Role Of Rbi Forex 5o2b6i

c

Ô

Ô Ô

A Comment °

(tructure of the Presentation ! ! " # $$ ÿ % % ÿ ÿ c # & ÿ % % " '% "( c) $$ ã

A(C CONCEPT(TERMNOLOGE( oreign Currency vs. oreign Exchange

c !'* °(! +$ ‰' (   oreign Currency  " , ‰'(   oreign Exchange  ! ! '-( + % ! . ! ! / / !!0 &! / ! " // ,

c ‰ inancial market is a place where Resourcesfunds are transferred from those having surplusexcess to those having a deficitshortage. deficitshortage.

.

c ‰ $ ‰ 1 $

%< % 2 2 $$ " ! / $ $ $$ %$ %$ -$ -$.3 4*5 6 ´4*5 ´4%7 ´89 ´17495*%:"9;

hhat is a oreign Exchange Transaction ? ù $ ù oreign Exchange Risk.

1%""19*"9c7%";9 )9; %= ‰ * ' >5 ($ ‰ % "'% "($ ‰ $ ‰ 1/ * ?; $ ‰ " $ ‰ %" ‰ 9 % ‰ ‰

c7%";9)9;%;" * ‰ ‰ ‰ ‰

c")5 1;;5 7 17*" 9;5c:7

‰ c%c:7"9;

* c) ' ' ' ' ' '

'4*5?"9%( @50 @A/0 % 55 A5

' *"

A 5 Currencies are traded both in u and value value dates. 1) Ready: * $$$" °) Value Tom : * $$$ 3) (pot Transaction : * $ "" c) !* * $ h ‰ Time Zone Difference ‰ Herstat Risk

4) orward Transaction: * $

°

c)%B C n the forex market rates are always quoted µtwo way¶. Two way quote gives both µid¶ and µOffer¶. $$ 4*5?"9%D-$.3? 3 ?7 @ c0C $ & $ @1' 1 (C

$

µase Currency¶ Vs. µDealt Currency¶ 9/ / / $ " & / $ $$CVC U(DNR= 48.500

1 A$1 / & @ 0 @ 0 @ 0$ @ 0$ / @& 0 @ 0 @ 0 @0$

RATE QUOTATON CONVENTON( N--DRECT QUOTATON: N ³Price of one Unit of oreign Currency in of Domestic Currency´ e.g. U(DNR = 48.500 74*5-$.3 *74*5-$ 3 *33$3 n the international market, almost all currencies are quoted indirectly. .

RATE QUOTATON CONVENTON( DRECT QUOTATON: ³Price of one Unit of Domestic Currency in of oreign Currency´ e.g. EURO=

1.°8051°

7 $°-3. *7 $°-° * 3$333+

c & 5 1) Pound (terling °) Euro 3) Australian Dollar 4) New Zealand Dollar 5) rish Punt



n the international market, almost all the currencies are quoted in of U(D. $$ E18D3.$+-?-° E18D 3.$+-?-°

%4%*@c)D01$

ORhARD TRAN(ACTON( 1.

Out right salepurchase of a currency against the other for settlement at a future date at the predetermined exchange rate.

°.

orward rates are quoted as or discount over spot rate.

3.

orward rates depend upon interest rate differential between the two currencies.

4.

Currency with higher interest rates is at discount wrt currency having lower interest rate.

5.

Currency with lower interest rates is at wrt currency having higher interest rate.

Calculating orward Rate nterest rate of U(D nterest rate of NR (pot Rate D for NR D for U(D

= = = = =

1.°5% .00% 48.50 Actual35 Actual30

(ix month orward Rate = spot rate (48.50) x (1+ .018135)(1+.01°518130) =59.87

(hAP Transaction c) / ! ! ! $$ c) @0 @ 0 $$

ù c $ ‰ C C / / $% "'% "( 9 / $ ‰ C C $ '$$" c! ( 9 % "'% "($

ù *"c'* "/ c (

Deals are done over Telephone, REUTER( dealing system etc REUTER( ù ù ù ù

"* c)$ * /%"$ 1 1 $ $

ù ù ù ù

5 5"( %4%*$

Pre-Reform era till early 90s ( The fixed PreERM & Exchange Control Regime) ù ù % "'% "( ù ù !"#$ ù !

$ %

Pre--Reform era till early 90s Pre (The fixed ERM & Exchange Control Regime)

ù "# &!"&$ ù "# &!"&$ % % % % ù %

%"# &!"&$ ù % "#

&!"&$

Market liberalization. The decade of 90s ù # # ù '( )#"# * '% % % "'% "( "( ù ' !+ ,' $ ù % % # ù ' #! $

Post detonation crisis (May ¶98) and move towards market based ERM. ù &-. & # # ‰ , * # ‰ "# &!"&$ %% / 01 # * ù , %

Post detonation crisis (May ¶98) and move towards market based ERM. ´ -. ´% "# &!"&$ # ´) %% % ´%,

%,

22, 3 40 0--. ´% ! 5$

## ´&67567 .7547 &+889-6576

Post detonation crisis (May ¶98) and move towards market based ERM. ,

,

22 0--- ' % : ##

: % # 3 4777

orex Transactions The Demand (ide of inter inter--bank market ù ù ù / $ ù "$ ù 7 / $ ù 7 $ ù 1B B! $

orex Transactions The Demand (ide of inter inter--bank market ù % / $ ù % $ ù % @ 0 $ ù 5 *%$ ù /$

orex Transactions The (upply (ide of inter inter--bank market ù ù ù $ ù $ ù c 5 "$ ù $ ù " *%$ ù / $

oreign Exchange Risk $ $ $ °$ c / /?$ ã$ / $

NET OPEN POSITIONPOSITION- (NOP) A measure of foreign exchange risk ï 971 9?9:/ c ' ?*#7 ?*($ ï 91 ³LONG´ 7/ $ ï 9/1 ³(HORT´ 7 $ ï 971 / / / $ ï "6 c) $

EXAMPLE (NOP)

(U(D in Mio)

Opening Position

±3$33

%1

±$33

c1 '$33 (F

±3$3

%* ' 3 8(

G ±3$.3

c*

G ±3$3

NET OPEN PO(TON

$ 1.00

Introduction to InterInter-bank FX activities oreign Exchange Exposure c) c$

EAMPLE G971&"9% CURRENCY

Dollar Yen Euro Pound

(HORT

LONG

G3 3 G3 3

Total -°0 °0 971 3 °0$

c % % "'% "(

u I¶s uole in the Forex Market

‰ $ ‰ %G %G/ / $ ‰ = /$ ‰ 2 $

u I¶s uole in the Forex Market ï % " / 'c ° ($ ï 1 / $ ï 1 / 971 ! /

/ / $

TuEASUu OPEuATIONS AT u I $ /6 )9; % # "9%* %* °$ 5 c) ã$ / / * $ " / / # / .$ c 5 5 % ""$$

Functions of DMMD

à à ÿ 1 / # c) /c 7 $ ÿ 1? $ ÿ ; * $ ÿ %/ $ ÿ % $





ÿ 971 $ ÿ c) ? $ ÿ 7! ÿ c $ ÿ ù ù c $ ÿ & ÿ c ÿ ù ù & ÿ %1 ù ù ° !$!c $

ù * *> ù : ù @:0@:0$ ù $ ù @0$

NTERVENTON ‰ /6 % " ‰ " c) &/ c) " /%58 c7%%5

OTHER RELATED UNCTON( ‰ 7cc*" 79"7%"9; ‰ 5":8%*c7% %= ‰ "%54%%98"A"8c7%; 1 18 9* ‰ %*%A 9; 9

* Inputs of Computerized Reporting System - individua foreign exchange transactions reported by each bank on dai y basis on a f oppy diskette

'Amount

'Currency

'Posting date

'Counter Party

'Rate 'Maturity Date

'Deal Date 'Mode of Deal

'Type of Deal

* € Reports from CRS —? — ? — —

* € Reports from CRS Cont·d u — —Ô —Ô —

Ä

ï Non-Quantitative Tools ï Quantitative Tools



ï ï ï

Moral suasion facilitating large commercial outflows Relaxation in EEL

Ä Quantitative Measures ´ / ' ( /' ( $ ´ 1c: / 10 10 % 0 $ ´ " c:!/ 0 / c:$

V ï ï ï

ï

ï

5 / / * / $ * " /6 !

u"# " / $% " $ %*%A 4":5"9;



.°