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Currency Convertibility
CURRENCY  CONVERTIBILITY <ul><li>What  it is ? </li></ul><ul><li>Convertibility essentially means the ability of residents...
Rupee Convertibility
CURRENT ACCOUNT <ul><li>Transactions relating to:  </li></ul><ul><li>- Exchange of goods and services </li></ul><ul><li>- ...
CURRENT ACCOUNT TRANSACTIONS <ul><li>All imports and exports of merchandise. </li></ul><ul><li>Invisible Exports and Impor...
CURRENT ACCOUNT CONVERTIBILITY <ul><li>Indian scenario - fully convertible. </li></ul><ul><li>Full freedom to both residen...
CAPITAL ACCOUNT <ul><li>Inflows and Outflows of capital. </li></ul><ul><li>Borrowing from  or Lending to aboard. </li></ul...
CAPITAL ACCOUNT TRANSACTIONS <ul><li>Capital Direct Foreign Investments. </li></ul><ul><li>Investment in securities. </li>...
<ul><li>Portfolio   </li></ul><ul><li>Investment  . </li></ul><ul><li>Stocks,  </li></ul><ul><li>Bonds,  </li></ul><ul><li...
CAPITAL ACCOUNT CONVERTIBILITY <ul><li>Floating Exchange Rate. </li></ul><ul><li>What is means? – Freedom of Conversion </...
CURRENTLY RESTRICTIONS : CAPITAL ACCOUNT <ul><li>Limits to companies borrowing abroad. </li></ul><ul><li>Restriction on fo...
LIMITS TO PARTIAL CAC <ul><li>Limits specified by the RBI:- </li></ul><ul><li>Private visit </li></ul><ul><li>Business tra...
REASONS  FAVORING  FINANCIAL OPENNESS  &  CAC <ul><li>Diversification </li></ul><ul><li>NRI  Remittances </li></ul><ul><li...
REASONS  FAVORING  RESTRICTIONS <ul><li>Good  times- More inflow; Bad times- More outflow. </li></ul><ul><li>Misallocation...
TARAPORE  COMMITTEE <ul><li>Pre-Conditions  Gross fiscal deficit to GDP ratio to come down from a 4.5  %n 1997-98 to 3.5% ...
<ul><li>RBI should have a Monitoring Exchange Rate Band of plus minus 5% around a neutral . </li></ul><ul><li>Real Effecti...
Any Questions...?
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Final ppt currency-convertibility

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Final ppt currency-convertibility

  1. 1. Currency Convertibility
  2. 2. CURRENCY CONVERTIBILITY <ul><li>What it is ? </li></ul><ul><li>Convertibility essentially means the ability of residents and non-residents to exchange domestic currency for foreign currency, without limit, whatever be the purpose of the transactions. </li></ul><ul><li>Types Of Currency Convertibility. </li></ul><ul><li>Fully convertible currency. </li></ul><ul><li>Partially convertible currency. </li></ul><ul><li>Non-convertible currency . </li></ul>
  3. 3. Rupee Convertibility
  4. 4. CURRENT ACCOUNT <ul><li>Transactions relating to: </li></ul><ul><li>- Exchange of goods and services </li></ul><ul><li>- Money transfers </li></ul><ul><li>- Transactions that are classified in the Current Accounts. </li></ul><ul><li>In Short, Current account includes all transactions, which give rise to or use of our National Income. </li></ul>
  5. 5. CURRENT ACCOUNT TRANSACTIONS <ul><li>All imports and exports of merchandise. </li></ul><ul><li>Invisible Exports and Imports (sale/purchase of services) </li></ul><ul><li>Inward private remittances (to & fro) </li></ul><ul><li>Pension payments (to & fro) </li></ul><ul><li>Government Grants (both ways) </li></ul>
  6. 6. CURRENT ACCOUNT CONVERTIBILITY <ul><li>Indian scenario - fully convertible. </li></ul><ul><li>Full freedom to both residents and non-residents. </li></ul><ul><li>RBI has placed a cap in creation of a capital asset </li></ul><ul><li>Freedom in respect of payments and transfers for current international transactions. </li></ul>
  7. 7. CAPITAL ACCOUNT <ul><li>Inflows and Outflows of capital. </li></ul><ul><li>Borrowing from or Lending to aboard. </li></ul><ul><li>Sales and Purchase of securities aboard. </li></ul>
  8. 8. CAPITAL ACCOUNT TRANSACTIONS <ul><li>Capital Direct Foreign Investments. </li></ul><ul><li>Investment in securities. </li></ul><ul><li>Other Investments. </li></ul><ul><li>Government Loans. </li></ul><ul><li>Short-term investments. </li></ul>
  9. 9. <ul><li>Portfolio </li></ul><ul><li>Investment . </li></ul><ul><li>Stocks, </li></ul><ul><li>Bonds, </li></ul><ul><li>Bank </li></ul><ul><li>Loans, </li></ul><ul><li>Derivatives. </li></ul><ul><li>Direct </li></ul><ul><li>Investment. </li></ul><ul><li>Real estate </li></ul><ul><li>Production facilities </li></ul><ul><li>Equity investment. </li></ul><ul><li>Other investment. </li></ul><ul><li>Holdings in loans </li></ul><ul><li>Bank accounts </li></ul><ul><li>Currencies </li></ul>Capital Account Transaction’s Classification
  10. 10. CAPITAL ACCOUNT CONVERTIBILITY <ul><li>Floating Exchange Rate. </li></ul><ul><li>What is means? – Freedom of Conversion </li></ul><ul><li>CAC allows anyone to freely move from local currency into foreign currency and back. </li></ul><ul><li>Changes of ownership in foreign/domestic financial assets and liabilities. </li></ul><ul><li>Advantages ! </li></ul>
  11. 11. CURRENTLY RESTRICTIONS : CAPITAL ACCOUNT <ul><li>Limits to companies borrowing abroad. </li></ul><ul><li>Restriction on foreigner investing in India. </li></ul><ul><li>Restriction on amount that FII can hold. </li></ul><ul><li>Purchasing a company is allowed but limit exit on the amount that can be send. </li></ul><ul><li>Global Diversification of household portfolio is practically non-existent. </li></ul>
  12. 12. LIMITS TO PARTIAL CAC <ul><li>Limits specified by the RBI:- </li></ul><ul><li>Private visit </li></ul><ul><li>Business travel </li></ul><ul><li>Gift or donation </li></ul><ul><li>Employment /For studies abroad </li></ul><ul><li>Investment : Foreign stock markets </li></ul><ul><li>Borrowings </li></ul>
  13. 13. REASONS FAVORING FINANCIAL OPENNESS & CAC <ul><li>Diversification </li></ul><ul><li>NRI Remittances </li></ul><ul><li>Foreign Investment in </li></ul><ul><li>Catalyst for financial market, institutional development, competition, new technologies & discipline macro-economic policies. </li></ul><ul><li>Reduction in the size of Black money. </li></ul><ul><li>Induces competition against Indian finance. </li></ul>
  14. 14. REASONS FAVORING RESTRICTIONS <ul><li>Good times- More inflow; Bad times- More outflow. </li></ul><ul><li>Misallocation of Capital inflows. </li></ul><ul><li>Export of domestic Savings. </li></ul><ul><li>Entry of Foreign banks can create Unequal playing field. </li></ul><ul><li>Highly volatile international finance (hot money)- Higher speculation. </li></ul>
  15. 15. TARAPORE COMMITTEE <ul><li>Pre-Conditions  Gross fiscal deficit to GDP ratio to come down from a 4.5 %n 1997-98 to 3.5% in 1999-00.  A consolidated sinking fund has to be set up to meet government's debt repayment needs; financed by RBI. Inflation rate to be at 3-5 per cent for the 3-year period 1997-2000 . Gross NPAs of the public sector banking system needs to be brought down. </li></ul><ul><li>Average effective CRR needs to be brought down from the current 9.3% to 3% . </li></ul>
  16. 16. <ul><li>RBI should have a Monitoring Exchange Rate Band of plus minus 5% around a neutral . </li></ul><ul><li>Real Effective Exchange Rate RBI should be transparent about the changes in REER . External sector policies should be designed to increase current receipts to GDP ratio . Four indicators should be used for evaluating adequacy of foreign exchange reserves to safeguard against any contingency. </li></ul>Contd...
  17. 17. Any Questions...?

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