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By
Rajeev Kumar Jha
Treasury Department
Chinatrust Commercial Bank Ltd., New Delhi
Branch
A Comment
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Structure of the Presentation
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Foreign Exchange Markets
The market where the commodity traded is
Currencies.
Price of each currency is determined in term
of other currencies.
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What is an Exchange Rate ?
Exchange Rate is the price of one country's
currency expressed in another country's
currency. In other words, the rate at which one
currency can be exchanged for another.
e.g. Rs. 48.50 per one USD
FIXED
PEGGED
COMPOSITE
MANAGED FLOAT
FREE FLOATING
Components of a Standard
FX Transaction
Base Currency (USD/INR)
‘Dealt’ or ‘Variable’ Currency
Exchange Rate
Amount
Deal Date
Value Date
Settlement Instructions
Value Date Conventions
Currencies are traded both in Ready and
forward value dates.
‘Pips (or Point): The smallest incremental move an exchange rate can make.
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RATE QUOTATION CONVENTIONS
DIRECT QUOTATION:
“Price of one Unit of Domestic Currency in terms of Foreign
Currency”
e.g. EURO= 1.2805/12
Buy One Euro at 1.2805
Sell One Euro at 1.2812
Spread 0.0007
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In the international market, almost all the
currencies are quoted in terms of USD.
e.g.
JPY=105.78/82
A visit to REUTERS ‘EFX=’ Page.
FORWARD TRANSACTIONS
News Terminal
– Domestic Market Data/ news available on line.
– Real Time Exchange Rate quotes of all major
Currencies.
– Data about Interest Rates (e.g. LIBOR)
– Various Reserve Bank of India (RBI) pages on
REUTERS.
Pre-Reform era till early 90s ( The fixed
ERM & Exchange Control Regime)
– Fixed ERM, with occasional devaluations.
– Reserve Bank of India (RBI) to fix its buying & selling
rates for Authorized Dealers and their rates for customers.
– Residents not allowed to hold foreign exchange.
– Only ADs (Banks), allowed to deal in Fx.
– Fx available only for current account transactions. (goods &
services) and some other personal transactions viz. travel,
education, medical treatment etc.
Pre-Reform era till early 90s
(The fixed ERM & Exchange Control Regime)
– Reserve Bank of India (RBI) to buy and sell forex from and
to ADs, at its buying and selling rates for Authorized Dealers.
– Reserve Bank of India (RBI) to provide forward cover to ADs
for importers and exporters as well as foreign currency loans
mobilized by corporates from abroad.
– Exporters of goods and services, were bound to sell forex to
an AD at rates prescribed by Reserve Bank of India (RBI).
– Elaborate system of reporting by ADs to Reserve Bank of
India (RBI).
Market liberalization. The decade of 90s
OFFSITE MONITORING
DAILY RATES FOR MARKET
THIRD CURRENCY ACTIVITY FOR GoP
PAYMENTS
RESERVE MANAGEMENT
Off Site monitoring of banks by RBI
Inputs of Computerized
Reporting System (CRS)
Exposure Report
FE - 25 balances & other deposits
Nostro Balances
Un-reconciled interbank deals
Off Site monitoring of banks by RBI
• Non-Quantitative Tools
• Quantitative Tools
Non-Quantitative Tools
• Moral suasion
• facilitating large commercial outflows
• Relaxation in FEEL
How does RBI manages exchange
rate in the interbank market?
Quantitative Measures
Foreign Exchange Exposure Limit (FEEL)
Basically restricts the banks to keep a net asset (long)
or net liability (short) position in foreign currencies.
Presently FEEL for each bank is set at 10 % of it’s paid
up capital.
In the presence of FEEL, banks’ net purchases or net
sales in foreign exchange on a given day have to be
within their FEEL.
Physical intervention
• RESERVE BUILDING
Thank You
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