The Foreign Exchange Market

Presented by Dr. S.N.L Das University Professor and Dean Fac!"ty of #o$$erce % &!siness Manage$ent 'anchi University 'anchi

Foreign Exchange
Foreign Exchange is a methods and instruments used to adjust the payment of debts between two nations that employ different currency systems. A nations balance of payments has an important effect on the exchange rate of its currency. Bills of Exchange, rafts, !hec"s and #elegraphic orders are the principal means of payment in $nternational transactions.

Foreign Exchange
#he rate of exchange is the price in local currency of one unit of foreign currency and it is determined by the relati%e supply and demand of the currencies in the foreign exchange mar"et. Arbitrage & Buying or selling foreign currency in order to profit from sudden changes in the rate of exchange is "nown as Arbitrages.

Foreign Exchange
#he chief demand for foreign exchange within a country comes from importers from foreign goods, purchasers of foreign securities, go%ernment, agencies purchasing goods and ser%ices abroad and tra%elers.

Definition of Foreign Exchange $arket

A mar"et for con%erting the currency of one country into that of another country. An o%er the country mar"et where buyers and sellers conduct foreign exchange business by telephone, internet and other means of communications. Also referred to as a 'Forex (ar"et). A computeri*ed communications networ" embracing all the major financial centres in the globe, where sellers and buyers of any national money can +uic"ly and efficiently carry out any desired currency exchange.

Str!ct!re of Foreign Exchange $arket

Str!ct!re of Foreign Exchange $arket

#he world wide Forex (ar"et is a ,-. hours mar"et, it is open %irtually all the ,-.hours of a day in at least one of the financial mar"ets of the world. /ondon, 0urich, Fran"furt, Bahrain, 1ew 2or", /os Angles, 3ingapore, 4ong"ong, #o"yo, 3idney, etc.

The Foreign Exchange $arket in (ndian #ontext

The Foreign Exchange $arket in (ndian #ontext

#he $ndian 5upee has been con%ertible on the trade account since August, 677-. !apital inflow on one side and the 5B$ on the other side ha%e "ept it sandwiched at 86.89 $15 to the :3; since around August, 677,. But now the scenario has been changed. 1ow it is fairly easy to buy :3; 6<< millions or so during the day.

The Foreign Exchange Transactions

#he foreign exchange mar"et in $ndia is growing in both %olume and depth. =arious "inds of transactions are facilitated by the Ban"s, both on a spot and on a forward tas"s.

> #he ?arliament has enacted the Foreign Exchange (anagement Act @FE(AA, 6777 to replace the foreign exchange regulation act @FE5AA, 6798. #his Act come into force on 6st day of Bune, ,<<<. > #o in%estigate pro%isions of the Act, the !entre Co%t. has established the irectorate of enforcement with irectors and other officers as officers of the enforcement.

The Foreign Exchange Manage$ent )ct *+++ ,FEM)-

The Foreign Exchange Manage$ent )ct *+++ ,FEM)'eg!"ation % Manage$ent ealing in Foreign Exchange, etc.
3a%e as otherwise pro%ided in this Act, 5ules or regulations made there under or with the general or special permission of the 5B$, no person shall eal in or transfer any foreign exchange, or foreign securities to any person not being an authori*ed person. (a"e any payment to or for the credit of any person resident outside $ndia in any manner.

 4olding of foreign exchange, etc. 3a%e as otherwise pro%ided in this Act, no person resident in $ndia shall ac+uire, hold, own, possess or transfer any foreign exchange, foreign security or any immo%able property situated outside $ndia.

The Foreign Exchange Manage$ent )ct *+++ ,FEM)'eg!"ation % Manage$ent

!urrent Account #ransaction and !apital Account #ransaction Any person may shall or draw foreign exchange to or from an authori*ed person if such sale or drawl in a current or capital account transaction. ?ro%ided that the !entral Co%t. may, in public interest and in consultation with 5B$ impose such reasonable restriction.

The Foreign Exchange Manage$ent )ct *+++ ,FEM)'eg!"ation % Manage$ent

Enforce$ent Directorate
?ertains to the establishment of irectorate of Enforcement and the powers to in%estigate the %iolation of any pro%isions of Act, rule, regulation, notifications, directions or order issued in exercise of the powers under this Act. #he irector ha%e been empowered to ta"e up in%estigations.

Enforce$ent Directorate
#he irectorate of Enforcement is mainly concerned with the enforcement of the pro%isions of the FE(A to pre%ent lea"age of foreign exchange which generally occurs through the following malpractices. 5emittances of $ndians abroad otherwise than through normal ban"ing channels, i.e. through compensatory payments. Ac+uisition of foreign currency illegally by person in $ndia. :nauthori*ed maintenance of accounts in foreign countries. $llegal ac+uisition of foreign exchange through 4awala. 3ecreting of commission abroad.

,. 8. -. D. E.

.rgani/ationa" Set0U1
> #he Enforcement directorate, with its 4Fs at 1ew elhi has se%en *onal offices at Bombay, !alcutta, elhi, Balandhar, (adras, Ahmedabad and Bangalore. #he *onal offices are headed by the y. irectors > #he irectorate has 7 sub *onal offices at Agra, 3rinagar, Baipur, =aranasi, #ri%endrum, !alicut, 4yderabad, Cuwahati and Coa, which are headed by the Asstt. irectors.

Presented by
Dr. S.N.L Das University Professor and Dean Department of Commerce & Business Management Ranchi University Ranchi