Final Ppton Forex

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FOREIGN EXCHANGE MARKETSAND

EXCHANGE RATES POLICIES IN INDIA



The foreign exchange market is a worldwidedecentralized over-the-counter financial market for thetrading of currencies

To assist international trade and investment, byallowing businesses to convert one currency toanother currency



In a typical foreign exchange transaction, a partypurchases a quantity of one currency by paying aquantity of another currency

Why exchange?Import & Export of goodsImport & Export of servicesTourismInvestment



Tra sf r f P rc asi g P r

H gi g Faciliti s

C rr cy C v rsi

R ci g F r ig Exc a g Risks



H uge trading volume

Geographical dispersion

ontinuous Operation

Low margins of relative profit

Use of leverage



42%

20%

10%

6%

4%3%

3% 1%1%

1%

9%

% daily shareUS DOLLAR

EURO

JAPANESE YEN

POUND STERLING

AUSTRALIAN DOLLAR

SWISS FRANC



23%

15%

14%10%

8%

8%

6%6%

6% 4%

M rk t S r Deutsche Bank

UBS AG

Barclays Capital

CitiRoyal Bank of ScotlandJPMorgan

HSBC

Credit Suisse



` D epreciation/Appreciation

` Soft urrency/ H ard urrency

` Long/Short ositions

` Bid/Offer price



DIR E T

QUOTES

INDIR E T



` C urrency Band

` Fixed Exchange Rate

` Floating exchange rate

` Linked Exchange Rate



FIRST LEVEL(Investors, Tourists,

exporters,Importers)

SECOND LEVEL(Commercial Banks)

THIRD LEVEL(Foreign Exchange Brokers)

FOURTH LEVEL(Central Banks)

PARTICIPANTS

M ajorM ajor articipantsarticipants



D eferential in inflation

D ifferentials in interest rates

C urrent account deficits

ublic debt

Terms of trade

olitical stability and economic performance.



Fundamental factors

olitical and psychological factors

Technical factorsCapital movementRelative inflation ratesInterest rates

Speculation

Others



Spot TransactionAn agreement to buy or sell a currency at the currentexchange rate.

ForwardsThe buying or selling of foreign currency forsettlement no less than three days later.



F t r sf t r s c tract is a f r ar c tract it a r -

t r i c rr cy a t, at rity at ai t r st a t

S aIn a s a tra n sacti n , ne c rren cy is e xc an ged

f r a no t e r f o r a s e cified len gt o f ti e



OptionsA currency option is similar to a futures contract, asit entails a fixed currency transaction at some future

point in time

C all & ut OptionAmerican or European Option



34%

11%40%

10%

5%

S l

spot transactions

o tri t forwar s

forei n exc an e swaps

c rrency swaps

options an ot er pro cts



C ommissions

M argins requirements

24 hour market

N o Limit up / limit down

Sell before you buy



Only certain types of transactions qualify forforeign exchange at the official rate

Lack of means for forward cover

R isk and uncertainty



E rl St g : 1947-1977Per value system of ExchangeRBI maintained rupee ithin ±1 %

Form tiv St g : 1978-1992The impetus to trading in the foreign exchangeDetermination of trading limits by management of BanksWeighted basket of currenciesStrict control on Foreign exchange transaction had resulted to Ha ala

Po t-R form P rio : 1992 onw r Pegged exchange rate system changed to the Liberalized Exchange RateManagement System (LERMS)60% of transactions ere at markrt rate quated by AD¶s and remaining 40%at RBI official rate



OtherMarket Forex

Limited floor trading hours

Threat of liquidity drying up aftermarket hours

C ommission basedLarge capital requirements, highmargin rates, restrictions onshorting, very little autonomy

attern day traders subject torestrictions requiring accountbalances in excess of $50,000.

The Forex market is open 24 hours adayM ost liquid market in the world

Commission-FreeOne consistent margin rate 24 hours aday allows Forex traders to leveragetheir capital more efficiently with ashigh as 100-to-1 leverage.

N o restrictions. Very low accountbalances.



The Foreign Exchange Management Act , 1999 (FEMA) came into force itheffect from June 1, 2000

FEMA as introduced because the FERA didn¶t fit in ith post-liberalisationpolicies.

It made all offenses regarding foreign exchange civil offenses, as opposed tocriminal offenses as dictated by FERA

The main objective is to consolidate and amend the la relating to foreignexchange ith the objective of facilitating external trade and payments.

FEMA is applicable to all parts of India.

The act is also applicable to all branches, offices and agencies outside Indiao ned or controlled by a person ho is a resident of India.



122 Swati Ramteke124 Priyanka Poojari126 Ninad Sakharwade128 Yatin Samel130 Amol Satale

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