Foreign Exchange Market in India

Organisation of forex market

• RBI cannot do all transactions in the foreign exchange itself. Hence, RBI delegates its
powers to the ‘Authorised Persons’ with suitable guidelines, to deal in foreign exchange
and foreign securities.
• Section 2(c) of the Foreign Exchange Management Act or FEMA states that ‘authorized
person’ means an authorized dealer, money changer, off-shore banking unit, or any other
person authorized under section 10 (1) to deal in foreign exchange and foreign securities.
These are authorized by RBI under section 10 of FEMA to deal in foreign exchange.
• FEDAI-1985-All Ads are members(70+)-Mumbai HQ.
• Local offices at Banglore , Kolkata, Chennai and New Delhi
Principal Functions of FEDAI
• To frame rules for the conduct of foreign exchange business in India.
• To coordinate with RBI in administration of exchange control
• To circulate information likely to be of interest to its members.
 • The Forex market in India is regulated by Reserve Bank of
FOREIGN EXCHANGE MANAGEMENT ACT India.
• Participants in this market are (a) Authorised Money Changers
and (b) Authorised Dealers.
Categories of Authorized Money Changers:
” (i) Full fledged Money changers: an authorized entity who may
CENTRAL GOVERNMENT purchase foreign exchange from non-residents and residents of
” India and sell the same for private and business travel purposes
RESERVE BANK OF INDIA only to the people visiting abroad
” (Undertake both purchase and sale transactions with the public).
AUTHORIZED PERSONS
(ii) Restricted Money Changers: are authorized only to purchase
foreign currency notes, coins and travelers cheques, subject to
the condition that all such collections are surrendered by them in
FOREIGN EXCHANGE
DEALERS ASSN OF INDIA
turn to an authorized dealer in foreign exchange / full fledged
money changer.
” ” ” Authorized Dealers: A major portion of actual dealing in foreign
AUTHORIZ ED MONEY AUTHORIZED exchange from the customs is dealt with by ADs (Banks)
CHANGERS DEALERS .

”
Authorised Dealers (ADs)
Authorised dealers are the institutions that have the license from the RBI to sell and buy foreign
currencies.
• Most of the authorised dealers are banks.
• As per the Foreign Exchange Management Act, 1999, the Reserve Bank, on an application, may
authorise any person to be known as an authorised person, to deal in foreign exchange as
an Authorised Dealer.
Authorized Dealers Category I: 

• Category I Authorised Dealers are select banks who can carry out all permissible
current and capital account transactions as per directions issued from time to time.
There are 106 authorised dealers of Category -I as per the RBI regulations.
• Generally, all nationalized banks, leading non-nationalized banks, and foreign
banks are appointed as ‘Authorised Dealers Category I’ to deal in foreign
exchange.
• They can deal in all other transactions in foreign exchange like bill of exchange,
cheques, letters of credit, deposits, etc.
• They can freely purchase from the public in India TTs, MTs, drafts, bills, etc.
drawn in any foreign currency against rupees.
Activities by Authorised Dealer – Category II
Category II are select entities to carry out specified non-trade related current account transactions, all the
activities permitted to Full Fledged Money Changers and any other activity as decided by the Reserve Bank
• Authorized Dealers – Category II can undertake the following transactions – 
a) Private visits and business visits 
b) Remittances of tour operators 
c) Participation in international events, global conferences, and specialized training  
d) Medical treatment abroad
 e) Overseas education 
f) Remittance of examination fees for GRE, TOEFL, etc. 
g) Employment and overseas job applications 
h) Emigration and Emigration Consultancy fees 
i) Visa fees 
j) Fees for registration of documents 
k) Fees for International Organisations
Authorised Dealers-III

• Category III ADs are select financial and other institutions (as Authorised

Dealers Category-III) to carry out specific foreign exchange transactions
incidental to their business / activities.
Full-Fledged Money Changer

• Another category, outside the Authorised Dealers, who can deal in a lesser way in
foreign exchange dealing are the Full Fledged Money Changers. They have less
functionalities vis a vis ADs.
• FFMCs are select registered companies as Full-Fledged Money Changers (FFMC)
to undertake purchase of foreign exchange and sale of foreign exchange for
specified purposes viz. private and business travel abroad.
• The companies that after obtaining a licence from the Reserve Bank of India
( RBI) intents to carry out functions of forex currency or money changer
activity is termed as 'Full Fledged Money Changer'.
Full fledged Money changers/Authorised Money
Changers (AMCs)
• In addition to Authorised Dealer Category -I Banks (AD Category–I Banks) and
Authorised Dealers Category – II (ADs Category–II), Full Fledged Money
Changers (FFMCs) are authorised by the Reserve Bank to deal in foreign
exchange for specified purposes, to widen the access of foreign exchange facilities
to residents and tourists while ensuring efficient customer service through
competition.
• Authorised Money Changers (AMCs) are entities, authorised by the Reserve Bank
under Section 10 of the Foreign Exchange Management Act, 1999. An AMC is a
Full Fledged Money Changer (FFMC).