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Introduction
Simultaneous purchase and sale of the currency or the exchange of one country's currency for the one of another country Market in India is traced in the year 1978 Exchange rate of the rupee is officially determined by RBI In 1994, unification of the exchange rate of rupee taken place based on demand and supply of foreign exchange Average daily turnover in global foreign exchange markets is
The depreciation of a country's currency refers to a decrease in the value of that country's currency. The appreciation of a country's currency refers to an increase in the value of that country's currency
EARLY STAGES
Early Stages
Par Value System (1947-1971) Bretton Woods System
POST LIBERALISATION
Increase in instruments in Forex market More rupee-foreign currency swaps Additional hedging instruments such as foreign currency-rupee options, cross currency options, interest rate swaps, currency swaps, forward rate agreements (FRAs)
Liberalization measures ADs were allowed to trade in overseas markets Banks were allowed to:
Fix net overnight position limits and gap limits, determine interest rates and maturity period of FCNR(B), use derivative products for asset-liability management
Forex market participants and FIIs were allowed to transact without any limits
13
18
building up reserves
South East Asian Crisis; depreciation of rupee by 9% Reversible Policy measures undertaken by the Reserve Bank
20%
Challenges
Improvement in Market Infrastructure Accounting Standards Relaxation of the criteria of underlying for transactions Interest Rate Parity Reserve Management Implications of Global Imbalances Managing Exchange Rate Volatility Customer Service Greater Inter-linkages of Foreign Exchange Market with other Segments
Current trend
One of the emerging economies of the world Global forex market is presently estimated at USD 3 trillion Indian forest market is 16th forex market in the world in terms of daily turnover as the bureau of Indian standards 34 billion in 2007 Reserve Bank of India, officially determined the exchange rate of rupee according to the weighed basket of currencies with the significant business partners of India.
Open market policy in the year 1991 and implementation of the new economic policy by the Govt. of India Introduced LERMS Articles of Agreement with the International Monetary Fund Introduction of future derivative segment in Forex trading The trade of derivative contract at the leading stock exchanges NSE and MCX for three new currency pairs