Role of rbi in the mgmt of forex mkt in india
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Transcript of Role of rbi in the mgmt of forex mkt in india
ROLE OF RBI IN THE MANAGEMENT OF
FOREIGN EXCHANGE MARKETS IN INDIA
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
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
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
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
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
Functions of RBI in foreign exchange 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
• 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
MANAGEMENT OF EXCHANGE RATE
EVOLUTION
LIBERALISED
APPROACH
FOREIGN INVESTMENT
S
INDIAN INVESTMENTS
ABROAD
EXTERNAL COMMERCIA
L BORROWIN
GS
LIBERALISED
REMMITENCE SCHEME
CURRENCY FUTURE
INDIAN DEPOSITORY RECIEPTS
EXCHANGE RATE
POLICY
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
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”
FERAFERA 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
ROLE OF RBI IN EXPORT PROMOTION
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.
EXPORT PROMOTION MEASURES:
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) SchemeMarketing Development Assistance
(MDA)
Market Access Initiative (MAI) Scheme
Export Credit Guarantee Corporation of India Ltd (ECGC)
Export Credit
Incentives and Promotional Schemes for Agricultural Products &
Aquaculture
National Export Insurance Account (NEIA)
IMPORT PROMOTION MEASURESImports 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
• 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
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/
FUNCWWE080910.pdf-
http://www.imf.org/external/np/mae/ferm/eng/index.htm
- http://rbidocs.rbi.org.in/rdocs/Content/PDFs/FUNCWWE080910.pdf