill to the importer for the payments and
also check whether all the conditions stipulated by the
correspondent bank are complied with. For this the labour bank is
eligible for some compensation. This compensation will be loaded
or adjusted while quoting the exchange rate for this import
transaction. In other words, the exchange rate for import
transaction will be costlier to the customers when compared to the
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exchange rate for clean outward remittance. The different rates
quoted for these two transactions are TT (Telegraphic transfer)
and bill selling.
Likewise bank will quote different buying rates for export bills and
for other clean inward remittance.
Following are the different rates, which are quoted to the
customers depending upon the nature of transaction.
BUYING RATES SELLING RATES
TT BUYING BILLS BUYING TT SELLING BILLS
SELLING
(A.1) (A.2) (B.1) (B.2)
A. BUYING RATES
A.1. TT BUYING RATE (nature of transaction)
Clean inward remittance for which cover has already been
provided in ADs Nostro account abroad.
Conversation of proceeds of instruments sent on collection
basis [ when collection are credited to Nostro account].
Cancellation of outward TT, DD,PO etc
Cancellation of forward sale contract.
Undrawn portion of an export bill realized.
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A.2. BILL BUYING RATE (nature of transaction)
Purchase/ negotiations/discounting of export bills.( and other
instruments).
B. SELLING RATE
B.1. TT SELLING RATE (nature of transaction)
Outward remittance in foreign currency.
Cancellation of purchase that is;
a. Bill purchased earlier is returned unpaid.
b. Bill purchased earlier is transferred to collection account
c. Inward remittance received earlier (converted into rupees) is
refunded to the remitting bank.
Forward purchase contract is cancelled.
Remittances relating to payment of import bills which are
directly received by the importer.
Crystallization of overdue export bills.
NOTE:
If the remittance that is no documents is to be handled by the
banks TT selling rate will be applied.
B.2. BILL SELLING RATE (nature of transaction)
Transaction involving remittance of proceeds of import bill.
Even if the proceeds of the import bills are to be remitted in
foreign currency by the way of DD, TT rate to be applied will be
bill selling rate
Crystallization of overdue import bills.
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Apart from the above, separate rates will be quoted for
selling and buying of travelers Cheques and foreign currency
notes.
CROSS RATES:
If a person wants to purchase Swiss Francs (CHF) since this
currency is not normally quoted in India, ADs will procure US
Dollars
From interbank market and will contact any of the overseas market
to get CHF by selling the US Dollars in the overseas market.
Example: a customer‟s wants to retire an import bill for CHF 50000
and the Inter Bank rate for USD/INR is at 45.75/78 and the
overseas market for USD/CHF is 1.7084/94. In order to arrive at
the CHF/INR rate bank will be applying Chain rule method.
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FACTOR AFFECTINGN EXCHANGE RATES
In free market, it is the demand and supply of the currency which
should determine the exchange rates but demand and supply is
the dependent on many factors, which are ultimately the cause of
the exchange rate fluctuation, sometimes wild.
The volatility of exchange rates cannot be traced to the single
reason and consequently, it becomes difficult to precisely define
the factors that affect exchange rates. However, the more
important among them are as follows:
STRENGTH OF ECONOMY
Economic factors affecting exchange rates include hedging
activities, interest rates, inflationary pressures, trade imbalance,
and euro market activities. Irving fisher, an American economist,
developed a theory relating exchange rates to interest rates. This
proposition, known as the fisher effect, states that interest rate
differentials tend to reflect exchange rate expectation.
On the other hand, the purchasing- power parity theory relates
exchange rates to inflationary pressures. In its absolute version,
this theory states that the equilibrium exchange rate equals the
ratio of domestic to foreign prices. The relative version of the
theory relates changes in the exchange rate to changes in price
ratios.
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POLITICAL FACTOR
The political factor influencing exchange rates include the
established monetary policy along with government action on
items such as the money supply, inflation, taxes, and deficit
financing. Active government intervention or manipulations, such
as central bank activity in the foreign currency market, also have
an impact. Other political factors influencing exchange rates
include the political stability of a country and its relative economic
exposure (the perceived need for certain levels and types of
imports). Finally, there is also the influence of the international
monetary fund.
EXPACTATION OF THE FOREIGN EXCHANGE MARKET
Psychological factors also influence exchange rates. These factors
include market anticipation, speculative pressures, and future
expectations.
A few financial experts are of the opinion that in today‟s
environment, the only „trustworthy‟ method of predicting exchange
rates by gut feel. Bob Eveling, vice president of financial markets
at SG, is corporate finance‟s top foreign exchange forecaster for
1999. eveling‟s gut feeling has, defined convention, and his
method proved uncannily accurate in foreign exchange forecasting
in 1998.SG ended the corporate finance forecasting year with a
2.66% error overall, the most accurate among 19 banks. The
secret to eveling‟s intuition on any currency is keeping abreast of
world events. Any event, from a declaration of war to a fainting
political leader, can take its toll on a currency‟s value. Today,
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instead of formal modals, most forecasters rely on an amalgam
that is part economic fundamentals, part model and part judgment.
Fiscal policy
Interest rates
Monetary policy
Balance of payment
Exchange control
Central bank intervention
Speculation.
Technical.
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HYPOTHETICAL SITUATION
Consider a hypothetical situation in which ABC trading co. has to
import a raw material for manufacturing goods. But this raw
material is required only after three months. However, in three
months the price of raw material may go up or go down due to
foreign exchange fluctuations and at this point of time it cannot be
predicted whether the price would go up or come down. Thus he is
exposed to risks with fluctuations in forex rate. If he buys the
goods in advance then he will incur heavy interest and storage
charges. However, the availability of derivatives solves the
problem of importer. He can buy currency derivatives. Now any
loss due to rise in raw material price would be offset by profits on
the futures contract and vice versa. Hence, the derivatives are the
hedging tools that are available to companies to cover the foreign
exchange exposure faced by them.
Definition of Derivatives
Derivatives are financial contracts of predetermined fixed duration,
whose values are derived from the value of an underlying primary
financial instrument, commodity or index, such as: interest rate,
exchange rates, commodities, and equities.
Derivatives are risk shifting instruments. Initially, they were used to
reduce exposure to changes in foreign exchange rates, interest
rates, or stock indexes or commonly known as risk hedging.
Hedging is the most important aspect of derivatives and also its
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30. FOREIGN EXCHANGE MANAGEMENT
basic economic purpose. There has to be counter party to hedgers
and they are speculators.
Derivatives have come into existence because of the prevalence of
risk in every business. This risk could be physical, operating,
investment and credit risk.
Derivatives provide a means of managing such a risk. The need to
manage external risk is thus one pillar of the derivative market.
Parties wishing to manage their risk are called hedgers.
The common derivative products are forwards, options, swaps and
futures.
1. Forward Contracts
Forward exchange contract is a firm and binding contract,
entered into by the bank and its customers, for purchase of
specified amount of foreign currency at an agreed rate of
exchange for delivery and payment at a future date or period
agreed upon at the time of entering into forward deal.
The bank on its part will cover itself either in the interbank
market or by matching a contract to sell with a contract to buy. The
contract between customer and bank is essentially written
agreement and bank generally stands to make a loss if the
customer defaults in fulfilling his commitment to sell foreign
currency.
A foreign exchange forward contract is a contract under which
the bank agrees to sell or buy a fixed amount of currency to or
from the company on an agreed future date in exchange for a fixed
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31. FOREIGN EXCHANGE MANAGEMENT
amount of another currency. No money is exchanged until the
future date.
A company will usually enter into forward contract when it knows
there will be a need to buy or sell for a currency on a certain date
in the future. It may believe that today‟s forward rate will prove to
be more favorable than the spot rate prevailing on that future date.
Alternatively, the company may just want to eliminate the
uncertainty associated with foreign exchange rate movements.
The forward contract commits both parties to carrying out the
exchange of currencies at the agreed rate, irrespective of whatever
happens to the exchange rate.
The rate quoted for a forward contract is not an estimate of what
the exchange rate will be on the agreed future date. It reflects the
interest rate differential between the two currencies involved. The
forward rate may be higher or lower than the market exchange rate
on the day the contract is entered into.
Forward rate has two components.
Spot rate
Forward points
Forward points, also called as forward differentials, reflect the
interest differential between the pair of currencies provided capital
flow are freely allowed. This is not true in case of US $ / rupee rate
as there is exchange control regulations prohibiting free movement
of capital from / into India. In case of US $ / rupee it is pure
demand and supply which determines forward differential.
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32. FOREIGN EXCHANGE MANAGEMENT
Forward rates are quoted by indicating spot rate and premium /
discount.
In direct rate,
Forward rate = spot rate + premium / - discount.
Various options available in forward contracts :
A forward contract once booked can be cancelled, rolled over,
extended and even early delivery can be made.
ROLL OVER FORWARD CONTRACTS
Rollover forward contracts are one where forward exchange
contract is initially booked for the total amount of loan etc. to be re-
paid. As and when installment falls due, the same is paid by the
customer at the exchange rate fixed in forward exchange contract.
The balance amount of the contract rolled over till the date for the
next installment. The process of extension continues till the loan
amount has been re-paid. But the extension is available subject to
the cost being paid by the customer. Thus, under the mechanism
of roll over contracts, the exchange rate protection is provided for
the entire period of the contract and the customer has to bear the
roll over charges. The cost of extension (rollover) is dependent
upon the forward differentials prevailing on the date of extension.
Thus, the customer effectively protects himself against the adverse
spot exchange rates but he takes a risk on the forward
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33. FOREIGN EXCHANGE MANAGEMENT
differentials. (i.e. premium/discount). Although spot exchange rates
and forward differentials are prone to fluctuations, yet the spot
exchange rates being more volatile the customer gets the
protection against the adverse movements of the exchange rates.
A corporate can book with the Authorised Dealer a forward cover
on roll-over basis as necessitated by the maturity dates of the
underlying transactions, market conditions and the need to reduce
the cost to the customer.
A corporate can freely cancel a forward contract booked if desired
by it. It can again cover the exposure with the same or other
Authorised Dealer. However contracts relating to non-trade
transactionimports with one leg in Indian rupees once cancelled
could not be rebooked till now. This regulation was imposed to
stem bolatility in the foreign exchange market, which was driving
down the rupee. Thus the whole objective behind this was to stall
speculation in the currency.
But now the RBI has lifted the 4-year-old ban on companies re-
booking the forward transactions for imports and non-traded
transactions. It has been decided to extend the freedom of re-
booking the import forward contract up to 100% of un-hedged
exposures falling due within one year, subject to a capital of $ 100
Millions in a financial year per corporate.
The removal of this ban would give freedom to corporate
Treasurers who should be in opposition to reduce their foreign
exchange risks by canceling their existing forward transactions and
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34. FOREIGN EXCHANGE MANAGEMENT
re-booking them at better rates. Thus this in not liberalization, but it
is restoration of the status quotient.
Also the Details of cancelled forward contracts are no more
required to be reported to the RBI.
The following are the guidelines that have to be followed in case of
cancellation of a forward contract
In case of cancellation of a contract by the client (the request
should be made on or before the maturity date) the Authorised
Dealer shall recover/pay the, as the case may be, the difference
between the contracted rate and the rate at which the
cancellation is effected. The recovery/payment of exchange
difference on canceling the contract may be up front or back –
ended in the discretion of banks.
Rate at which the cancellation is to be effected :
Purchase contracts shall be cancelled at the contracting
Authorised Dealers spot T.T. selling rate current on the date
of cancellation.
Sale contract shall be cancelled at the contracting Authorised
Dealers spot T.T. selling rate current on the date of
cancellation.
Where the contract is cancelled before maturity, the
appropriate forward T.T. rate shall be applied.
Exchange difference not exceeding Rs. 100 is being ignored by
the contracting Bank.
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35. FOREIGN EXCHANGE MANAGEMENT
In the absence of any instructions from the client, the contracts,
which have matured, shall be automatically cancelled on 15th
day falls on a Saturday or holiday, the contract shall be
cancelled on the next succeeding working day.
In case of cancellation of the contract:
Swap, cost if any shall be paid by the client under advice to him
When the contract is cancelled after the due date, the client is
not entitled to the exchange difference, if any in his favor, since
the contract is cancelled on account of his default. He shall
however, be liable to pay the exchange difference, against him.
Substitution of Orders
The substitution of forward contracts is allowed. In case shipment
under a particular import or export order in respect of which
forward cover has been booked does not take place, the corporate
can be permitted to substitute another order under the same
forward contract, provided that the proof of the genuineness of the
transaction is given.
OPTIONS
An option is a Contractual agreement that gives the option buyer
the right, but not the obligation, to purchase (in the case of a call
option) or to sell (in the case of put option) a specified instrument
at a specified price at any time of the option buyer‟s choosing by or
before a fixed date in the future. Upon exercise of the right by the
option holder, and option seller is obliged to deliver the specified
instrument at a specified price.
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The option is sold by the seller (writer)
To the buyer (holder)
In return for a payment (premium)
Option lasts for a certain period of time – the right expires at its
maturity
Options are of two kinds
Put Options
Call Options
PUT OPTIONS
The buyer (holder) has the right, but not an obligation, to sell the
underlying asset to the seller (writer) of the option.
CALL OPTIONS
The buyer (holder) has the right, but not the obligation to buy the
underlying asset from the seller (writer) of the option.
STRIKE PRICE
Strike price is the price at which calls & puts are to be exercised
(or walked away from)
AMERICAN & EUROPEAN OPTIONS
American Options
The buyer has the right (but no obligation) to exercise the option at
any time between purchase of the option and its maturity.
European Options
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37. FOREIGN EXCHANGE MANAGEMENT
The buyer has the right (but no obligations) to exercise the option
at maturity only.
UNDERLYING ASSETS :
Physical commodities, agriculture products like wheat, plus
metal, oil.
Currencies.
Stock (Equities)
CURRENCY OPTIONS
A currency option is a contract that gives the holder the right (but
not the obligation) to buy or sell a fixed amount of a currency at a
given rate on or before a certain date. The agreed exchange rate
is known as the strike rate or exercise rate.
An option is usually purchased for an up front payment known as a
premium. The option then gives the company the flexibility to buy
or sell at the rate agreed in the contract, or to buy or sell at market
rates if they are more favorable, i.e. not to exercise the option.
How are Currency Options are different from Forward Contracts ?
A Forward Contract is a legal commitment to buy or sell a fixed
amount of a currency at a fixed rate on a given future date.
A Currency Option, on the other hand, offers protection against
unfavorable changes in exchange raters without sacrificing the
chance of benefiting from more favorable rates.
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38. FOREIGN EXCHANGE MANAGEMENT
TYPES OF OPTIONS :
A Call Option is an option to buy a fixed amount of currency.
A Put Option is an option to sell a fixed amount of currency.
Both types of options are available in two styles :
The American style option is an option that can be exercised
at any time before its expiry date.
The European style option is an option that can only be
exercised at the specific expiry date of the option.
OPTION PREMIUMS :
By buying an option, a company acquires greater flexibility and at
the same time receives protection against unfavorable changes in
exchange rates. The protection is paid for in the form of a
premium.
SPOT RATE AND FORWARD RATES
We have some background about exchange rate as, it is the price
at which one currency can be bought or sold for an of other
currency.
The data on which currencies are exchanged can be any date from
the date starting from the date of transaction. Transaction may be
either Spot or forward depending upon the delivery of the foreign
exchange.
Under spot we have CASH-SPOT, TOM-SPOT. If the exchange of
currencies takes place on the same day of transaction it is known
as CASH DEAL. If the exchange of currencies take place on the
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39. FOREIGN EXCHANGE MANAGEMENT
next working day that is tomorrow, it is known as deal as TOM-
DEAL.
If the exchange of currencies takes place on the second working
day after the date of transaction it is known as SPOT DEAL.
Normally exchange rate are quoted on spot basis that is the
settlement will take place on the second working day after the date
of transaction. Wherever foreign exchange will be delivered after
SPOT date it is known as Forward transactions.
Going back to the above import transaction, if the importer gets the
information that his shipment will be reaching India only after 3
months it is possible that due to exchange fluctuations he may
have to pay more in rupees term. If he feels that the exchange rate
on the month at the time if retirement of import bill will not be
favorable to him, he may like to fix an assured rate for his future
transaction. This type of fixing the exchange rate for the future
transaction, at a favorable time earlier to the date of actual
transaction is known as forward contracts.
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40. FOREIGN EXCHANGE MANAGEMENT
PREMIUM/DISCOUNT ON DIRECT QUOTATIONS
If we are familiar with the commodity or share Market it would be
known that spot rate and forward rates are different and they need
not be the same. This is so because the anticipated demand and
supply and the cost situations at the forward date may not
necessarily be identical with that of the existing at present. The
commodity/share could be quoted at a higher (premium) or lower
(discount) rate for future deliveries.
We shall illustrate this with the example:
Spot interbank rate of USD 1 =Rs.45.75
3 months forward USD 1 =Rs.45.95
If one has to buy Dollar three months forward against rupees, he
has to pay 20 paisa more for the same dollar, i.e. 3 months dollar
will be costlier by 20 paisa compared to spot rate. Therefore US
Dollar is at premium in forwards vis-à-vis Rupee. In direct
quotations premium is always added to both the buying and selling
spot rates.
In another situation:
Spot interbank rate of USD 1 =Rs.45.75
3 months forward USD 1 =Rs.45.45
From the above illustration it will be seen that the dollar fot three
month forward is available for lesser money as compared to spot.
In other words USD is cheaper by 30 paisa in forward as
compared to spot.
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I.e. USD is at discount in forwards vis-à-vis Rupee in direct
quotations. Discount factor is always deducted from the buying
and selling spot rate.
From the above it is now clear that if we compare spot and forward
rates we are able to arrive at the following three possibilities
If the spot rate and forward rate are the same they are at par
In direct quotation if forward rate is more than the spot rate the
base currency is said to be at premium
In direct quotation if forward rate is less than the spot rate the
base currency is said to be at discount rate.
Quoting forward rates:
Forward differentials are always quoted in two figures like 15/20
and 15/10. It will be either at ascending or descending order. If the
first figure is less than the second figure then the base currency is
said to be at premium.
In direct quotations premium is always is always added to both the
buying and selling rates .if it is a buying transaction for the bank,
the quoting bank will add lesser of the two premium figure so as to
give minimum Rupees. Likewise if it is a selling transaction, the
quoting bank, will add higher of the two premium figures so as to
take the maximum amount in rupees for selling a foreign currency.
Example:
Interbank market rates:
Spot USD 1 =Rs 45.70/90
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1 month forward =14/16
We have a export bill buying transaction.
Since the forward differentials are in ascending order the base
currency USD is at premium. Hence it should be added with the
spot rate to arrive at forward rate. Out of the two premium
figures (14/16) since bank will be given Indian rupees, they will
give minimum amount in rupees.
Step 1
Spot buying rate USD 1 = Rs 45.70
Step 2
To arrive at the forward rate:
Since the base currency is at premium and the bank has to give
rupees, add the minimum premium that is adding 14 paisa to the
spot rate.
Spot buying rate USD 1 = Rs 45.70
Add premium = Rs 00.14
Rs 45.84
Hence the forward rate for this export transaction will be 45.84
In an import transaction, while recovering rupees from importer
customer, for one –month forward rate, bank will add t6he
maximum premium that is 16 paisa and the forward rate for the
bank‟s selling transaction would be:
Spot buying rate USD 1 = Rs 45.90
Add premium = Rs 00.16
Rs 46.06
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If the forward differentials are on the descending order that is
25/20, the base currency is said to be at a discount.
In direct quotations, if the base currency is at a discount, discount
factor is always deducted from the spot rate. When two discount
figures are quoted if it is buying transaction in which bank will be
giving rupees, they will be deducting the higher of the two figures
and give minimum Rupees.
Example:
Interbank market spot USD 1 = Rs 45.70/90
I month forward = 25/20 (paisa)
To arrive at the 1 month forward rates:
Buying Selling
Interbank Spot 45.70 45.90
Deduct the discount (0.25) (0.20)
1 month forward rate 45.45 45.70
From the above examples, in direct quotations, in selling
transactions lesser amount of discount is deducted so as to take
maximum Rupees for every Dollar.
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FERA TO FEMA
In India, all transactions that include foreign exchange were
regulated by Foreign Exchange Regulations Act (FERA), 1973.
Due to the policy leaning toward nationalized economy the main
objective of FERA was conservation and proper utilization of the
foreign exchange resources of the country. It also sought to control
certain aspects of the conduct of business outside the country by
Indian companies and in India by foreign companies.
Over the years as the economy opened up with steady pace of
reforms a need was felt for more, liberalized foreign exchange
controls and restrictions on foreign investment. FERA was
replaced by a new Act called the Foreign Exchange Management
Act (FEMA), 1999.
The Act applies to all branches, offices and agencies outside India,
owned or controlled by a person resident in India. FEMA is now a
purely a civil legislation in the sense that its violation implies only
payment of monetary penalties and fines. However, under it, a
person will be liable to civil imprisonment only if he does not pay
the prescribed fine within 90 days from the date of notice but that
too happens after formalities of show cause notice and personal
hearing. FEMA also provides for a two year sunset clause for
offences committed under FERA which may be taken as the
transition period granted for moving from one 'harsh' law to the
other 'industry friendly' legislation.
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FEMA has been formulated with clear cut objective to:
to facilitate external trade and payments; and
to promote the orderly development and maintenance of foreign
exchange market.
The Act has assigned an important role to the Reserve Bank of
India (RBI) in the administration of FEMA. The rules, regulations
and norms pertaining to several sections of the Act are laid down
by the Reserve Bank of India, in consultation with the Central
Government. The Act requires the Central Government to appoint
as many officers of the Central Government as Adjudicating
Authorities for holding inquiries pertaining to contravention of the
Act. There is also a provision for appointing one or more Special
Directors (Appeals) to hear appeals against the order of the
Adjudicating authorities. The Central Government also establishes
an Appellate Tribunal for Foreign Exchange to hear appeals
against the orders of the Adjudicating Authorities and the Special
Director (Appeals). The FEMA provides for the establishment, by
the Central Government, of a Director of Enforcement with a
Director and such other officers or class of officers as it thinks fit
for taking up for investigation of the contraventions under this act.
FEMA permits only authorized person to deal in foreign exchange
or foreign security. Such an authorized person, under the Act,
means authorized dealer, money changer, off-shore banking unit
or any other person for the time being authorized by Reserve
Bank.
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When a business enterprise imports goods from other countries,
exports its products to them or makes investments abroad, it deals
in foreign exchange. Foreign exchange means 'foreign currency'
and includes: -
deposits, credits and balances payable in any foreign currency;
drafts, travelers‟ cheques, letters of credit or bills of exchange,
expressed or drawn in Indian currency but payable in any
foreign currency; and (iii) drafts, travellers' cheques, letters of
credit or bills of exchange drawn by banks, institution‟s or
persons outside India, but payable in Indian Currency.
The Act thus prohibits any person who:-
Deal in or transfer any foreign exchange or foreign security to
any person not being an authorized person;
Make any payment to or for the credit of any person resident
outside India in any manner;
Receive otherwise through an authorized person, any payment
by order or on behalf of any person resident outside India in any
manner;
Enter into any financial transaction in India as consideration for
or in association with acquisition or creation or transfer of a right
to acquire, any asset outside India by any person is resident in
India which acquires, hold, own, possess or transfer any foreign
exchange, foreign security or any immovable property situated
outside India.
The Act deals with two types of foreign exchange transactions.
The basis of foreign exchange management is:
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47. FOREIGN EXCHANGE MANAGEMENT
FEMA 1999- act passed by government of India.
Foreign exchange management rules 2000 – notifications by
government of India.
Foreign exchange management regulations 2000 – notifications
by RBI.
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48. FOREIGN EXCHANGE MANAGEMENT
ROLE OF RESERVE BANK OF INDIA
RESERVE BANK OF INDIA is a central bank for india. All
commercials and cooperative bank comes under the RBI.
Therefore it is known as Apex bank.
Authorized person shall comply with general are specific directions
or orders of RBI while dealing in foreign exchange. Failure to do so
will attract revocation of such authorization.
RBI plays a vital role in the control and the management of
forex in India.
RBI is entrusted with the task of regulating and managing
foreign exchange.
Exchange control department of RBI is the sanctioning and
administrative authority under FEMA1 999. Now this
department is known as foreign exchange department by RBI.
The instructions/guidelines of RBI operative through the
authorized person in foreign exchange.
RBI has been vested with the powers to regulate investments,
trading and commercial activities in india of foreign companies
and individuals.
Holding of immovable property abroad and the trading,
commercial and the industrial activities abroad by residents of
India have been brought under the FEMA 1999 and hence
under the purview of RBI
The Directorate of enforcement is the investigating authority
under the FEMA1999.
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49. FOREIGN EXCHANGE MANAGEMENT
ROLE OF FOREIGN EXCHANGE DEALERS
ASSOCIATION OF INDIA(FEDEAI)
It is a company registered under section 25 of the companies
act 1956.
It was established in 1958.
It is an association of all ADs in forex who undertake to abide
by the terms and conditions prescribed by FEDEAI for forex
business/ transactions.
The basic objective is to bring a uniformity bon forex transaction
and to regulate the dealings among ADs.
To regulate the dealings of ADs with the public, brokers, RBI
and other bodies.
To promote sound forex policy in Co-operation and consultation
with RBI.
The affairs of FEDEAI are managed by a managing committee,
which is empowered to frame rules with prior RBI permission.
FEDEAI is having its office at Mumbai. Local chapters at
various places give the advisory services to all.
The first edition of FEDEAI rules was effective from 1.6.1991.
The second edition of rule as on 31.03.1999 replaced the first
edition and it covers the following
Rule1- hours of business.
Rule2- export transaction.
Rule 3- import transaction.
Rule 4-machinating trade.
Rule5-claen instruments.
Rule6-gurantees.
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50. FOREIGN EXCHANGE MANAGEMENT
Rule 7-exchange contracts.
Rule8-early delivery, extensions, cancellation of forward
contract.
The rules of FEDEAI are reviewed periodically and changes if
any are informed to AD by way of circulation.
The service chargers governing Forex transaction are left to the
ADs.
Balance of trade
It refers to the net difference between the value of exports and
imports or visible trade.
Balance of payment
It includes not only the visible trade but also the invisible items like
shipping, banking, tourism etc.if the inflow of forex is more, the
balance of payment if favorable and it is to be unfavorable or
adverse when the outflow is more.
Capital account:
As pre FEMA1999 capital accounts transaction , which alters the
asset and liabilities , including contingent liabilities outside India of
persons resident outside India.
Example:
Any borrowing or lending in rupee between a person resident in
India and person resident outside India. Deposits between persons
resident in India and person outside India. Any borrowing or
lending in foreign exchange etc.
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51. FOREIGN EXCHANGE MANAGEMENT
Current account:
Current account transaction means a transaction other than a
capital account transaction and includes:
Payments due in connection with foreign tradew, other current
business, services and short term banking and credit facilities in
the ordinary course of business.
Payments due as interest on loans and as net income from
investments.
Remittance for living expenses of parents, spouse and children
residing abroad and
Expenses in connection with foreign travel, education and
medical care of parents, spouse and children etc.
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52. FOREIGN EXCHANGE MANAGEMENT
SODHANI COMMITTEE RECOMMENDATIONS
The committee headed by shri O.P.Sodhani, the executive director
of RBI has recommended sweeping changes to free forex control
and to open up healthy speculation.
RECOMMENDATIONS:
Corporate are to be allowed to hedge genuine exposures on
declaration.
ADs to fix overnight position and aggregate Gap limit in tune with
forex operations and risk taking capacity.
ADs can initiate position abroad ( after satisfying capital
adequency norms) within limits fixed by the management and
approved by RBI.
ADs are allowed to lend and borrow up to six months at market
rates overseas upto specified limits.
Increasing the number of players in forex market by removing the
restrictions for institutions like IDBI, IFCI, and ICICI & FOREIGN
TRADE bank who have larger forex commitments.
ADs to be freed to fix interest rate, maturity period for FCNR
deposit.
Prospole for exemption of CRR/SLR on inter-bank deposits.
Proposal to set up a forex clearing house at Mumbai.
Proposal to retain 100% forex earnings of exporters in EEFC
accounts
Selective intervention by RBI and a separate swap window open to
control forward rates in interbank market.
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CONCLUSION
Now a days foreign exchange market has expanded unbelievably.
Earlier only Bombay stock exchange and national stock exchange
were seen trading in forex but now there are many private
organizations working in these sector.
Derivative use for hedging is only to increase due to the increased
global linkages and volatile exchange rates. Firms need to look at
instituting a sound risk management system and also need to
formulate their hedging strategy that suits their specific firm
characteristics and exposures.
In India, regulation has been steadily eased and turnover and
liquidity in the foreign currency derivative markets has increased,
although the use is mainly in shorter maturity contracts of one year
or less. Forward and option contracts are the more popular
instruments. Regulators had initially only allowed certain banks to
deal in this market however now corporate can also write option
contracts. There are many variants of these derivatives which
investment banks across the world specialize in, and as the
awareness and demand for these variants increases, RBI would
have to revise regulations.
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54. FOREIGN EXCHANGE MANAGEMENT
BIBLOGRAPHY:
BOOKS REFFERD:
Foreign exchange management and
Foreign Exchange Management Act (FEMA)
By-ICFAI UNIVERSITY
Banking transaction and finance
By-WELINGKAR INSTITUTE
INTERNET SOURCE:
www.fema.rbi.org.in
www.eximguru.com/exim/reserve-bank/fema.aspx
www.femaonline.com/fema-act-regulation.php?id=20
www.kesdee.com/pdf/foreignexchangemanagement
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