RBI & FOREX mkts

1. ROLE OF RBI IN THE
MANAGEMENT OF FOREIGN
EXCHANGE MARKETS IN
INDIA

2. Reserve bank of India
• It is the central bank of
India established in 1934
under the RESERVE BANK
OF INDIA ACT 1934
• Its head quarters is in
Mumbai (Maharashtra)
• It has 226 offices in which
four are regional offices
located in metropolitan
cities

3. Foreign Exchange Management Act
To consolidate and amend the law
relating to foreign exchange
With the objective of facilitating
external trade and payments
For promoting the orderly
development and maintenance of
foreign exchange market in India

4. Main Features
 FEMA that gives the central government the power to impose
the restrictions
 Restrictions are imposed on people living in India who carry out
transactions in foreign exchange
 Although selling or drawing of foreign exchange is done through
an authorized person
 Exporters are needed to furnish their export details to RBI

5. What is Foreign Exchange
Reserve Management ?
The process by which public sector assets
are managed in a manner that provides for
the ready availability of funds, the prudent
management of risks, and the generation
of a reasonable return on the funds
invested

6. Objectives
Reserve management should seek to ensure that:
• Adequate foreign exchange reserves are available
• Liquidity, market, and credit risks are controlled in a prudent
manner
• Subject to liquidity and other risk constraints, reasonable
earnings are generated over the medium to long term on the
funds invested

7. FunctionsofRBIinforeignexchange
reserves
• Support and maintain confidence in the
policies for monetary and exchange rate
management
• Limit external vulnerability by maintaining
foreign currency liquidity to absorb shocks
• Provide a level of confidence to markets that a
country can meet its external obligations

8. • Demonstrate the backing of domestic
currency by external assets
• Assist the government in meeting its
foreign exchange needs and external debt
obligations
• Maintain a reserve for national disasters
or emergencies

9. MANAGEMENT OF EXCHANGE RATE
EVOLUTION
LIBERALISED
APPROACH
FOREIGN
INVESTMENTS
INDIAN
INVESTMENTS
ABROAD
EXTERNAL
COMMERCIAL
BORROWINGS
LIBERALISED
REMMITENCE
SCHEME
CURRENCY
FUTURE
INDIAN
DEPOSITORY
RECIEPTS
EXCHANGE
RATE POLICY

10. Authority of RBI in
Foreign Exchange Markets
Controlling domestic money supply to influence foreign
exchange market
To actively intervene in forex market as a requirement of
‘managed float’
To review main policy relating to management of reserves
To compile and make half yearly reports on management of
foreign exchange

11. Objectives of
Forex
Department
of relating to
Forex
transaction
Maintainence
of Forex
market of
India
Collects data relating
to Forex transaction
Entrusted
with
responsibility
of licensing
money
changers
Lays down the
policy guidelines for
risk management
Ensures
timely
realization of
exports
For capital
account
transaction
Engaged on on
going basis in
reviewing and
simplifying the
procedures and
rules
“Standing
Consultative
Committee on
Exchange
Control”

13. FERA
FERA did not succeed in restricting activities,
especially the expansion of TNCs
(Transnational Corporations)
The introduction of FOREIGN REGULATION
ACT was done in 1974, a period when India’s
foreign exchange reserve position wasn’t at
its best
The buying and selling of
foreign currency and other debt instruments
by businesses, individuals and governments
happens in the foreign exchange market
It constantly undergoes changes and
innovations, which can either be beneficial
to a country or expose them to greater risks
FEMA
NEED FOR IT’S
MANAGEMENT

15. RBI plays the role of Monetary Authority and
Manager of Foreign Exchange
The RBI has taken some measures to enable
timely and hassle free flow of credit to the
export sector
Rationalization and liberalization of export
credit interest rates
Including special financial package for large
value exporters, export finance for agricultural
exports, Gold Card Scheme for exporters, etc.

16. With a view to making exports an effective instrument,
a number of schemes have been introduced:-
Assistance to States for Development of Export
Infrastructure and other activities (ASIDE) Scheme
Marketing Development Assistance (MDA)
Market Access Initiative (MAI) Scheme
Export Credit Guarantee Corporation of India Ltd
(ECGC)

17. Export Credit
Incentives and Promotional Schemes for
Agricultural Products & Aquaculture
National Export Insurance Account (NEIA)

18. IMPORT PROMOTION MEASURES
Imports were classified into
• Banned items,
• Canalized items,
• Restricted items, OGL
• In 1966 rupee was devalued by 36.5%
By devaluation
• Expansion in export earnings;
• Indian goods will become cheaper in international
market;
• Import would decline as price of imported goods
would increase

19. • A rigid itemization of permissible imports caused an element
of inflexibility in the pattern of utilization
• The transferability of licenses among same and different industries
was not permissible
• This gave rise to an expanding black market in import
licenses
• Hence, the import allocation system was so designed to eliminate
the possibility of all domestic or foreign competition
• The Government of India has liberalized the import regime from
time to time
• At present, all controls on import have been lifted

20. BIBLIOGRAPHY
- RRI’s official website : http://rbi.org.in/
- Google Search
- Wikipedia
- Foreign Exchange Markets TYBFM – Vipul
Prakashan
- WEBLIOGRAPHY
- rbidocs.rbi.org.in/rdocs/Content/PDFs/FUNCWWE
080910.pdf
-
http://www.imf.org/external/np/mae/ferm/eng/
index.htm
-
http://rbidocs.rbi.org.in/rdocs/Content/PDFs/FU
NCWWE080910.pdf