Foreign exchange


Published on

Published in: Economy & Finance, Business
1 Like
  • Be the first to comment

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Foreign exchange

  1. 1. As per section 2 of foreign Exchange Regulation act 1947,Authorized Dealer means a person, for the time being authorizedunder section 3 to deal in Foreign Exchange.In other words Authorized Dealer means a Bank, authorized byCentral Bank to Deal in foreign Exchange under the FER Act 1947. There are some persons or firms, authorized by Central Bank todeal in Foreign Exchange with limited scope, are calledAuthorized Money Changers. Functions of Authorized Dealers: Authorized Dealer can handle all kinds of Foreign Exchangetransaction as per FER Act 1947 under the instruction of CentralBank. Following are the main function of an Authorized Dealer .i . E x c h a n g e o f F o r e i g n C u r r e n c i e s . ii.To make arrangement with Foreign Correspondent. iii.Buying and Selling foreign Currenciesiv.Handling of Inward and Outward Remittance v.Opening of L/C and Settlement of Payment vi.Investment in Foreign Trade vii.Opening & maintenance of Accounts with Foreign Banksunder intimation of Bangladesh Bank v i i i . E x p o r t D o c u m e n t s h a n d l i n g ROLE OF BANKS IN FOREIGN TRADE (CORRESPONDENTRELATIONSHIP)Under correspondent relationship one bank operatesas an agent of another in places wherever possible.The following services are provided by banks tosettle international transactions:a) Collection of cheques, drafts, bills, etc. b) Issue of demand drafts, mail transfers, travelerscheques etc.c) Arrangements for reimbursement on letters of credit.d) Advising, confirming, amending letters of credit.e) Sale and purchase of foreign currencies.f) Issue and confirming guarantees.g) Granting and guaranteeing loans & overdrafts.h) Furnishing of credit information. TYPESOFBANKS1. Issuing Bank – This bank is primarily responsiblefor the payment under the credit to the beneficiary,i.e., exporter.2. Advising Bank – A credit may be advised to the beneficiary through another bank about theauthenticity of credit. However, the bank is notresponsible for making the payment.3. Confirming Bank – The bank is located in the exporter’s country but it carries the responsibility of
  2. 2. Project Introduction TheIndianFOREXmarketowesitsorigintotheimportantstep that RBI took in 1978 to allow banks to undertake intra-daytradinginforeignexchange.Asaconsequence,thestipulation of maintaining “Square” or “near square” positionwas to be complied with only at the close of business eachday. Duringtheperiod1975-1992,theexchangerateofrupeewas officially determined by the RBI in terms of a weighted basketofcurrenciesofIndia’smajortradingpartnersandthere were significant restrictions on the current accounttransactions.The initiation of economic reforms in July 1991 sawsignificant two-step downward adjustment in the exchangerateoftherupeeonJuly1and3,1991 withaviewtoplacingit at an appropriate level in line with the inflation differentialtomaintainthe competitivenessofexports.Subsequently,following the recommendations of the High Level Committeeon Balance of Payments (Chairman:Dr C. Rangarajan) theLiberalised Exchange Rate Management System(LERMS) involvingdualexchangeratemechanismwasinstitutedinMarch1992which wasfollowedbytheultimateconvergenceofthedualrateseffectivefromMarch1,1993(christenedmodified LERMS).Theunificationoftheexchangerateoftherupeemarksthebeginningoftheeraofmarket determinedexchangerateregimeofrupee,basedondemandandsupplyin the forex market. It is also an important step in the progresstowardscurrentaccountconvertibility,whichwasfinallyachievedinAugust 1994byacceptingArticleVIIIoftheArticles of Agreement of the International Monetary Fund. ExchangeRate ExchangeRateisthepriceofonecountry'scurrencyexpressedinanothercountry'scurrency.Inotherwords, therateatwhichonecurrencycanbeexchangedforanother.e.g.Rs. 48.50 per one USD. MajorcurrenciesoftheWorld ➢ USD ➢ EURO ➢ YEN ➢ POUND STERLING
  3. 3. WhatisaForeignExchangeTransaction? Any financial transaction that involves more thanone currency is a foreign exchange transaction. ➢ Most important characteristic of a foreign exchangetransaction is that it involves Foreign ExchangeRisk. TypeofForignExchangerate TypesOfExchangeRates There are 4 types of Exchange rates:1 . R e a d y 2.ValueTom3.Spot Transaction4.Forward Transaction 1) Ready: Settlement of funds on the same day (date of the deal). 2) ValueTom: Settlement of funds takes place on thenext working day of the date of the deal. 3) SpotTransaction: Settlement of funds takes placeon the second working day following the date of thedeal. 4) ForwardTransaction: Delivery takes place on any day after the date of the deal. What Does PriceMaker Mean? A monopoly or a firm within monopolisticcompetition that has the power to influence the price itcharges as the good it produces does not have perfectsubstitutes. Investopedia explains Price Maker Amonopolyisapricemakerasitholdsalargeamountof poweroverthepriceitcharges.Apricemakerthatisa firmwithinmonopolisticcompetitionproducesgoodsthataredifferentiatedinsomewayfromitscompetitors' products. This kind of price maker is also a profit-maximizer as it will increase output only as long as its arginalrevenueisgreaterthanitsmarginalcost,inotherwords, as long as it's producing a profit.
  4. 4. WhatDoes Price-Taker Mean? 1.Aninvestorwho’sbuyingorsellingtransactionsareassumedtohavenoeffectonthemarket.2.Afirmthatcan alteritsrateofproductionandsaleswithoutsignificantlyaffectingthemarketpriceofitsproduct. Investopedia explains Price-Taker 1. In the context of the stock market, individual investors are price-takers.2.Supposeyousellwater, whichofcourseissuppliedbymillionsofotherplaces,includingthesky.Ifyoudecidetosetthe price of a gallon of your water at $10, you will likely sellnothing because this commodity is readily available elsewhereforamuchcheaperprice.Themainpurposeoftheforeigncurrencyexchangemarketisto makemoneybutitisdifferentfromotherequitymarkets.There are various technical terminologies and strategies atradermustknowtodealwithcurrencyexchange.Inthe Currency Exchange marketthecommoditythatistradedistheforeigncurrency.Theseforeigncurrenciesarealwayspricedinpairs. Thevalueofoneunitofaforeigncurrencyisalwaysexpressedintermsofanotherforeigncurrency.Thusall trades incorporate the purchase and sale of two foreigncurrenciesatthesametime.Youhavetobuya currencyonly whenyouexpectthevalueofthatcurrencytoincreaseinthefuture.TheyarealwaysquotedinpairsasUSD/JPY. Thefirstcurrencyisthebasecurrencyandthesecondoneisthequotecurrency.Thequotevaluedependsonthe currencyconversionrates between the two currencies under consideration. MostlytheUSDwillbeused asbasedcurrencybutsometimeseuro, pound sterling is also used.Theprofitofthebrokerdependsonthebid andtheask price. The bid is the price the broker is ready to pay to buy basecurrencyforexchanging thequotecurrency.Theaskisthepricethebrokerisreadytosellthebasecurrencyforexchangingthequote currency.Thedifferencebetweenthesetwo prices is called the spread which determines the profit or loss of the trade. RATEQUOTATIONCONVENTIONS: An exchange system quotation is given by stating the number of unitsof "term currency" (or "price currency" or "quote currency") that can be bought in terms of 1 "unit currency" (also called "base currency").For example, in a quotation that says the EURUSD exchange rate is1.4320 (1.4320 USD per EUR), the term currency is USD and the base currency is EUR.There is a market convention that determines which is the basecurrencyandwhichisthetermcurrency.In mostpartsoftheworld,the order is: EUR – GBP – AUD – NZD – USD – others. Thus if youare doing a conversion from EUR into AUD, EUR is the basecurrency,AUDisthetermcurrencyandthe exchangeratetellsyouhow many Australian dollars you would pay or receive for 1 Euro.Cyprus and Malta which were quoted as the base to the USD andothers were recently removed from this list when they joined theEuro. In some areas of Europe and in the non-professional market intheUK, EURandGBParereversedsothatGBPisquotedasthebase
  5. 5. currency to the euro. In order to determine which the base currency iswhere both currencies are not listed (i.e. both are "other"), marketconvention is to use the base currency which gives an exchange rategreater than 1.000. This avoids rounding issues and exchange rates being quoted to more than 4 decimal places. There are someexceptions to this rule e.g. the Japanese often quote their currency asthe base to other currencies.Quotes using a country's home currency as the price currency (e.g.,EUR 0.63 = USD 1.00 in the euro zone) are known as direct quotationor price quotation (from that country's perspective) [1] and are used by most countries.Quotes using a country's home currency as the unit currency (e.g.,EUR 1.00 = USD 1.58 in the euro zone) are known as indirectquotation or quantity quotation and are used in British newspapersand are also common in Australia, New Zealand and the Euro zone. 1.DIRECTQUOTATION:D irect quotation: 1 foreign currency unit = x home currency units“Price of one Unit of Domestic Currency in terms of Foreign Currency”Five Currencies are quoted in Direct Terms ) Pound Sterling2)Euro3) Australian Dollar 4) New Zealand Dollar 5) Irish Punt 2.IN-DIRECTQUOTATION: “Price of one Unit of Foreign Currency in terms of DomesticCurrency Indirectquotation:1homecurrencyunit=xforeigncurrencyunits In the international market, almost all currencies are quoted indirectly. Note that, using direct quotation, if the home currency isstrengthening (i.e., appreciating, or becoming more valuable) then theexchange rate number decreases. Conversely if the foreign currency isstrengthening, the exchange rate number increases and the homecurrency is depreciating.Market convention from the early 1980s to 2006 was that mostcurrency pairs were quoted to 4 decimal places for spot transactionsand up to 6 decimal places for forward outrights or swaps. (The fourthdecimal place is usually referred to as a "pip.") An exception to thiswas exchange rates with a value of less than 1.000 which were usuallyquoted to 5 or 6 decimal places. Although there is no fixed rule,exchange rates with a value greater than around 20 were usuallyquoted to 3 decimal places and currencies with a value greater than 80were quoted to 2 decimal places. Currencies over 5000 were usuallyquoted with no decimal places (e.g. the former Turkish Lira). e.g.(GBPOMR : 0.765432 - EURUSD : 1.5877 - GBPBEF : 58.234 -EURJPY : 165.29). In other words, quotes are given with 5 digits.Where rates are below 1, quotes frequently include 5 decimal places.In 2005 Barclays Capital broke with convention by offering spotexchange rates with 5 or 6 decimal places on their electronic dealing platform. The contraction of spreads (the difference between the bidand offer rates) arguably necessitated finer pricing and gave the banksthe ability to try and win transaction on multibank trading platformswhere all banks may otherwise have been quoting the same price. Anumber of other banks have now followed this. RiskManagementandSettlementofTransactionsintheForeignExchange Market The foreign exchange market is characterized by constant changesand rapid innovations in trading methods and products. While theinnovative products and ways of trading create new possibilities for profit, they also pose various kinds of risks to the market. Central banks all over the world, therefore, have become increasinglyconcerned of the scale of foreign exchange settlement risk and theimportance of risk mitigation measures. Behind this growingawareness are several events in the past in which foreign exchangesettlement risk might have resulted in
  6. 6. systemic risk in globalfinancial markets, including the failure of Bankhaus Herstatt in1974andthe closureofBCCISAin1991. ➢ The foreign exchange settlement risk arises because the delivery of the two currencies involved in a trade usually occurs in twodifferent countries, which, in many cases are located in differenttime zones. This risk is of particular concern to the central banksgiven the large values involved in settling foreign exchangetransactions and the resulting potential for systemic risk. Most of the banks in the EMEs use some form of methodology for measuring the foreign exchange settlement exposure. Many of these banks use the single day method, in which the exposure ismeasured as being equal to all foreign exchange receipts that aredueontheday.Some institutionsuseamultipledayapproachformeasuringrisk.MostofthebanksinEMEsusesomeform ofindividual counterparty limit to manage their exposures. Theselimits are often applied to the global operations of the institution.These limits are sometimes monitored by banks on a regular basis.In certain cases, there are separate limits for foreign exchangesettlement exposures, while in other cases, limits for aggregatesettlement exposures are created through a range of instruments.Bilateral obligation netting, in jurisdictions where it is legallycertain, is an important way for trade counterparties to mitigate theforeign exchange settlement risk. This process allows tradecounterparties to offset their gross settlement obligations to each other in the currencies they have traded and settle these obligationswith the payment of a single net amount in each currency. ➢ Several emerging markets in recent years have implementeddomesticrealtimegrosssettlement (RTGS)systemsforthesettlement of high value and time critical payments to settle thedomestic leg of foreign exchange transactions. Apart from risk reduction, these initiatives enable participants to actively managethe time at which they irrevocably pay way when selling thedomestic currency, and reconcile final receipt when purchasing thedomesticcurrency.Participants,therefore,are abletoreducetheduration of the foreign exchange settlement risk. ➢ Recognizing the systemic impact of foreign exchange settlementrisk, an important element in the infrastructure for the efficientfunctioning of the Indian foreign exchange market has been theclearing and settlement of inter-bank USD-INR transactions. In pursuance of the recommendations of the Sodhani Committee, theReserve Bank had set up the Clearing Corporation of India Ltd.(CCIL) in 2001 to mitigate risks in the Indian financial markets.The CCIL commenced settlement of foreign exchange operationsfor inter-bank USD-INR spot and forward trades from November 8, 2002 and for inter-bank USD-INR cash and tom trades fromFebruary5,2004.TheCCILundertakessettlementofforeignexchange trades on a multilateral net basis through a process of notation and all spot, cash and tom transactions are guaranteed for settlement from the trade date. Every eligible foreign exchangecontract entered between members gets notated or replaced by twonew contracts – between the CCIL and each of the two parties,respectively. Following the multilateral netting procedure, the netamount payable to, or receivable from, the CCIL in each currencyis arrived at, member-wise. The Rupee leg
  7. 7. is settled through themembers’currentaccountswiththeReserveBankandtheUSDlegthroughCCIL’s accountwiththesettlementbankatNewYork.TheCCIL sets limits for each member bank on the basis of certain parameters such as member’s credit rating, net worth, asset valueandmanagementquality. TheCCILsettledover900,000dealsfora gross volume of US $ 1,180 billion in 2005-06. The CCIL hasconsistently endeavoured the entire gamut of foreign exchangetransactionsunderitspurview.Intermediation,bytheCCIL thus, provides its members the benefits of risk mitigation, improvedefficiency, lower operational cost and easier reconciliation of accounts with correspondents. ➢ An issue related to the guaranteed settlement of transactions by theCCIL has been the extension of this facility to all forward trades aswell. Member banks currently encounter problems in terms of hugeoutstanding foreign exchange exposures in their books and thiscomes in the way of their doing more trades in the market. Riskson such huge outstanding trades were found to be very high and sowere the capital requirements for supporting such trades. Hence,many member banks have expressed their desire in several forathat the CCIL should extend its guarantee to these forward tradesfrom the trade date itself which could lead to significant increase inthe liquidity and depth in the forward market. The risks that bankstoday carry in their books on account of large outstanding forward positions will also be significantly reduced (Gopinath, 2005). Thishas also been one of the recommendations of the Committee onFullerCapitalAccountConvertibility. ➢ Apart from managing the foreign exchange settlement risk, participants also need to manage market risk, liquidity risk, creditrisk and operational risk efficiently to avoid future losses. As per the guidelines framed by the Reserve Bank for banks to aligns andexposure in derivative markets as market makers, the boards of directors of ADs (category-I) are required to frame an appropriate policy and fix suitable limits for operations in the foreign exchangemarket. The net overnight open exchange position and theaggregate gap limits need to be approved by the Reserve Bank. Theopen position is generally measured separately for each foreigncurrency consisting of the net spot position, the net forward position,andthenetoptionsposition.Variouslimitsforexposure,viz., overnight, daylight, stop loss, gap limit, credit limit, value atrisk(VaR),etc.,forforeignexchange transactionsbybanksarefixed.Withinthecontouroftheselimits,frontofficeofthetreasuryof ADs transacts in the foreign exchange market for customers andown proprietary requirements. These exposures are accounted,confirmed and settled by back office, while mid-office evaluatesthe profit and monitors adherence to risk limits on a continuous basis. In the case of market risk, most banks use a combination of measurement techniques including and managed by most banks onan aggregate counter-party basis so as to include all exposures inthe underlying spot and derivative markets. Some banks alsomonitor country risk through cross-border country risk exposurelimits. Liquidity risk is generally estimated by monitoring assetliability profile in various currencies in various buckets andmonitoring currency-wise gaps in various buckets. Banks also track balances to be maintained on a daily basis in Nostro accounts,remittances and committed foreign currency term loans whilemonitoring liquidity risk. ➢
  8. 8. To sum up, the foreign exchange market structure in India hasundergone substantial transformation from the early 1990s. Themarket participants have become diversified and there are severalinstruments available to manage their risks. Sources of supply anddemand in the foreign exchange market have also changed in linewith the shifts in the relative importance in balance of paymentsfrom current to capital account. There has also been considerableimprovement in the market infrastructure in terms of trading platforms and settlement mechanisms. Trading in Indian foreignexchange market is largely concentrated in the spot segment evenas volumes in the derivatives segment are on the rise. Some of theissues that need attention to further improve the activity in thederivatives segment include flexibility in the use of variousinstruments, enhancing the knowledge and understanding thenature of risk involved in transacting the derivative products,reviewing the role of underlying in booking forward contracts andguaranteed settlements of forwards. Besides, market players wouldneed to acquire the necessary expertise to use different kinds of instruments and manage the risks involved. Our Vision To evolve appropriate environment in discharging the basic objective of the Foreign Exchange Management Act (FEMA), 1999; To facilitate external trade and payments and to promote orderly development and maintenance of foreign exchange market in India; and To frame prompt and pro-active policy responses, as part of active capital account management, within the evolving macroeconomic conditions. Our Mission To effectively integrate the needs of the users, both resident and non-resident, with the evolving market dynamics and external sector developments by: evolving and disseminating rules and regulations in a user friendly language; moving towards fuller capital account convertibility in a calibrated manner; having regular interface with the users to assess their needs with greater focus on the requirements of resident individuals /entities; rendering effective and efficient customer service with greater transparency; empowering Authorised Persons and enlarging their role as a conduit to create awareness about the developments; facilitating hassle-free cross-border transactions;
  9. 9. capturing data on a real time basis to dynamically induce policy changes; and disseminating data in a transparent manner. Foreign Exchange Market Overview Globally,operationsintheforeignexchangemarketstartedinamajorwayafterthebreakdownofthe Bretton Woods system in 1971, which also marked the beginning of floating exchange rateregimes in several countries. Over the years, the foreign exchange market has emerged as thelargest market in the world. The decade of the 1990s witnessed a perceptible policy shift in manyemerging markets towards reorientation of their financial markets in terms of new products andinstruments, development of institutional and market infrastructure and realignment of regulatorystructure consistent with the liberalized operational framework. The cha nging contours weremirrored in a rapid expansion of foreign exchange market in terms of participants, transactionvolumes,declineintransactioncostsandmoreefficientmechanismsofrisk transfer.TheoriginoftheforeignexchangemarketinIndiacouldbetracedtotheyear1978whenbanksinIndia were permitted to undertake intra-day trade in foreign exchange. However, it was in the1990sthat theIndianforeignexchangemarketwitnessedfarreachingchangesalongwiththeshiftsinthecurrencyregimein India.Theexchangerateoftherupee,thatwaspeggedearlierwasfloated partially in March 1992 and fully in March 1993 following the recommendations of the Report of theHighLevelCommitteeonBalance ofPayments(Chairman:Dr.C.Rangarajan).Theunificationof the exchange rate was instrumental in developing a market-determined exchange rate of therupee and an important step in the progress towards current account convertibility, which wasachievedinAugust1994.6.3Afurtherimpetustothe developmentoftheforeignexchangemarketin India was provided with the setting up of an Expert Group on Foreign Exchange Markets inIndia (Chairman: Shri O.P. Sodhani), which submitted its report in June 1995. The Group madeseveral recommendations for deepening and widening of the Indian foreign exchange market.Consequently, beginning from January 1996, wide-ranging reforms have been undertaken in theIndian foreign exchange market. After almost a decade, an Internal Technical Group on theForeign Exchange Market (2005) was constituted to undertake a comprehensive review of themeasuresinitiatedbytheReserveBankand identifyareasforfurtherliberalizationorrelaxationofrestrictionsinamedium-termframework.The momentous developments over the past few years are reflected in the enhanced risk- bearingcapacity of banks along with rising foreign exchange trading volumes and finer margins. Theforeign exchange market has acquired depth (Reddy, 2005). The conditions in th
  10. 10. e foreignexchangemarkethavealsogenerallyremainedorderly(Reddy,2006c).Whileitisnotpossible forany country to remain completely unaffected by developments in international markets, India wasabletokeepthespillovereffectoftheAsiancrisistoaminimumthroughconstantmonitoring andtimely action, including recourse to strong monetary measures, when necessary, t o preventemergenceofselffulfillingspeculativeactivities What is Foreign Trade ? External Trade Meaning ↓ Foreign trade is nothing but trade between the different countries of the world. It is also called as International trade, External trade or Inter-Regional trade. It consists of imports, exports and entrepot. The inflow of goods in a country is called import trade whereas outflow of goods from a country is called export trade. Many times goods are imported for the purpose of re-export after some processing operations. This is called entrepot trade. Foreign trade basically takes place for mutual satisfaction of wants and utilities of resources. 3 Types of Foreign Trade ↓ Foreign Trade can be divided into following three groups :- 1. Import Trade : Import trade refers to purchase of goods by one country from another country or inflow of goods and services from foreign country to home country. 2. Export Trade : Export trade refers to the sale of goods by one country to another country or outflow of goods from home country to foreign country. 3. Entrepot Trade : Entrepot trade is also known as Re-export. It refers to purchase of goods from one country and then selling them to another country after some processing operations. Need and Importance of Foreign Trade ↓ Following points explain the need and importance of foreign trade to a nation. 1. Division of labour and specialisation
  11. 11. Foreign trade leads to division of labour and specialisation at the world level. Some countries have abundant natural resources. They should export raw materials and import finished goods from countries which are advanced in skilled manpower. This gives benefits to all the countries and thereby leading to division of labour and specialisation. 2. Optimum allocation and utilisation of resources Due to specialisation, unproductive lines can be eliminated and wastage of resources avoided. In other words, resources are channelised for the production of only those goods which would give highest returns. Thus there is rational allocation and utilization of resources at the international level due to foreign trade. 3. Equality of prices Prices can be stabilised by foreign trade. It helps to keep the demand and supply position stable, which in turn stabilises the prices, making allowances for transport and other marketing expenses. 4. Availability of multiple choices Foreign trade helps in providing a better choice to the consumers. It helps in making available new varieties to consumers all over the world. 5. Ensures quality and standard goods Foreign trade is highly competitive. To maintain and increase the demand for goods, the exporting countries have to keep up the quality of goods. Thus quality and standardised goods are produced. 6. Raises standard of living of the people Imports can facilitate standard of living of the people. This is because people can have a choice of new and better varieties of goods and services. By consuming new and better varieties of goods, people can improve their standard of living. 7. Generate employment opportunities
  12. 12. Foreign trade helps in generating employment opportunities, by increasing the mobility of labour and resources. It generates direct employment in import sector and indirect employment in other sector of the economy. Such as Industry, Service Sector (insurance, banking, transport, communication), etc. 8. Facilitate economic development Imports facilitate economic development of a nation. This is because with the import of capital goods and technology, a country can generate growth in all sectors of the economy, i.e. agriculture, industry and service sector. 9. Assitance during natural calamities During natural calamities such as earthquakes, floods, famines, etc., the affected countries face the problem of shortage of essential goods. Foreign trade enables a country to import food grains and medicines from other countries to help the affected people. 10. Maintains balance of payment position Every country has to maintain its balance of payment position. Since, every country has to import, which results in outflow of foreign exchange, it also deals in export for the inflow of foreign exchange. 11. Brings reputation and helps earn goodwill A country which is involved in exports earns goodwill in the international market. For e.g. Japan has earned a lot of goodwill in foreign markets due to its exports of quality electronic goods. 12. Promotes World Peace Foreign trade brings countries closer. It facilitates transfer of technology and other assistance from developed countries to developing countries. It brings different countries closer due to economic relations arising out of trade agreements. Thus, foreign trade creates a friendly atmosphere for avoiding wars and conflicts. It promotes world peace as such countries try to maintain friendly relations among themselves.
  13. 13. hat is Currency Trading? Currency trading can have a couple of meanings. If you want to learn about how to save time and money on currency transfers, visit XE Trade Money Transfers. These articles discuss currency trading as buying and selling currency on the foreign exchange (or "Forex") market with the intent to make money. How Forex Works The currency exchange rate is the rate at which one currency can be exchanged for another. It is always quoted in pairs like the EUR/USD (the Euro and the US Dollar). Exchange rates fluctuate based on economic factors like inflation, industrial production and geopolitical events. These factors will influence whether you buy or sell a currency pair. Example of a Forex Trade: The EUR/USD rate represents the number of US Dollars one Euro can purchase. If you believe that the Euro will increase in value against the US Dollar, you will buy Euros with US Dollars. If the exchange rate rises, you will sell the Euros back, making a profit. Please keep in mind that forex trading involves a high risk of loss. Why Trade Currencies? Forex is the world's largest market, with about 3.2 trillion US dollars in daily volume and 24-hour market action. Some key differences between Forex and Equities markets are: 1. Many firms don't charge commissions – you pay only the bid/ask spreads. 2. There's 24 hour trading – you dictate when to trade and how to trade. 3. You can trade on leverage, but this can magnify potential gains and losses. 4. You can focus on picking from a few currencies rather than from 5000 stocks. 5. Forex is accessible – you don’t need a lot of money to get started. Why Currency Trading Is Not For Everyone Trading foreign exchange on margin carries a high level of risk, and may not be suitable for everyone. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. Remember, you could sustain a loss of some or all of your initial investment, which means that you should not invest money that you cannot afford to lose. If you have any doubts, it is advisable to seek advice from an independent financial advisor.
  14. 14. Authorised dealers in foreign exchange Authorised dealers in foreign exchange 6. (a) The Reserve Bank may, on an application made to it in this behalf, authorize any person to deal in foreign exchange. (b) An authorization under this section shall be in writing and - i. may authorize transactions of all descriptions in foreign currencies or may be restricted to authorizing dealings in specified foreign currencies only; ii. may authorize dealings in all foreign currencies or may be restricted to authorizing specified transactions only; iii. may be granted to be effective for a specified period, or within specified amounts; iv. may be granted subject to such conditions as may be specified therein. (c) Any authorization granted under sub-section (1) may be revoked by the Reserve Bank at any time if the Reserve Bank is satisfied that, - i. it is in the public interest to do so; or ii. the authorized dealer has not complied with the conditions subject to which the authorisation was granted or has contravened any of the provisions of this Act or of any rule, notification, direction or order made thereunder: iii. Provided that no such authorization shall be revoked on the ground specified in clause iv. unless the authorized dealer has been given a reasonable opportunity for making a representation in the matter. (d) Any authorized dealer shall, in all his dealings in foreign exchange and in the exercise and discharge of the powers and of the functions delegated to him under section 74, comply with such general or special directions or instructions as the Reserve Bank may, from time to time, think fit to give, and, except with the previous permission of the Reserve Bank, an authorized dealer shall not engage in any transaction involving any foreign exchange which is not in conformity with the terms of his authorization under this section. (e) An authorised dealer shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to make such declarations and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the purpose of, any contravention or evasion of the provisions of this Act or of any rule, notification, direction or order made thereunder, and where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorised dealer shall refuse to undertake the transaction and shall, if he has reason to believe that any such contravention or evasion as aforesaid is contemplated by the person, report the matter to the Reserve Bank. Top © Reserve Bank of India. All Rights Reserved. Best viewed in 1024x768 resolution in IE 5 and above.
  15. 15. Directory of Banks in India List of authorised dealers in foreign exchange Join "The Bankers Club" - An Exclusive Club for Bankers & Ex - Bankers .... Read more List of banks to whom licences have been issued to deal in foreign exchange ABN AMRO Bank N.V. Abu Dhabi Commercial Bank Ltd. Allahabad Bank American Express Bank Ltd. Andhra Bank ANZ Grindlays Bank Ltd. Arab Bangladesh Bank Ltd. Bank Internasional Indonesia Bank of America National Trust and Savings Association Bank of Bahrain and Kuwait B.S.C. Bank of Baroda Bank of Ceylon Bank of India Bank of Madura Ltd. Bank of Maharashtra Bank of Nova Scotia Bank of Rajasthan Ltd. Bank of Tokyo-Mitsubishi Ltd. Banque Nationale De Paris Barclays Bank p.l.c.
  16. 16. Benares State Bank Ltd. Bharat Overseas Bank Ltd. Bombay Mercantile Co-operative Bank Ltd. Canara Bank Catholic Syrian Bank Ltd. Central Bank of India Centurion Bank Ltd. The Chase Manhattan Bank Chinatrust Commercial Bank Cho Hung Bank Citibank N.A. City Union Bank Ltd. Corporation Bank Credit Lyonnais
  17. 17. List of banks to whom licences have been issued to deal in foreign exchange Dena Bank Deutsche Bank The Development Bank of Singapore Ltd. Development Credit Bank Ltd. Dhanalakshmi Bank Ltd. Federal Bank Ltd. HDFC Bank Ltd. The Hongkong and Shanghai Banking Corporation Ltd. ICICI Banking Corporation Ltd. IDBI Bank Ltd. Indian Bank Indian Overseas Bank IndusInd Bank Ltd. Internationale Nederlanden Bank (ING Bank) Jammu and Kashmir Bank Ltd. Karnataka Bank Ltd. Karur Vysya Bank Ltd. Lakshmi Vilas Bank Ltd. Maharashtra State Co-operative Bank Ltd. Nedungadi Bank Ltd. Oman International Bank S.A.O.G. Oriental Bank of Commerce Oversea-Chinese Banking Corporation Ltd. Punjab National Bank
  18. 18. Punjab and Sind Bank Sangli Bank Ltd. Saraswat Co-operative Bank Ltd. SBI Commercial and International Bank Ltd. Societe Generale Sonali Bank South Indian Bank Ltd. Standard Chartered Bank State Bank of Bikaner and Jaipur State Bank of Hyderabad State Bank of India State Bank of Indore State Bank of Mauritius Ltd. State Bank of Mysore State Bank of Patiala State Bank of Saurashtra State Bank of Travancore Syndicate Bank Tamilnad Mercantile Bank Ltd. The Toronto Dominion Bank UCO Bank Union Bank of India United Bank of India
  19. 19. United Western Bank Ltd. UTI Bank Ltd. Vijaya Bank Vysya Bank Ltd. Definition of 'Authorized Forex Dealer' Any type of financial institution that has received authorization from a relevant regulatory body to act as a dealer involved with the trading of foreign currencies. Dealing with authorized forex dealers ensure that your transactions are being executed in a legal and just way. Investopedia explains 'Authorized Forex Dealer' In the United States, one regulatory body responsible for authorizing forex dealers is the National Futures Association (NFA). The NFA ensures that authorized forex dealers are subject to stringent screening upon registration and strong enforcement of regulations upon approval.
  20. 20. Profile Foreign Exchange Dealer's Association of India (FEDAI) was set up in 1958 as an Association of banks dealing in foreign exchange in India (typically called Authorised Dealers - ADs) as a self regulatory body and is incorporated under Section 25 of The Companies Act, 1956. It's major activities include framing of rules governing the conduct of inter-bank foreign exchange business among banks vis-à-vis public and liaison with RBI for reforms and development of forex market. Presently some of the functions are as follows: Guidelines and Rules for Forex Business. Training of Bank Personnel in the areas of Foreign Exchange Business. Accreditation of Forex Brokers Advising/Assisting member banks in settling issues/matters in their dealings. Represent member banks on Government/Reserve Bank of India/Other Bodies. Announcement of daily and periodical rates to member banks. Due to continuing integration of the global financial markets and increased pace of de-regulation, the role of self-regulatory organizations like FEDAI has also transformed. In such an environment, FEDAI plays a catalytic role for smooth functioning of the markets through closer co-ordination with the RBI, other
  21. 21. organizations like FIMMDA, the Forex Association of India and various market participants. FEDAI also maximizes the benefits derived from synergies of member banks through innovation in areas like new customized products, bench marking against international standards on accounting, market practices, risk management systems, etc. Top Foreign Exchange Dealers Foreign exchange in India is tightly controlled and the Central Government has wide powers to control transactions in foreign exchange. Foreign majority holdings were rarely allowed by the Foreign-Exchange Regulation Act. However, a new foreign investment policy (1991) allowed automatic approval. Transfer of capital to foreign countries by Indian nationals is only allowed in special cases like immigration. finds you a solution for locating your foreign exchange dealers in the country. fedai ( The Foreign Exchange Dealer's Association of India (FEDAI) has been in the business since 1958. Framing rules governing the conduct of inter-bank foreign exchange business among banks and publics and liaison with RBI for reforms of the forex market is its main activity. Look in to the site to find out their member banks, the members of their management committee, their local committee members etc. You will also have the prime rates or the revaluation rates from this site. Go to their FAQs section and take a look at the commonly faced questions for your reference. Increase your knowledge base with this foreign exchange dealer. Visit their site and to do that click on the above mentioned link. icicibank ( ICICI helps take charge of your forex requirements. When you are visiting a place abroad or maybe simply sending money overseas, you can depend on this foreign exchange dealer. Find out the latest rates and look for the best that they can offer. Enjoy their professional and personalized service. Make use of their travel card, traveler’s cheque and foreign currencies. Find out from the site how you can avail of their forex services. Click the link above to know more. rbi ( Reserve Bank of India takes care of your foreign exchange needs. Go to their site and find out what the
  22. 22. norms and regulations are. Find out the restrictions of a person who is a resident of India , on holding foreign currency account. Learn how you can open, hold and maintain an Exchange Earner's Foreign Currency Account with this foreign exchange dealer. Also find out your limitations as an account holder and the responsibilities of foreign exchange dealers. You will get all the information from the site. So visit the link above and find out more. bankofbaroda ( Bank of Baroda deals in various types of foreign exchange transactions. A look in to the site will tell you what the different types of transactions are. It deals in foreign inward remittance, foreign outward remittance, and resident foreign currency account (RFC) and a lot more. Learn about their NRI accounts and the deposit schemes they offer. Take a look at their deposit products and also their loan facilities to NRIs and foreign currency loans to residents of India . To know more visit the site. westernunion ( With over 33,000 agent locations in India Western Union Money Transfer has made transferring foreign currency just a matter of a few minutes. You do not need a bank account even to receive the money. Find out how money can be sent to India with the help of this foreign exchange dealer. Take a look at the step by step method that has been explained here for you. Find an agent near your place and make transferring money easier. Also find out how one can receive money in India . Take a look at the site and you will get a host of information on forex. Click on the link to visit. webindia123 ( Are you scouting for foreign exchange dealers? This portal offers a comprehensive list of the foreign exchange dealers of Chennai. These foreign exchange dealers offer a varied range of services. Check-out their profiles and contact details. The Sri Vari Money Exchange Private Limited provides a wide range of services. There you can both purchase and sell foreign currencies as well as traveler cheques. They also offer prepaid forex cards. Take a look at their services and facilities by logging on to this site. You can also cruise through the other related links provided on this portal. ( Created in the year 1978, the Foreign Exchange of India is a comparatively new market. Unlike other financial markets the Foreign Exchange markets does not have any central exchange. Get a clear overview of the foreign exchange markets by logging on to this portal. Take a look at the services offered by the Foreign Exchange of India. The Foreign Exchange Dealers of India are the Indian commercial banks -- Introduce yourself to the foreign exchange Dealers of India by visiting this portal. Learn about the Foreign Exchange Association of India. yellowpages webindia123 ( Looking for foreign exchange dealers of India? This portal will acquaint you with the foreign exchange dealers based in the capital city of India, Delhi. Delhi is home to some of the well-renowned Foreign Exchange dealers of India. Check-out the comprehensive list of the Foreign Exchange dealers of Delhi by dropping in at this portal. Take a look at their profile before you make your move. Here you will also get the contact details of all the Foreign Exchange dealers of Delhi. banknetindia (
  23. 23. Well your search for India’s Foreign Exchange dealers ends here. This portal offers you a comprehensive list of the Foreign Exchange dealers of India –introduce yourself to the Foreign Exchange dealers of India. You can always keep yourself posted on the latest forex rates by logging onto this portal. If you are interested to advertise your bank and want to display your products, all you need to do is simply send a mail to the address provided here. unitedbankofindia ( The United Bank of India or the UBI is a well-renowned commercial bank of India providing foreign exchange services. The UBI offers a wide range of Foreign Exchange services. Check-out the Foreign Exchange schemes of UBI for the exporters and importers of India. The UBI has a wide network of 30 Foreign Exchange dealers spread all across India. Take a look at the authorized Foreign Exchange dealers of UBI and collect their contact addresses. This portal will offer you comprehensive information on the foreign exchange services of UBI. http://www.bestindiansites.comsMissions and Functions Mission To serve as FEMA’s Geospatial Information Office to oversee and coordinate proper documentation and use of agency-created geospatial data through shared investment and cost avoidance, applied use of GIS technology, and administration of robust and high quality geospatial technology and services in support of emergency management. Functions Ensure GIS data quality by acquiring and providing accurate, reliable and complete core GIS data and a central geodatabase. Operate and maintain a GIS enterprise service bus for easy and common access to geographic information, tools and services. Manage the FEMA GIS Enterprise Portfolio as an efficient, cost-effective and sustainable use of GIS technology throughout the organization. Improve the FEMA GIS knowledge base through the use of effective, broad-reaching communications and mission oriented training.
  24. 24. Operate and maintain the Mapping and Analysis Center (MAC) to provide geospatial analysis and situational awareness during disasters, emergencies, exercises, events, training and normal operations. About the Industry Liaison Program Main Content The Industry Liaison Program is the one point of entry for vendors seeking to do business with FEMA. Vendors seeking to do business with FEMA should be registered in System for Award Management (SAM), previously known as Central Contractor Registration (CCR) database. The program coordinates vendor presentations with program offices and Industry Days, conducts market research, responds to informal Congressional requests, and performs vendor analysis reporting. Industry Liaison also maintains an enterprise-wide repository – used to supplement market research for Contracting Officers – of vendors who contact FEMA. Staffed with a help desk, the program processes and routes vendor profile data to the appropriate FEMA program offices, including the Small Business Office, for follow-up. Some of the program's goals include: Implement business provider alliances between vendors and the acquisition community that will assist FEMA in the preparedness, protection, response, recovery and mitigation of disasters Leverage vendor capabilities and industry best practices, to assist FEMA in providing timely support to constituents impacted by a disaster Provide vendor-supporting industry partners greater visibility into FEMA's requirements Foster knowledge sharing between FEMA acquisitions and vendors Provide greater opportunities for local businesses, in accordance with the Stafford Act, in support of FEMA's mission
  25. 25. FAQs on FEMA: Foregin Exchange Management Act India Print This Page Email to Friend From where does one purchase foreign exchange? From authorised dealers or money changers. Who are authorized dealers? Banks certified by the RBI to transact in foreign exchange and foreign securities are also referred to as authorized dealers. How much currency is allowed for a business tour? USD 25,000 is permitted for a business tour to any country, with the exception of Nepal and Bhutan. Requirements in excess of this amount require permission of the RBI. No foreign exchange is permissible for journey to Nepal and Bhutan. Can additional foreign exchange be taken for a medical trip abroad? Upto USD 100,000 is allowed for medical treatment overseas. Requirements over and above this will be sanctioned on the basis of an approximation by a doctor or hospital in India or overseas. How much forex is permitted for studies abroad? Since students studying abroad are treated as NRIs, all rules applicable to NRIs apply to them as well .They are also entitled to receive forex upto USD 100,000 from relatives towards the cost of their studies. How much foreign exchange is permitted for persons traveling abroad for employment? Upto USD100, 000 is allowed from any authorised dealer on the basis of self-declaration. How much foreign currency can an emigrant take? Upto USD100, 000 on self- declaration basis is permitted to meet initial expenses in the adopted country. No foreign exchange remittance outside India is permitted to earn points or credits for immigration. Such outward remittances have to be supported by the RBI. How much foreign currency can be sent as a gift to a person residing overseas? One can send upto USD 5,000 a year, though amount exceeding this requires permission from the RBI. How much foreign exchange can be carried by a person visiting India? Unlimited foreign exchange is allowed .In case the total value of cash instruments – currency notes and travellers cheques - exceeds USD 10,000; a Currency Declaration Form has to be presented to the customs officials on arrival at the airport. Can a non-resident accept local hospitality from a resident? Yes. Can resident Indians open foreign currency accounts in India? Yes, EEFC Accounts and RFC Accounts can be kept by resident Indians. In the EEFC account maintained with a bank, residents are allowed to keep 50% of foreign currency remittances received from abroad which can be used for current account transactions and approved capital account transactions as specified by the RBI. In the RFC Accounts, returning Indians (ex-NRIs), can hold and maintain foreign currency. These funds are free from restrictions on use outside India. A RFC (Domestic) Account can also be maintained by resident Indians for receiving payments for services abroad, or proceeds of export of goods abroad, or received as gifts from relatives outside India. NRI Banking »NRI Banking »NRI Accounts »NRE Account »NRE Interest Rates »FCNR Account »FCNR Rates »NRO Account »RFC Account »FEMA FAQs »FEMA Rules
  26. 26. Can resident Indians hold possessions outside India? Yes, as per Section 6 of the Foreign Exchange Management Act, 1999, if such assets were purchased, held or owned during their residence outside India or inherited from a person who was resident outside India. Can an individual repatriate funds a second time during a calendar year? Repatriation is allowed only upto a limit of USD 25,000 in a calendar year, and no further remittances are permitted, even if the same funds have been remitted back to India. How are shares transferred from NRIs to Resident Indians and vice versa? Transfer from Non-Resident to Non-Resident: Transfer by way of sale: A person resident outside India can sell his shares or convertible debentures in the following manner: The sale can take place provided the receiver does not have any venture in India in the same business A NRI may sell the shares and convertible debentures possessed by him only to another NRI. An NRI can sell his shares through an authorised broker in India Transfer by way of Gift: NRIs can gift to resident Indians as under: Any person be located in outside India, can present stocks or convertible debentures to any person resident outside India; provided the receiver does not have an existing tie up in India in the same business. A NRI may gift his shares and/ or convertible debentures to another NRI only Any person residing overseas may gift shares and/or convertible debentures to a person resident in India. Transfer from Resident to Non-Resident: Transfer by sale- General Permission A resident Indian may sell shares and convertible debentures of any Indian company whose business falls under the Automatic Route, to any person living outside India subject to the sectoral limits. Any Indian company that proposes to sell shares or convertible debentures should not be involved in extending any financial service; The sale should not fall within the ambit of the provisions of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997; and Pricing procedures, documentation and reporting requirements for such a deal must be as per requirements of the RBI. Transfer by way of gift: An Indian resident who proposes to gift to a person resident outside India is required to make an application to the Central Office of Foreign Exchange Department, Reserve Bank with details of 1) Name and address of the involved parties – transferor and transferee 2) Relationship between the two, and 3) Reasons for gifting What procedure is to be followed in case the transfer does not fall into any of the above categories? In such cases, an application to the RBI has to be made with A copy of FIPB approval. Consent/approval letter from transferor and transferee stating the number of shares, name of company in which investment is to be made and the rate at which the transfer is to be made. Details of equity participation in the company by residents and non-residents. All approvals and copies of FC-GPR from RBI pertaining to existing shares of the non-residents.
  27. 27. In case the seller is an NRI or an OCB, the copies of RBI approvals of the shares held on repatriation or non-repatriation basis. In case the shares by the non-resident are under the SEBI Takeover Regulations, an Open Offer document filed with SEBI A Chartered Accountant needs to certify the value of shares in a Fair Valuation Certificate as per guidelines If the shares are unlisted, the fair value has to be calculated as per the former Controller of Capital Issue/s. Can the savings and income earned in India be repatriated? Yes, except where NRIs invest expressly in non-repatriable schemes. Dividends earned on foreign investments can be remitted without restriction. Can Foreign Currency Convertible Bonds (FCCBs) be issued by Indian companies? Yes, in compliance with the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism),1993 provided the External Commercial Borrowing guidelines of the RBI are adhered to. Can Preference Shares be used as a route to foreign investment? Yes. Proposals for such investments, which are considered as part of share capital, are filtered either through the automatic route or FIPB depending on the specific case. Can investment be made by NRIs in unlisted shares issued by an Indian company? Yes. Is a foreigner allowed to establish a partnership/proprietorship concern in India? No. Only NRIs/PIOs are allowed to set up a partnership or proprietorship business in India on a non-repatriation basis. Can rights shares issued by Indian companies be offered to foreigners at a discount? Yes, provided the rights shares are offered at par to residents as well. Foreign Technical Collaboration How are payments made for foreign technology transfer under the Automatic Route of RBI? Such payments are subject to: a maximum of US$2 million; Royalty upto 5 % for domestic sales and 8 % for exports, with no bar on the duration of the payments. The royalty limits are exclusive of taxes and are calculated as per standard conditions. The royalty is worked on the basis of the net ex-factory sale price of the product. Payments are made through authorised banks What is to be done in cases where the Automatic Route of RBI for technology transfer does not apply? The Ministry of Commerce, Department of Industrial Policy and Promotion, is referred to in such cases. What is the procedure for foreign firms to establish a Liaison office in India? RBI approval is required to set up office in India by a foreign company. How does a foreign company obtain RBI sanction to start a Liaison Office in India? The Liaison Office operates as a channel of communication between its overseas Head Office and parties in India. No business activity in India is permitted, and neither can it earn any income in India. The
  28. 28. liaison office meets its expenses through inward remittances of foreign exchange from its Head Office abroad. To open a liaison office, an submission in form FNC-1 along with relevant documents is made to Foreign Investment Division, Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai. Consent to set up a liaison office at the outset is given for 3 years, which can be subsequently extended by the RBI’s Regional Office An annual Activity Certificate from a Chartered Accountant has to be presented at the Regional Office of the RBI, verifying that the Liaison Office is engaged in only those activities which are allowed by the RBI. How is a Project Office set up? Foreign companies have been granted General Permission by the RBI to open Project Offices in India provided they have secured a contract for a project from an Indian company the project is funded wholly by remittance from overseas; or the project is funded by a bilateral or multilateral International Financing Agency; or the project has been agreed to by a suitable authority; or The Indian company awarding the contract has been extended a Term Loan by a financing institution In case the above conditions are not met, or if the foreign company is established in Pakistan, Bangladesh, Sri Lanka, Afghanistan, Iran or China, such requests are sent to the Central Office of the Foreign Exchange Department of the RBI at Mumbai for sanction. How is a Branch office set up? RBI permits foreign companies in the manufacturing and trading business to set up Branch Offices in India: To represent its parent company to conduct business in India To undertake research work in its area of business To trade on a wholesale basis To encourage possible technical and financial tie-ups between Indian companies and overseas companies. Offering professional or consultancy services Offering IT and software services Giving technical sustenance to the products supplied by the parent company. Branch offices are not permitted to carry out manufacturing, processing and trading activities on their own. An Activity Certificate from a Chartered Accountant has to be submitted annually to the Central Office of FED. For annual remittance of income, Branch Offices may submit required documents to a bank. The track record of the Applicant Company, its existing trade relations with India and financial position of the company are taken into account by the RBI while scrutinizing the application.
  29. 29. regulations made thereunder, or with the general or special permission of the Reserve Bank, no person shall- (a) deal in or transfer any foreign exchange or foreign security to any person not being an authorized person; (b) make any payment to or for the credit of any person resident outside India in any manner; (c) receive otherwise through an authorized person, any payment by order or on behalf of any person resident outside India in any manner. Explanation.-For the purpose of this clause, where any person in, or resident in, India receives any payment by order or on behalf of any person resident outside India through any other person (including an authorized person) without a corresponding inwa d remittance from any place outside India, then, such person shall be deemed to have received such payment otherwise than through an authorized person; (d) enter into any financial transaction in India as consideration for or in association with acquisition or creation or transfer of a right to acquire, any asset outside India by any person. Explanation.-For the purpose of this clause, "financial transaction" means making any payment to, or for the credit of any person, or receiving any payment for, by order or on behalf of any person, or drawing, issuing or negotiating any bill of exchange r promissory note, or transferring any security or acknowledging any debt. N Holding of foreign exchange, etc.-Save as otherwise provided in this Act, no person resident in India shall acquire, hold, own, possess or transfer any foreign exchange, foreign security or any immovable property situated outside India. FEMA: A limit for Forex transactions Posted 15 Nov 2004 by Anonymous In 1993, a review of the Foreign Exchange Regulation Act, 1973 was done. Since then, the country’s foreign exchange reserves have substantially increased, along with
  30. 30. rationalization of tariffs, current account convertibility, liberalization of Indian investments abroad, increased access to external commercial borrowings by Indian corporates, participation of foreign institutional investors in country’s major stock markets, growth of software, BPO, biotech, pharmaceutical, and telecom industries, huge inflow of foreign direct investment etc. Hence the Central Government decided to introduce the Foreign Exchange Management Act, 1999 and repeal the Foreign Exchange Regulation Act, 1973 to facilitate external trade and payments and to promote the orderly development and maintenance of foreign exchange markets in India. The FEMA, 1999 has come into force on 1 June, 2000 and the FERA, 1973 stands repealed. Transactions regulated by Foreign Exchange Management Act, 1999 A) Capital account transactions Capital account transaction means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes following transactions: a) transfer or issue of any foreign security by a person resident in India; b) transfer or issue of any security by a person resident outside India; c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; d) any borrowing or lending in foreign exchange in whatever form or by whatever name; e) any borrowing or lending in rupees in whatever form or by whatever name between a person resident in India and a person resident outside India; f) deposits between persons resident in India and persons resident outside India; g) export, import or holding of currency or currency notes; h) transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India; A resident Indian can purchase forex up to USD 1 lakh or estimation from the institution abroad (i) giving a guarantee or surety in respect of any debt, obligation or other liability incurred (i) by a person resident in India and owned to a person resident outside India; or (ii) by a person resident outside India. B) Current account transactions
  31. 31. Current account transaction means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes:- i) payments due in connection with foreign trade, other current business, services, and short-term banking and credit facilities in the course of business, ii) payment due as interest on loans and as net income from investments, iii) remittance for living expenses of parents, spouse and children residing abroad, and iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children. Limits imposed by FEMA There are some restrictions in FEMA for forex transactions. A resident Indian can transact in FOREX, for which FEMA specifies some general permission without any prior approval from Reserve Bank of India. General permission is only up to certain limits: Travel to place other than Nepal / Bhutan A resident Indian can purchase forex up to USD 10,000 in any calendar year. Prior permission of Reserve Bank of India is required to purchase in excess of USD 10,000. Visit to Nepal / Bhutan A resident Indian can carry any amount in INR but denomination of INR of 500 and above are not permitted. Study abroad A resident Indian can purchase forex up to USD 1 lakh or estimation from the institution abroad, whichever is higher for any academic year. Prior permission of Reserve bank of India is required to purchase in excess of the above. Medical treatment A resident Indian can purchase forex up to USD 1 Lakh on simple declaration and more than USD 1 lakh can be purchased on the bases of estimation from the doctor or hospital overseas. Person accompanying patient A resident Indian can purchase forex up to USD 25,000 per person for meeting boarding/lodging/travel expenses of the accompanying attendant. In excess of the above can be purchased on prior approval of Reserve Bank of India. Employment abroad
  32. 32. A resident Indian can purchase forex up to USD 1 lakh while going for employment abroad. In excess of the above can be purchased on prior approval of Reserve Bank of India. Immigration A resident Indian can purchase forex up to USD 1 lakh by providing proof of immigration visa. International credit card Credit cards /ATM / debit cards, while outside India to meet the expenses up to overall limit of USD 10000 in a calendar year is permissible. International credit card outside India can be used to purchase any item, the import of which is permitted in India. International credit card, while in India for making payment in Forex for purchase of books and other items through Internet is permissible. Purchase of Forex Any person can buy Forex from any authorised dealer/full pledge moneychanger. Payment exceeding to Rs 50,000 has to be made by way of a crossed cheque/demand draft only. Retaining and surrendering A resident Indian can retain Forex up to USD 2000 in the form of foreign currency notes or Travelers’ cheques (TCs) for future use without any time limit. Cash in excess of that is required to be surrendered to authorised dealer/money changer within 90 days and TCs within 180 days of return. Gifts and donations Gift or donations up to USD 5,000 per annum is permitted. In excess of USD 5,000 per remitter per annum can be given with the prior approval of Reserve Bank of India. Loan from NRI relatives A resident Indian can borrow a loan from close relatives, who are NRIs, up to USD 2,50,000 which is repayable after a year. Foreign coins A resident Indian can retain foreign coins indefinitely without any time limit. In the following cases, prior approval of Reserve Bank of India is required: 1. Release of forex towards commission to agents abroad for sale of residential flats / commercial plots in India exceeding the limit of USD 25000 or 5% of inward remittance, per transaction, whichever is higher.
  33. 33. 2 Remittance towards consultancy services exceeding USD 10 lakh per project for any consultancy. 3 Remittance towards trademark / franchise. 4 Remittance exceeding USD 1 lakh by an entity in India by way of pre-incorporation expenses Role of FEDAI in Foreign Exchange Authorized Dealers in Foreign Exchange (Ads) have formed an association called Foreign Exchange Dealers Association of India (FEDAI) in order to lay down certain terms and conditions for transactions in Foreign Exchange Business. Ad has to given an undertaking to Reserve Bank of India to abide by the exchange control and other terms and conditions introduced by the association for transactions in foreign exchange business. Accordingly FEDAI has evolved various rules for various transactions in order to protect the interest of the exporters, importers general public and also the authorized in dealers. FEDAI which is a company registered under Section 25 of the companies Act, 1956 has subscribed to the 1. Uniform customs and practice for documentary credits (UCPDC) 2. Uniform rules for collections(URC) 3. Uniform rules for bank to bank reimbursement. Various rules of FEDAI Rules No 1. of FEDAI deals with hours of business of banks which is the normal banking hours of ADs. On Saturdays no commercial transaction in foreign exchange will be conducted except purchase/sale of traveller’s cheques and currency notes and transactions where exchange rates have been already fixed. Rules No.2 deals with export transactions export bills purchased/discounted negotiation, export bills for collection export letters of credit, etc. Application of Rates of Crystallization of Liabilities and Recovers 1. Foreign currency bill will be purchased/ negotiation / discounted at the Authorized Dealers current bill purchase rate or at the contract rate.
  34. 34. 2. Exporters are liable for the repatriation of proceeds of the export bills negotiated/purchased/discounted sent for collection through the Authorized Dealers. They would transfer the exchange risk to the exporter by crystallizing, the foreign currency liability into Rupee liability on the 30th day after the transit period in case of unpaid demand bills. In case of unpaid usance bills crystallization will take place on the 30th day after notional due date or actual due date. Notional due date is arrived at by adding transit period, usance period and grace period if any to the date of purchase/discount/negotiation. In case 30th day happens to be a holiday or Saturday, the export bill will be crystallized on the next working day. For crystallization into rupee liability the bank will apply the TT selling rate on the date of crystallization the original buying rate whichever is higher. Normal Transit period comprises usual time involved from negotiation/purchase/discount of documents till receipt of proceeds thereof in the Nostro account. It is not, as is commonly misunderstood, the time taken for the arrival of goods at the destination. Crystallisation of Import Bills (Rules 30) All foreign currency import bills drawn under letter of credit shall be crystallized into Rupee liability on the 10th day from the date of creceipt of documents at the letter of credit opening bank in the case of demand bills and on the due date in the case of usance bills. In case the 10th day or due date falls on a holiday or Saturday the importers liability should be crystallized, into Rupee liability on the next working day. Interest on Export Bills/Normal Transit Period Concessional rate of interest on export bills is linked to the concept of normal transit period and notional due date. Normal transit period comprised the average period normally in involved from the date of negotiation/purchase/discount till the receipt of bill proceeds in the Nostro account of the bank. Normal Transit period is not to be confused with the time taken for the arrival of goods at the destination. In case of bills payable at sight or on demand basis Concessional rate of interest ad directed by the RBI on export bill is applicable for the normal transit period in case of all foreign currency bills. In case of usance bills, Concessional rate of interest as directed by the RBI on export bills is applicable for the normal transit period plus usance period. Thus a foreign currency bill payable for example at 60 days after sight will be eligible for Concessional interest rate for 60 days usance plus the normal transit period of 25 days, i.e., a total number of 85 days. Normal Transit period for purpose of all bills in foreign Currencies 25 days. Interest on Import Bills a. Bills negotiated under import letter of credit shall carry domestic commercial rate of interest as applicable to advances prescribed by Reserve Bank of India from time to time and shall be recovered from the date of debit to the AD‘s Nostro account to the date of crystallization/retirement whichever earlier.
  35. 35. B.From the dates of crystallization up to the date of retirement the bills shall carry the overdue rate of interest as specified by Reserve Bank of India from time to time. Exchange Contracts Exchange contracts shall be for definite amount unless date of delivery is fixed and indicated in the contract, the option period of delivery should be specified as. a. The option of delivery shall not exceed beyond, one month. The merchant whether a buyer or a seller will have the option of delivery. Early delivery: If a bank accepts or gives early delivery the bank shall recover/pay swap difference if any. Extension: forward contract either short term or long term contracts where extension is sought by the customers (or as rolled over) shall be cancelled (at TT selling or buying rate as on the date of cancellation) and re book only at (current rate of exchange). The difference between the contracted rate and the rate at which the contract is cancelled should be recovered from/paid to be customer at the time of extension. Such request for the extension should be made on or before the maturity date of the contract. Cancellation: In the case of cancellation of a contract at the request of the customer, the bank shall recover/pay as the case may be difference between the contract rate and the rate at which the cancellation is effected. b. Rate at which cancellation to be effected. Purchase contract shall be cancelled at the contracting banks spot TT selling rate current on the dater of cancellation. Sale contracts shall be cancelled at the contracting banks spot TT buying rate current on the date of cancellation. Where the contract is cancelled before maturity the appropriate TT rate shall be applied. SWAP Cost: a. If any shall be recovered from the customers under advise to him. b.In the absence of any instruction from the customer contracts which have matured shall on the 15th day from the date of maturity be automatically cancelled. In case the 15th day falls on a Saturday or holiday the contract will be cancelled on the succeeding working day. In the above case the customer will not be entitles to the exchange different if any since the contract is cancelled on account of his default. In case of delivery subsequent to automatic cancellation the appropriate current rate prevailing on such delivery date shall be applied. Payment of SWAP gains to the customer will normally be made at the end of the swap period.
  36. 36. Outlay and inflow of funds: a. Interest at not below the prime lending rate of the respective bank on outlay of funds by the bank for the purpose of covering the swap shall be recovered in addition to be swap cost, in case early delivery of purchase or sale contracts and early realization do export bill negotiated. The amount of funds out laid shall be arrived at by calculating the difference between the original contracted rate and the rate at which swap could be arranged. B. If such a swap leads to inflow of funds the amount shall be paid at the discretion of banks to the customer at the appropriate rate applicable for the term deposits the period for which the funds remained with the bank. C.Banks will levy a minimum charge of Rs.250 for every request from a customer for early delivery, extension or cancellation of a contract. Forex Rules And Guidelines The Reserve Bank of India had Issued the guidelines to all residents, non residents and foreigners for purchasing, surrendering foreign exchange. RBI (Reserve Bank of India) is the central bank of the india and that has the authority to issue guidelines regarding the Foreign Exchange Transaction. (Web site of any law is punishable by the provision of FEMA and other indian laws which are applicable for that offense. We are here providing very precise information about the Foreign Exchange transaction rules. for Detailed and Updated information about the Forex facilities please visit (>FEMA->FAQ). Whatever information we are giving here is for reference use only and need further consultation and cross check from RBI Office. We are not liable for ANY consequences, which may arise due to these information. So please visit RBI sites for updated information regularly For Indians Foreign exchange can be purchased from any authorised dealers, full-fledged money changers for business and private visits. If you are a Resident Indian, you can buy foreign exchange without permission from the Reserve Bank of India for :
  37. 37. Private Travel You can avail of foreign exchange upto US$ 10,000 in any calendar year for tourism or private travel to any country other than Nepal and Bhutan on the basis of self-certification. CLICK HERE TO DOWNLOAD THE DECLARATION FORMAT. Business Travel You can avail of foreign exchange upto US$ 25,000 for a Business Trip to any country other than Nepal and Bhutan on the basis of certification. CLICK HERE TO DOWNLOAD THE DECLARATION FORMAT. Endorsement on passport There is no compulsion for you to get your passport endorsed with the foreign exchange purchased for travel outside India. Should you desire to get your passport endorsed, the bank/money changer releasing foreign exchange would do it. Visit to Nepal and Bhutan You can carry any amount of Indian currency while travelling to these countries, but you are not permitted to take Indian currency notes of denomination of Rs.500 and above or buy any foreign exchange for visit to these countries. Bringing in Foreign Exchange You can bring into India foreign exchange without any limit. If, however, the value of foreign currency in cash exceeds US$ 5,000 and/or the cash plus TCs exceed US$ 10,000 it should be declared to the customs authorities at the airport in the currency declaration form (CDF), on arrival in India.. ICICI Bank Forex Broker. ICICI Bank Reviews. ICICI Bank Rating ICICI Bank License Trading software Trading conditions Min. deposit: $200 Leverage: up to 1:500
  38. 38. Commissions: 0 Free trial: Yes Pip Spread on Majors: from 1.6 Address ICICI Bank Phone Banking Centre, P. O. Box No. 20, Banjara Hills P. O.,Hyderabad 500 034, India ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (US$ 81 billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (US$ 896 million) for the year ended March 31, 2010. The Bank has a network of 2,035 branches and about 5,518 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries in the areas of investment banking, life and non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New York Stock Exchange (NYSE). Actualization date 7 February 2013 Participation in the rating Foundation 2006 Regulation FSA Platforms MetaTrader 4 Languages English, Hindi Other instruments Gold, Silver Popular payment methods Credit Cards, PayPal, Wire Transfer Mini account, $ 200
  39. 39. Standard account, $ 200 Leverage 500:1 Pip spread on majors 1.6-3 Commissions 24 hour trading Demo account 24 hour support Free phone 6630 9890 Mobile trading Headquarters Hyderabad WWW Interest charges on the balance Partnership programs Minimum position size 0.1 Digits after the dot in quotes 4 Automated trading Hedging Account currencies EUR, USD, GBP, JPY
  40. 40. Address ICICI Bank Phone Banking Centre, P. O. Box No. 20, Banjara Hills P. O.,Hyderabad 500 034, India Spread Type Variable What is a Forex Dealer? What exactly is a Forex dealer? They aren't exactly like your local auto dealer, but they do essentially the same thing. A dealer acts like the middle man in Forex investments. While nobody likes the middle man, they can truly help you in this market. They actually make it possible for you to participate, in most cases. Role of the Dealer A Forex dealer is a type of financial institution which acts as the middle man between two parties who want to trade Forex. They take the currency from one source and give it to another source who wants to buy it. This is essentially a Forex broker, although it could be an individual as well. Just like a car dealer, they take the product from one source, sell it to another and then make a little bit of money on each transaction. In the case of a Forex broker, they make money off of the Forex spread. This is the difference between what buyers are willing to buy for and what sellers are willing to sell for. This is typically a very nominal amount of money for each transaction. Authorized Forex Dealer Occasionally, you may hear the term "authorized Forex dealer" thrown around in regards to brokers. When you hear this, it's basically a fancy way of saying that they are a member of the regulating agency in that particular country. For example, in the United States, the National Futures Association is in charge of Forex brokers. A broker who is an authorized dealer has received the appropriate licenses and pay the appropriate fees to the regulatory agency. This is designed to give you a warm and fuzzy feeling when you open an account with a broker. It tells you that they're hopefully not going to take your money and run off to Tahiti with the babysitter. They have checks and balances in place with their regulatory agency that will supposedly protect your money and keep you from being scammed.
  41. 41. What Really Happens Although brokers supposedly trade your currency with other individuals, this is usually not how it works. In reality, the broker simply takes the opposite position of your trade. They know that the vast majority of traders will lose more than they win and they just bet against you. In most cases, your trade never actually makes it to the market. The broker simply keeps it on their books and pays you if you win. If you lose...well you get the idea. The Good If you look at it from one perspective, working with a dealer might seem like a bad deal. Many of them take the opposite position of you and take the spread on top of that. However, without dealers, you most likely would not be able to trade in the Forex market at all. With brokers, you get to trade with large amounts of leverage, which is required in the market. Unless you have $100,000 to invest in each lot that you buy, you're going to need leverage. This means that brokers are a necessary evil in the FOrex market. Considerations The broker you choose can have a lasting impact on the level of success that you are able to achieve in the market. The difference between spreads, execution and policies can be the difference between being profitable and losing money overall. Because of this, it is important to find out exactly what you are getting into with a broker. Check out our Forex Brokers page to find out more and to see reviews of some of the most popular brokers on the market. If you enjoyed this article, please share it with your friends by clicking on the Facebook, Twitter and other social networking buttons below. Thanks for stopping by. Making a trip abroad? Don't know how and how much money you can carry or what to do with the unused money once you are back? We try to answer these and other related questions to save your time and, of course, money.
  42. 42. Before the trip How much money can I carry? The maximum amount of foreign exchange that you can buy for your leisure/tourism purposes abroad for one or more trips is $10,000, or its equivalent, in one calendar year. The most convenient for you would be to keep $2,000, or its equivalent, in the form of currency and carry the rest either in the form of a traveller's cheque or a travel card. A travel card is a pre-paid card, into which you can put money in India to be used abroad. At what rate? Foreign exchange, or forex, is available from banks, authorised dealers and moneychangers. The rates are determined by market forces and vary across dealers. These are quoted based on the prevailing inter-bank rates. "Normally, the rate at which you would buy forex would be marginally more than the IBR rate," says Madhavan Menon, managing director, Thomas Cook India. The good part is you don't have to pay a service fee or encashment fee when you buy forex. Says Kanwar Vivek, general manager, ICICI Bank: "In case of traveller cheques, authorised dealers may charge a commission. For travel cards, a one-time card activation charge may be levied." What are travel cards? Travel cards come in handy if you want to make your trip hassle-free and convenient as far as managing money is concerned. These cards can be used abroad to withdraw cash in the local currency from over 1 million VISA ATMs. These are valid at over 14 million merchant establishments accepting VISA Flag Cards. Scope. Some of the leading financial institutions that provide travel cards are HDFC Bank (ForexPlus Card), ICICI Bank (ICICI Bank Travel Card) and State Bank of India (SBI Vishwa Yatra Foreign Travel Card). The cards are valid for seven currencies: US dollar, euro, pound sterling, Swiss francs, Australian dollar, Canadian dollar and Japanese yen (the list varies across institutions). An exchange rate is applied if the card is used for any currency other than the base currency (with which the card is loaded). According to RBI, you can have a maximum of $10,000, or its equivalent, in your card in one calendar year. The minimum amount is, however, 200 units of any currency. Benefits. These cards also give insurance benefits (varying across institutions). The covers range from personal accident, missing of connecting international flight during transit and loss of travel documents, to hijacking and delay in flight due to delay in receipt of checked baggage. The policy gets activated once you buy the card. The claim, however, is applicable only if the travel card is active on the accident date and has some balance left. The costs vary across institutions (see Costs of Convenience).
  43. 43. The paperwork. Buying forex also involves a bit of paperwork. You will need to furnish a copy of your passport and confirmed tickets. You also need to fill up Form A2 (stating the purpose of visit) and Basic Travel Quota Form, where you need to declare that you haven't exceeded the limit of $10,000, or its equivalent, in a calendar year. For a travel card, you will have to provide a copy of the PAN card or Form 60. Costs of convenience: Currency notes Traveller cheques Max amount of $2,000 or equivalent. Can be bought from authorised dealers/banks. Bought at inter-bank rates1, sold at below inter-bank rates. Some authorised dealers charge 2-3% commission when you sell. One of the safest ways to carry foreign exchange Can be bought from authorised dealers/banks Some authorised dealers may charge a nominal fee. Can be encashed at prevailing inter-bank rates. Travel cards: You can use travel cards when going abroad but you need to pay certain charges. Here are those : HDFC Bank Forexplus ICICI Bank Travel Card SBI Vishwa Yatra Travel Destination Currency Joining fee Reload fee ATM withdrawal fee2 ATM balance enquiry fee2 USD Euro GBP Rs 150 Rs 150 Rs 150 Rs 100 Rs 100 Rs 100 $2.00 Euro1.50 £1.00 $0.50 Euro0.50 £0.50 USD Euro GBP Rs 150 Rs 150 Rs 150 Rs 100 Rs 100 Rs 100 $1.50 Euro1.50 £1.50 $0.50 Euro 0.50 £0.50 USD Euro GBP Rs 110 Rs 110 Rs 110 Rs 55 Rs 55 Rs 55 $1.75 Euro1.50 £1.25 $0.40 Euro0.40 £0.30 1Foreign exchange rates that banks quote to other banks during transactions 2For every transaction Cards also charge service fee, some even charge an additional ATM fee. The card balance can be claimed at prevailing rates on the date of claim. The maximum foreign currency that can be retained in any of the above forms is limited to $2,000;any excess amount has to be encashed. After the trip Can you keep unused foreign exchange? The Reserve Bank of India allows an individual to retain up to $2,000, or its equivalent, indefinitely. Any amount over this should be encashed within 180 days of your return. In case of a travel sneed to get the balance refunded within a specified period. This, too, varies from company to company.
  44. 44. In case you fail to do so, the card would be suspended and you may face legal action. SBI does not levy any fee if you claim the card refund within 90 days of arrival, but charges Rs 110 (including service tax) if the claim is made after 90 days. Selling at what rate? While selling forex, the rate offered is slightly lower than the prevailing inter-bank rates. Says Thomas Cook's Menon: "Authorised dealers are free to charge a service fee. However, due to competition most don't charge any. This depends on the dealer as well as the area (tourist spots). Airports always attract service charges." However, the ministry of finance circular, dated 12 March 2007, meanwhile, states that service tax is not leviable on money changing as it does not fall under the category of foreign exchange broking. The RBI, meanwhile, is silent on this issue of levying service charges, and simply asks dealers to be transparent and reasonable. Clearly, authorised dealers are not heeding the advice. In a recent incident, a customer encashed foreign exchange with Thomas Cook at Indira Gandhi Inter-national Airport, New Delhi, and was charged Rs 165 as encashment fees while exchanging 2,590 Thai bhat. Thomas Cook officials were not available for comments despite repeated attempts. ICICI Bank's Vivek, meanwhile, admits that authorised dealers do levy a fee. "Authorised dealers generally charge a margin (2-3 per cent) on the prevailing inter-bank rate, or on the cost at which they would sell the currency," he says. However, if you are using a travel card, you don't need to go to any dealer at all. You just need to visit your bank. The refund on a travel cards is made at the prevailing market rate. There could be a delay of a week or so in refund, if there are some unsettled transactions. Way out: go to your bank. You can approach your own bank to encash unsused forex. Most banks do not charge a fee. While authorised dealers may refuse to encash smaller denominations, banks do not have a problem doing so. The exchange value gets deposited in your account with the bank. If you face any further problems with the bank, you can approach the banking ombudsman.