3. Foreign Exchange Management Act,
1999
• The Foreign Exchange Management Act, 1999 (FEMA) is an
Act of the Parliament of India "to consolidate and amend the
law relating to foreign exchange with the objective of facilitating
external trade and payments and for promoting the orderly
development and maintenance of foreign exchange market in
India".[1]
It was passed in the winter session of Parliament in
1999, replacing the Foreign Exchange Regulation Act (FERA).
This act makes offences related to foreign exchange civil
offenses. It extends to the whole of India., replacing FERA,
which had become incompatible with the pro-liberalisation
policies of the Government of India. It enabled a new foreign
exchange management regime consistent with the emerging
framework of the World Trade Organisation (WTO). It also
paved the way for the introduction of the Prevention of Money
Laundering Act, 2002, which came into effect from 1 July 2005.
4. Main Features of the FEMA
• It is consistent with full current account convertibility and
contains provisions for progressive liberalization of capital
account transactions.
• It is more transparent in its application as it lays down the
areas requiring specific permissions of the Reserve
Bank/Government of India on acquisition/holding of
foreign exchange
• It classified the foreign exchange transactions in two
categories, viz. capital account and current account
transactions
5. Conti…………..
• It provides power to the Reserve Bank for specifying, in ,
consultation with the central government, the classes of
capital account transactions and limits to which exchange
is admissible for such transactions
• This act is a civil law and the contraventions of the Act
provide for arrest only in exceptional cases.
• FEMA does not apply to Indian citizen’s resident outside
India.
6. Introduction
• Exchange Rate is the price of one country’s
money in terms of other country’s money. When
we say that exchange rate of Indian rupee is
48.40 per U.S dollar, we mean than 48.40 Indian
rupees are required to purchase one U.S. dollar.
When his exchange rate becomes 48.90 we say
that the value of Indian rupee has against the
U.S dollar on the other hand when the exchange
rate becomes 48.10 we say that Indian rupee has
appreciated against the U.S. dollar.
7. Factors affecting foreign exchange
rates
• Fundamental factors
• Political and psychological factors
• Technical factors
- capital movement
- relative inflation rates
- exchange rates policy and
intervention
- Interest rates
• Speculation
• others
8. Determination of exchange rates
•Balance of payments
•Demand and supply
•Purchasing power parity
•Interest rate
•Relative income levels
•Market expectations
10. Spot exchange rates
• A spot exchange rate is a rate at which currencies are
being traded for delivery on the same day For e.g an
Indian importer may need U.S.$ to pay for the shipment
that has just arrived. he will have to purchase the $ in the
market to make payment for the import. The rate at which
he will buy the $ in the market is known as spot exchange
rate.
11. Forward exchange rates
• The forward rate is a price quotation to deliver the
currency in future. The exchange rate is determined at the
time of concluding the contract, but payment and delivery
are not required till maturity. Foreign exchange dealers
and Banks give the forward rate quotations for delivery in
future according to the requirement of their clients.