The Foreign Exchange

Market
• Presented by
Dr. S.N.L Das
University Professor and Dean,
Faculty of Commerce & Business
Management Ranchi University,
Ranchi
 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
nation’s balance of payments has an important
effect on the exchange rate of its currency.
• Bills of Exchange, Drafts, Checks and Telegraphic
orders are the principal means of payment in
International transactions.
 Foreign Exchange
• The rate of exchange is the price in local
currency of one unit of foreign currency and it
is determined by the relative supply and
demand of the currencies in the foreign
exchange market.
• Arbitrage : Buying or selling foreign currency
in order to profit from sudden changes in the
rate of exchange is known as Arbitrages.
 Foreign Exchange
• The chief demand for foreign exchange
within a country comes from importers
from foreign goods, purchasers of
foreign securities, government,
agencies purchasing goods and
services abroad and travelers.
 Definition of Foreign
Exchange market
• A market for converting the currency of one country
into that of another country.
• An over the country market where buyers and sellers
conduct foreign exchange business by telephone,
internet and other means of communications. Also
referred to as a “Forex Market”.
• A computerized communications network embracing
all the major financial centres in the globe, where
sellers and buyers of any national money can quickly
and efficiently carry out any desired currency
exchange.
Structure of Foreign
Exchange market
 Structure of Foreign
Exchange market
• The world wide Forex Market is a 24-
hours market, it is open virtually all the
24-hours of a day in at least one of the
financial markets of the world.
• London, Zurich, Frankfurt, Bahrain,
New York, Los Angles, Singapore,
Hongkong, Tokyo, Sidney, etc.
The Foreign Exchange
market in
Indian Context
 The Foreign Exchange
market in
Indian Context
• The Indian Rupee has been convertible on the
trade account since August, 1994.
• Capital inflow on one side and the RBI on the
other side have kept it sandwiched at 31.37
INR to the US$ since around August, 1992.
• But now the scenario has been changed. Now
it is fairly easy to buy US$ 100 millions or so
during the day.
The Foreign Exchange
Transactions
•The foreign
exchange market in
India is growing in
both volume and
depth. Various kinds
of transactions are
facilitated by the
Banks, both on a spot
and on a forward
tasks.
 The Foreign Exchange
Management Act, 1999
(FEMA)
* The Parliament has enacted the Foreign
Exchange Management Act (FEMA), 1999 to
replace the foreign exchange regulation act
(FERA), 1973. This Act come into force on
1st day of June, 2000.
* To investigate provisions of the Act, the
Centre Govt. has established the Directorate
of enforcement with Directors and other
officers as officers of the enforcement.
 The Foreign Exchange
Management Act, 1999
(FEMA),
Regulation
Dealing & Management
in Foreign Exchange, etc.
• Save as otherwise provided in this Act, Rules or
regulations made there under or with the general
or special permission of the RBI, no person shall
• Deal in or transfer any foreign exchange, or
foreign securities to any person not being an
authorized person.
• Make any payment to or for the credit of any
person resident outside India in any manner.
 The Foreign Exchange
Management Act, 1999
(FEMA),
Regulation & Management
• Holding of foreign exchange, etc.
• Save as otherwise provided in this Act, no
person resident in India shall acquire, hold,
own, possess or transfer any foreign
exchange, foreign security or any
immovable property situated outside India.
 The Foreign Exchange
Management Act, 1999
(FEMA),
Regulation & Management
Current Account Transaction and Capital Account
Transaction
• Any person may shall or draw foreign exchange to
or from an authorized person if such sale or drawl
in a current or capital account transaction.
• Provided that the Central Govt. may, in public
interest and in consultation with RBI impose such
reasonable restriction.
 Enforcement Directorate
• Pertains to the establishment of Directorate
of Enforcement and the powers to
investigate the violation of any provisions
of Act, rule, regulation, notifications,
directions or order issued in exercise of the
powers under this Act. The Director have
been empowered to take up investigations.
 Enforcement Directorate
• The Directorate of Enforcement is mainly concerned
with the enforcement of the provisions of the FEMA to
prevent leakage of foreign exchange which generally
occurs through the following malpractices.
2. Remittances of Indians abroad otherwise than through
normal banking channels, i.e. through compensatory
payments.
3. Acquisition of foreign currency illegally by person in
India.
4. Unauthorized maintenance of accounts in foreign
countries.
5. Illegal acquisition of foreign exchange through Hawala.
6. Secreting of commission abroad.
 Organizational Set-Up
* The Enforcement directorate, with its HQs at New
Delhi has seven zonal offices at Bombay, Calcutta,
Delhi, Jalandhar, Madras, Ahmedabad and
Bangalore. The zonal offices are headed by the
Dy. Directors
* The Directorate has 9 sub zonal offices at Agra,
Srinagar, Jaipur, Varanasi, Trivendrum, Calicut,
Hyderabad, Guwahati and Goa, which are headed
by the Asstt. Directors.
 Presented by
Dr. S.N.L Das
University Professor and Dean
Department of Commerce &
Business Management Ranchi
University, Ranchi