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Foreign Exchange Market: Every country has its own foreign exchange market. In a
developing country like India free operations are not
possible as exchange controls are necessary.
Financial transactions not directly related to trade flows
have steadily increased in all the countries.
FEM in the world averaged US $150 million per day while
only US $7 billion per day were exports i.e. only 5%
reflects foreign exchange transactions, balance 95% by
capital transfer, speculation etc.
RBI has authority to enter into FE transactions both in
its own account & on behalf of the government.
Foreign exchange market in India is connected through
electronically linked network of banks, FE brokers &
dealers.
FEM acts as an intermediary between buyer & seller of
foreign exchange.
FEM helps importer & exporter to minimize their risk,
which is done through the provisions of Hedging
facilities.
Exchange Rates:2
Devaluation & Depreciation:1. Indian rupee was devalued about 30% in 1949.
2. India has the exchange rate system of managed
flexibility under IMF arrangements.
3
currency.
Exchange rate adjustment comprises both devaluation &
depreciation.