Management of Forex Transactions

Introductory Session

Meaning of Foreign Exchange and Foreign Exchange Rate

y Any currency other than the domestic currency y For India, Rupee is domestic currency and currency

of any other country will be foreign currency. y Ways in which foreign exchange can come to a country:
y Exports y Outsider buying an asset in country y Outsider repaying loan to the country y Citizen selling asset in foreign country y Loan taken from foreign country y Grants

and Remittances received from foreign

country

How does international trade occurs?

y Agreement between trading partners (i.e. exporter and

importer)
y Exporter ships the goods and importer arranges the

currency which is acceptable to exporter

y On receiving of goods, the currency is transferred to

exporter
y Exporter deposits the foreign currency in its central bank

and gets domestic currency as per prevailing exchange rates

Determination of Forex Rates

y Based upon demand and supply of currency in

the market
y Higher demand for any currency will increase

its value in comparison to other currency

y Theoretically, exchange rate is dependent upon

inflation and interest rates

Direct and Indirect Quote

Forex Quote

Direct

Indirect

No. of units of Home Currency per unit of foreign currency

No. of units of Foreign Currency per unit of home currency

1USD = Rs.45

Re. 1 = .0222 USD

Regulatory Regime and Recent Developments in Forex Trade

y FERA vs. FEMA y The Forex Crisis of 1991 y Post 1991 reforms y Role of RBI y Emergence of US Dollar y Currency as Asset and subsequent growth of derivative market y The Debt Crisis and US Rating Downgrade

Trivia..
y What are the currencies for?
y Russia y Japan y Singapore y Australia y Switzerland y Canada

y Which countrys currency is?

y Renminbi y Yuan y Euro