A STUDY OF FORWARD

EXCHANGE MARKET
THEORY AND
PRACTICE

CHAPTER NO: - 1. INTRODUCTION

1.1 Back-Ground
Definition of 'Forward Market'
An over-the-counter marketplace that sets the price of a financial
instrument or asset for future delivery. Contracts entered into in the
forward market are binding on the parties involved. Forward
markets are used for trading a range of instruments including
currencies and interest rates, as well as assets such as commodities
and securities.

Investopedia explains 'Forward Market'

While forward contracts, like futures contracts, may be may be used
for both hedging and speculation, there are some notable differences
between the two. Forward contracts can be customized to fit a
customer's requirements, while futures contracts have standardized
features

in

terms

of

their

contract

size

and

maturity.

The lack of standard features means that forward contracts seldom

trade on exchanges, whereas futures contracts are generally exchangelisted. Since forward contracts generally tend to be large in size, the
forward market is dominated by financial institutions, government
bodies and large corporations.

Meaning
In the foreign exchange market, forward exchange market
functions side by side with the spot exchange market. The
transactions of spot exchange market are known as spot exchange
and those of the forward exchange market are known as forward
exchange.

The rates at which the foreign exchange is bought and sold in the
spot market are called spot rates and the rates at which the foreign
exchange is bought and sold in the forward market are called
forward rates.

The spot exchange refers to the foreign exchange transactions

which require immediate delivery or exchange of currencies on the
spot. Normally, the settlement takes place within two days.

A forward exchange involves a purchase or sale of foreign

currency to be delivered at some future date. The rate at which the
transaction is to take place is determined at the time of sale, but the
payment is not made until the exchange is not delivered by the
seller.

The spot rate refers to the rate prevailing at a particular time for
spot delivery of a specified type of foreign exchange.

The forward exchange rate is the rate at which the future contract
for foreign currency is made. With reference to its relationship
with the spot rate, the forward rate may be at par, at a premium or
at a discount.

(i) When the exchange rate is quoted exactly equivalent to the spot
rate at the time of making the contract, the forward exchange rate
is said to be at par.

(ii) The forward rate is said to be at a premium over the spot rate
when it is quoted higher than the spot rate. Premium implies that
the foreign currency is expensive. One dollar buys more units of
other currency in the forward than in the spot market. The
premium is usually expressed as a percentage deviation from the
spot rate on a per annum basis.

(iii) The forward rate is said to be at a discount with respect to the

spot rate when it is quoted lower than the spot rate. Discount
implies that the foreign currency is cheaper. One dollar buys less
units of other currency in the forward than in the spot market. The
discount is also expressed as a percentage deviation from the spot
rate on a per annum basis.

The forward exchange rate is mostly determined by the demand for

and supply of forward exchange. When the demand for forward

exchange exceeds its supply, the forward rate will be quoted at a

premium.

When the supply of forward exchange exceeds the demand for it,
the forward rate will be quoted at a discount. When the supply and
demand for forward exchange are equal, the forward rate will tend
to be at par.

1.1 Objective Of The Study

To Get A Knowledge
To Increase a Knowledge
The help full to the economy
And also profitable to indian country
.

1.2 Significant Of the Study

. To increase my Knowledge
. To know the Indian people about wto
. And Indian country political are also know about WTO
. Thats after economic are know about WTO
. And this is very profitable to economic.

1.4 Problem of Study

. This is secundary data
. This very difficult to put right information
. And this information are ready but very difficult to find out
.And this not sutable to studies

1.5 Research of Desire

The study of secondary data
Book, News Paper, Articles, etc, are referred to get the relevant
information.
Data obtain to various sources observation are made and
accordingly conclusion is derived
This study is base on the information available for the time period
etc.

1.6 Chapter Schemes

Chapter No 1.In this chapter full information about WTO

Chapter No 2.In this chapter efforts are made to review

various research articles of research on WTO.

Chapter No 3.Function and Objective of WTO & Its

various members.

Chapter No 4.Dispute settlement under WTO & Procedure

steps of solve the WTO disputes.

Chapter No 5.Real Dispute Case Study

Chapter No 6.Finding, Conclusion, Suggestion .

CHAPTER NO:- 2 ARTICLES ON FORWARD

EXCHANGE MARKET
This Articles are take from Economics Times News paper 8articles I noted In this project , this are related to FORWARD
EXCHANGE MARKET

CHAPTER NO:- 3.FUNCTION & OBJECTIVE OF

WTO

Functions of WTO
The former GATT was not really an organisation; it was merely a
legal arrangement. On the other hand, the WTO is a new
international organisation set up as a permanent body. It is
designed to play the role of a watchdog in the spheres of trade in
goods, trade in services, foreign investment, intellectual property
rights, etc. Article III has set out the following five functions of
WTO;
(i) The WTO shall facilitate the implementation, administration
and operation and further the objectives of this Agreement and of
the Multilateral Trade Agreements, and shall also provide the
frame work for the implementation, administration and operation
of the plurilateral Trade Agreements.
(ii) The WTO shall provide the forum for negotiations among its
members concerning their multilateral trade relations in matters
dealt with under the Agreement in the Annexes to this Agreement.
(iii) The WTO shall administer the Understanding on Rules and
Procedures Governing the Settlement of Disputes.

(iv) The WTO shall administer Trade Policy Review Mechanism.

(v) With a view to achieving greater coherence in global economic
policy making, the WTO shall cooperate, as appropriate, with the
international Monetary Fund (IMF) and with the International
Bank for Reconstruction and Development (IBRD) and its
affiliated agencies.

Decisionmaking
Most decisionmaking in the WTO follows GATT practices and is
based on consultation and consensus. The consensus practice is of
value to smaller countries, as it enhances their negotiating leverage
in the informal consultations and bargaining that precede
decisionmaking, especially if they are able to form coalitions.
Although recourse to voting may be had if a consensus cannot be
reached, in practice voting occurs only very rarely. If a vote is
needed, it is based on the principle of one member, one vote.
Unanimity is required for amendments relating
to general principles such as MFN or national treatment.
Interpretation of the provisions of the WTO agreements and
decisions on waivers of a members obligations require approval
by a threequarters majority vote A two-thirds majority vote is
sufficient for amendments relating to issues other than the general
principles mentioned above. Where not otherwise specified, and
where consensus cannot be reached, a simple majority vote is, in

principle, sufficient. In practice, voting does not occur. Indeed, in

1995 WTO members decided not to apply provisions allowing for
a vote in the case of accessions and requests for waivers but to
continue to proceed on the basis of consensus (WT/L/93).
Legislative amendments are also likely to be quite rare, as, in
practice, changes to the various agreements occur as part of
broader multilateral rounds.

Management of the Secretariat and Daily Operations

Unlike the World Bank and the IMF, the WTO does not have an
executive body or a board comprising a subset of members some
of whom represent a number of countries. Such executive boards
facilitate decisionmaking by concentrating discussions within a
smaller but representative group of members.
The closest the GATT ever came to such a forum was the
Consultative Group of Eighteen (CG18), established in 1975. It
ceased meeting in 1985 and never substituted for the GATT
Council of Representatives (Blackhurst 1998). As of January 1,
2002, the WTO had a membership of 144. Achieving consensus
among such a large number of members is not a simple matter, and
mechanisms have therefore been developed over the years to
reduce the number of members that are active participants in WTO
deliberations. The first and most important device is to involve
only principals, at least initially. To some extent

this is a natural process; a country that has no agricultural sector is

unlikely to be interested in discussions
centering on the reduction of agricultural trade barriers. In general
the Quad economies Canada, the European Union, Japan, and
the United Statesare part of any group that forms to discuss any
topic. They are supplemented by countries that have a principal
supplying interest in a product and by the major (potential)
importers whose policies are the subject of interest. Finally, a
number of countries that have established a reputation as
spokespersons tend to be involved in most major meetings.
Historically, such countries have included Egypt, India, and
Yugoslavia.

Objectives of WTO
Important objectives of WTO are mentioned below:
(i) to implement the new world trade system as visualised in the
Agreement;
(ii) to promote World Trade in a manner that benefits every
country;
(iii) to ensure that developing countries secure a better balance in
the sharing of the advantages resulting from the expansion of
international trade corresponding to their developmental needs;

(iv) to demolish all hurdles to an open world trading system and

usher in international economic renaissance because the world
trade is an effective instrument to foster economic growth;
(v) to enhance competitiveness among all trading partners so as to
benefit consumers and help in global integration;
(vi) to increase the level of production and productivity with a
view to ensuring level of employment in the world;
(vii) to expand and utilize world resources to the best;
(viii) to improve the level of living for the global population and
speed up economic development of the member nations.

CHAPTER

NO:-

4.DISPUTE

SETTELMENT

UNDER WTO AND ITS STEPS SETTLE THE

DISPUTE.
The WTO Dispute Settlement Mechanism and
Developing Countries
Developing countries need access to foreign markets if they are to
reap the benefits of globalization. Multilateral negotiations under
the World Trade Organization (WTO) play a pivotal role in
facilitating market access. 2 Yet, throughout the global economy,
pressures for protectionism abound, threatening to roll back these
gains.
As a result,the WTOs dispute settlementmechanism is widely
seen as one of the most critical and successful features of the
trade regime. Using this mechanism, WTO member-states can
shine thespotlight of international legal scrutiny on the
protectionist practices of their trading partners. This rule-of-law
system is especially important for developing countries, which
typically lack the market size to exert much influence through
more power-oriented trade diplomacy. Indeed, some poorer
countries have used the WTO dispute settlement system to great
effect, proving the systems worth from a development
perspective.3 Nonetheless, the technical and legal complexity of

this regime makes it difficult for other developing countries to

effectively use the system, many of which have never filed a WTO
dispute, despite having repeated grounds to do so. In this issues
brief, we elaborate this point by describing: (a) how WTO dispute
settlement works; (b) the prospective benefits and hurdles to
effective use of the regime by developing countries; and (c) some
potential directions for technical assistance and capacity-building,
focusing on WTO dispute settlement, in particular

1. How WTO Dispute Settlement Works

A WTO dispute proceeds through three main stages:
consultation;

formal

litigation;

and,

if

necessary,

implementation (figure 1). All disputes start with a request for

consultations, in which the member government bringing the
case to the WTO (the complainant) sets out its objections to the
trade measure(s) of another member government (the
defendant). The two sides are then required to consult for 60
days with the goal of negotiating a mutually satisfactory
solution to the dispute. Interestingly, a large proportion of
cases are successfully resolved during consultations; 46% of all
disputes brought to the WTO end at this stage, and threequarters of those yield at least partial concessions from the
defendant. 4 If consultations do not result in a mutually
satisfactory solution, the complainant can request a panel

proceeding, marking the start of the formal litigation stage.

Panels are comprised of three to five persons with a
background in trade law, agreed to by the parties on a case-bycase basis. There are typically two rounds of testimony,
including from other countries (third parties) that notify the
WTO of a substantial interest in the case. The panel then
circulates an interim report, offering both sides an
opportunity

to

comment

and

seek

clarification.

The

complainant and defendant can still negotiate a settlement at

this point. In fact, another 13% of all cases end at this stage
before a ruling is rendered. If not, the panel issues its final
report, which is then adopted by the WTO, unless one of two
things happens. First, the two sides can agree not to adopt the
panel report for whatever reason, although to date this has not
happened. Second, one or both sides (but not third parties) can
appeal the panels report, which happens frequently (i.e., in
73% of panel rulings).

WTO Dispute Settlement from a Development

Perspective

Trade liberalization promises considerable returns, but comes with

risks. One such risk is the possibility that a foreign government
will succumb to lobbying by its own domestic producers and grant
them protection. This can undermine a developing countrys

interest in reallocating resources to the affected export sector, since

poor countries tend to have fewer alternative export markets, and
fewer export goods. As a result, the mere anticipation of such
protectionism can deter or dilute muchneeded trade reform in
developing countries. The WTO dispute settlement system can
help insure against this risk by maintaining market access once it is
won, thereby encouraging developing countries to embark on an
opentrade growth strategy.

STEPS IN DISPUTE SETTLEMENT PROCESS

Dispute settlement is the central pillar of the multilateral trading
system, and the WTOs unique contribution to the stability of the
global economy. Without a means of settling disputes, the rulesbased system would be less effective because the rules could not
be enforced. The WTOs procedure underscores the rule of law,
and it makes the trading system more secure and predictable. The
system is based on clearly-defined rules, with timetables for
completing a case. First rulings are made by a panel and endorsed
(or rejected) by the WTOs full membership. Appeals based on
points of law are possible. However, the point is not to pass
judgement. The priority is to settle disputes, through consultations
if possible. By January 2008, only about 136 of the 369 cases had
reached the full panel process. Most of the rest have either been

notified as settled out of court or remain in a prolonged

consultation phase some since 1995.

Principles:
Equitable,

fast,

effective,

mutually

acceptable

Disputes in the WTO are essentially about broken promises. WTO

members have agreed that if they believe fellow-members are
violating trade rules, they will use the multilateral system of
settling disputes instead of taking action unilaterally. That means
abiding by the agreed procedures, and respecting judgements. A
dispute arises when one country adopts a trade policy measure or
takes some action that one or more fellow-WTO members
considers to be breaking the WTO agreements, or to be a failure to
live up to obligations. A third group of countries can declare that
they have an interest in the case and enjoy some rights.
A procedure for settling disputes existed under the old GATT, but
it had no fixed timetables, rulings were easier to block, and many
cases dragged on for a long time process with more clearly defined
stages in the procedure. It introduced greater discipline for the
length of time a case should take to be settled, with flexible
deadlines set in various stages of the procedure. The agreement
emphasizes that prompt settlement is essential if the WTO is to

function effectively. It sets out in considerable detail the

procedures and the timetable to be followed in resolving disputes.
If a case runs its full course to a first ruling, it should not normally
take more than about one year 15 months if the case is
appealed. The agreed time limits are flexible, and if the case is
considered urgent (e.g. if perishable goods are involved), it is
accelerated as much as possible.
The Uruguay Round agreement also made it impossible for the
country losing a case to block the adoption of the ruling. Under the
previous GATT procedure, rulings could only be adopted by
consensus, meaning that a single objection could block the ruling.
Now, rulings are automatically adopted unless there is a consensus
to reject a ruling any country wanting to block a ruling has to
persuade all other WTO members (including its adversary in the
case) to share its view.Although much of the procedure does
resemble a court or tribunal, the preferred
solution is for the countries concerned to discuss their problems
and settle the dispute by themselves. The first stage is therefore
consultations between the governments concerned, and even when
the case has progressed

These approximate periods for each stage of a dispute settlement

procedure are target figures the agreement is flexible. In
addition, the countries can settle their dispute themselves at any
stage. Totals are also approximate.

Consultations,
60 day

mediation, etc
Panel set up and

45 day

panellists appointed
Final panel report

6 month

to parties
Final panel report

3 week

to WTO members
Dispute Settlement

60 day

Body adopts report

(if no appeal)
(without appeal)

Total = 1 year
Appeals report
6090 day

Dispute Settlement
30 day

Body adopts appeals

Report

Total = 1y 3

(with appeal)

1. CONSULTATION (UP TO 60 DAYS)

Before taking any other actions, the countries in a dispute have to
talk to each other to see if they can settle their differences by
themselves. If that fails, they can also ask the WTO directorgeneral to mediate or try to help in any other way (so called good
offices). The consultations also offer a country an opportunity to
assess the merits of the other countrys case and sometimes submit
written questions that it wants the defending country to answer
during the consultation if they find the process informative or if
they think they may be able to reach a settlement.
Consultations are not always followed by a request for a panel.
Since sometimes the threat of action is more potent than the action
itself, consultations may provide information and leverage for
negotiations that to a successful resolution of the dispute. On
occasion, a complaining party may learn from the consultation
process about weaknesses in its arguments or damaging facts;
either situation could lead to a decision not to press the matter.

To complaining party may request the formation of panel, if the

parties to the dispute jointly consider that the good offices,
conciliation or mediation process has failed to settle the dispute.

2.The panel (up to 45 days for a panel to be

appointed, plus 6 months for the panel to conclude)
If consultations fail, the complaining country can ask for a panel
to be appointed. The country in the dock can block the creation
of a panel once, but when the Dispute Settlement Body meets for a
second time, the appointment can no longer be blocked (unless
there is a consensus against appointing the panel). Officially, the
panel is helping the Dispute Settlement Body make rulings or
recommendations. But because the panels report can only be
rejected by consensus in the Dispute Settlement Body, its
conclusions are difficult to overturn. The panels findings have to
be based on the agreements cited.
The panels final report should normally be given to the parties to
the dispute within six months. In cases of urgency, including those
concerning perishable goods, the deadline is shortened to three
months.o other stages, consultation and mediation are still always
possible.

The main stages are in Panel:

 Before the first hearing: each side in the dispute presents its case
in writing to the panel.
First hearing: the case for the complaining country and defence:
the complaining country (or countries), the responding country,
and those that have announced they have an interest in the dispute,
make their case at the panels first hearing.
Rebuttals: the countries involved submit written rebuttals and
present oral arguments at the panels second meeting.
Experts: if one side raises scientific or other technical matters, the
panel may consult experts or appoint an expert review group to
prepare an advisory report.
First draft: the panel submits the descriptive (factual and
argument) sections of its report to the two sides, giving them two
weeks to comment. This report does not include findings and
conclusions.
Interim report: The panel then submits an interim report,
including its findings and conclusions, to the two sides, giving
them one week to ask for a review.
Review: The period of review must not exceed two weeks.
During that time, the panel may hold additional meetings with the
two sides.

 Final report: A final report is submitted to the two sides and three
weeks later, it is circulated to all WTO members. If the panel
decides that the disputed trade measure does break a WTO
agreement or an obligation, it recommends that the measure be
made to conform with WTO rules. The panel may suggest how this
could be done.
The report becomes a ruling: The report becomes the Dispute
Settlement Bodys ruling or recommendation within 60 days unless
a consensus rejects it. Both sides can appeal the report (and in
some cases both sides do).

3.Appealing
Either side can appeal a panels ruling . Sometimes both sides do
so. Appeals have to be based on points of law such as legal
interpretation

they cannot request reexamination of existing

evidence or examination of new evidence . Each appeal is heard by

three members of a permanent seven-member Appellate Body set
up by the DSB. Members of the Appellate Body have four-year
terms. They have to be individuals with recognized standing in the
field of law and international trade, not affiliated with any
government.

The appeal can uphold, modify or reverse any of the panels legal
findings and conclusions. Normally appeals should not last more
than 60 days, with an absolute maximum of 90 days. In other
words, the Appellate Body should normally issue a report within
60 days from the date the notice of appeal is field.
The DSB has to accept (i.e., adopt) the report, as modified by the
ruling of the Appellate Bodys report unless there is a consensus to
reject it.

4.COMPLIANCE :After DSB adoption of a report in which a countrys trade measure

has been found to violate its WTO obligation, the country is
required to act on the recommendations in the report and bring the
measure into compliance with its obligations. The country must
state its intention to comply at a DSB meeting held within 30 days
of the reports adoption to. If complying with the recommendations
immediately proves impractical, the member will be given a
reasonable period of time to do so. To date in most WTO
disputes the losing party has brought its measure into compliance.
If a losing party fails to act within a reasonable period of time, it
has to enter into negotiations with the complaining country (or

countries) in order to determine mutually acceptable complaining

country

5.ARBITRATION
Members may seek arbitration within the WTO as an alternative
means of dispute settlement to facilitate the solution of certain
disputes that concern issues that are clearly defined by both parties.
Those parties must reach mutual agreement to arbitration and the
procedures to be followed. Agreed arbitration must be notified to
all members prior to the beginning of the arbitration process. Third
parties may become party to the arbitration only upon the
agreement of the parties that have agreed to have agreed to have
recourse to arbitraton.

CHAPTER NO:-5.CASE STUDY ON DISPUTE IN

WTO
INDIA PATENTS (US) 1 (DS50)
AGREEMENT
S

PARTIES

Complaina
n

Responden

Unite
d
State
India

TIMELINE
OF
THE
DISPUT

20
TRIPS
Art. Establishmen Novembe
70.8 and 70.
t of Pane
r 199

Circulation

5
Septembe

of
Panel r 199
Report
Circulation
of AB Repor

19
December
199

Adoptio
16
January
199

1. MEASURE AND INTELLECTUAL PROPERTY AT

ISSUE
Measure at issue: (i) India's "mailbox rule" under which patent
applications for pharmaceutical and agricultural chemical products
could be filed; and
(ii) the mechanism for granting exclusive marketing rights to such
products.

Intellectual

property

at

issue:

Patent

protection

for

pharmaceutical and agricultural chemical products, as provided

under TRIPS Art. 27.
2. SUMMARY OF KEY PANEL/AB FINDINGS
TRIPS Art. 70.8: The Appellate Body upheld the Panel's finding
that India's filing system based on "administrative practice" for
patent applications for pharmaceutical and agricultural chemical
products was inconsistent with Art. 70.8. The Appellate Body

found that the system did not provide the "means" by which
applications for patents for such inventions could be securely filed
within the meaning of Art. 70.8(a), because, in theory, a patent
application filed under the administrative instructions could be
rejected by the court under the contradictory mandatory provisions
of the existing Indian laws: the Patents Act of 1970.
TRIPS Art. 70.9: The Appellate Body agreed with the Panel that
there was no mechanism in place in India for the grant of exclusive
marketing rights for the products covered by Art. 70.8(a) and thus
Art. 70.9 was violated.

2.

OTHER ISSUES
Interpretation of the TRIPS Agreement: The Appellate
Body rejected the Panel's use of a "legitimate expectations"
(of Members and private right holders) standard, which
derives from the non-violation concept, as a principle of
interpretation for the TRIPS Agreement. The Appellate
Body based its conclusion on the following:

(i).the protection of "legitimate expectations" is not something that

was used in GATT practice as a principle of interpretation; and
(ii) the Panel's reliance on the VCLT Art. 31 for its "legitimate
expectations" interpretation

was not correct because the

"legitimate expectations of the parties to a treaty are reflected in

the language of the treaty itself." Pointing to DSU Arts. 3.2 and
19.2
3, the Appellate Body clarified that the process of treaty
interpretation should not include the "imputation into a treaty
words that are not there or the importation into a treaty of concepts
that were not intended."

CHAPTER NO.6 .CONLCUSION , SUGGESTION,

FINDING.
Suggestion
The Uruguay Round and the establishment of the WTO changed
the character of the trading system. The GATT was very much a
market accessoriented institution: its function was to harness the
dynamics of reciprocity for the global good.Negotiators could be
left to follow mercantilist logic, and the end result would be
beneficial to all contracting parties. This dynamic worked less well

for developing countries, where the burden of liberalization rested

much more heavily on the shoulders of governments. Even if they
wanted to, their scope to use the GATT was often limited because
exporters had fewer incentives and were less powerful than in
industrial countries. The reciprocal, negotiationdriven dynamic
also worked much less well for issues that were lumpy and
where the terms of the debate revolved around what rules to adopt,
not around how much of a marginal change was appropriate.
Once discussions center on rules, especially on disciplines for
domestic policy and regulations, it is more difficult to define
intraissue compromises that make economic sense. Cross-issue
linkage becomes necessary. Disengagement was not an option
during the Uruguay Round (because of the single undertaking),
so the task was to come up with a balanced package that ensured
gains for all players. One can argue whether the package that
emerged from the round was a balanced one; views on this point
differ widely. Whatever the conclusion, it is clear that the approach
taken toward ensuring and supporting implementation of WTO
agreements by developing countries was not an effective one.

CONCLUSION:Limiting recognition of this problem to the setting of uniform

transition periods was clearly inadequate. The case for uniform

application of agreements that involve reducing trade barriers

tariffs and nontariff barriers is very strong. But in other areas
requiring minimum levels of institutional capacity, such as
customs valuation, a good case can be made that implementation
should be linked to national capacity and international assistance
(Hoekman 2002).