Fera Fema Policy

1. FEMA
MONETARY
POLICY

2. Presented by :- Presented to:-
Smt. S.D.M. P.G. girls’ collage
BBA 5th SEMESTER

4. What is Monetary Policy?
Monetary policy refers to the steps taken by a
country’s central bank to control the money
supply for economic stability. For example,
policymakers manipulate money circulation for
increasing employment, GDP, price stability by
using tools such as interest rates, reserves,
bonds, etc.

5. MONETARY
Monetary related to
 Regulate availability of money supply
1. Control inflation
2. Reduce unemployment
3. For expansion of economy
 Role of formulating monetary policy by central bank of
country
 Maintain price stability while keeping in mind the objective of
economic growth

6. Types of Monetary policy

7. Contractionary monetary policy
 Decrease the money supply
 To fight the inflation
 Increase interest rate
 Decrease the economic activity
 Slowdown in economic growth
 Increase in unemployment
Tight money policy as central banks seeks to reduce the money
supply by restricting credit by increasing interest rates

8. Expansionary Monetary Policy
 Increase the money supply
 Increase aggregate demand
 Economic growth
 Lowering the interest rates
 Increase in economic activity
 More employment opportunities
 Also increase the inflation as more money is available
Easy money policy or loose money policy as central banks seeks to
increase the money supply by lowering the interest rates

9. Objective
Controlled
expansion
Full
employment

11. Tools of
monetary
policy

12. Net demand and time liability (NDTL)
BANK
Saving account
Current
account
Fixed Deposit
Recurring
Deposit
]-
]-
Demand
liability
Time
liability

13. •Repo Rate: Repo Rate refers to the interest rate at which
the Reserve Bank provides liquidity under the liquidity
adjustment facility (LAF) to every LAF participant against
the collateral of government and other approved
securities.
•Open Market Operations (OMOs): These operations
include outright purchase/sale of government securities by
the Reserve Bank for injection and/or absorption of durable
liquidity in the banking system.
Cash Reserve Ratio (CRR): CRR refers to the average
daily balance a bank is mandated to maintain with the
Reserve Bank as a per cent of its net demand and time
liabilities (NDTL) as on the last Friday of the second
preceding fortnight, which the Reserve Bank will notify
from time to time in the Official Gazette.

14. •Reverse Repo Rate: This is the interest rate at which the
Reserve Bank takes in the liquidity from banks against the
collateral of qualified government securities under the LAF.
Since the introduction of SDF, the fixed rate reverse repo
operations are done under the supervision of the RBI for
purposes specified from time to time.
•Bank Rate: Bank rate is the rate at which the Reserve Bank
is willing to purchase or rediscount bills of exchange or other
commercial papers. It acts as the penal rate that's levied on
banks when there are shortfalls in meeting their reserve
requirements (cash reserve ratio and statutory liquidity ratio).
The Bank Rate was published under Section 49 of the RBI Act,
1934, and the rate has been aligned with the MSF rate.
Moreover, it changes automatically whenever the MSF rate
changes alongside the policy repo rate changes.

15. •Marginal Standing Facility (MSF) Rate: On an overnight
basis, the penal rate at which banks can borrow from the
Reserve Bank by plunging into their Statutory Liquidity Ratio
(SLR) portfolio up to a predefined limit. To the banking system,
this acts as a safety valve against unanticipated liquidity
shocks.
•Statutory Liquidity Ratio (SLR): In India, every bank is
required to maintain assets and their value must not be less
than the percentage of the total of its demand and time
liabilities as on the last Friday of the second preceding
fortnight, which the Reserve Bank will notify by giving
notification in the Official Gazette. Unless it's specified in what
type of manner the assets should be maintained, typically they
should be in unencumbered government securities, cash and
gold.

17. Foreign Exchange Management Act (FEMA)
 Exchange Regulation Act (FERA)
 Foreign Exchange Management Act, 1999 (FEMA) came into
force by an act of Parliament. It was enacted on 29
December 1999.
What is FEMA?
It is a set of regulations that empowers the Reserve Bank of India to pass
regulations and enables the Government of India to pass rules relating to
foreign exchange in tune with the foreign trade policy of India.
Which Act did FEMA replace?
FEMA replaced an act called Foreign Exchange Regulation Act (FERA).

18. Why was FERA replaced?
FERA did not comply with the post-liberalization policies of the Government.
Objective
 Facilitating external trade and payment
 Promotes its development
 Maintenance of foreign exchange market in India.
 To remove imbalance of payment or unfavourable BOP
Import > Export
Duties of authorised person
 Not to be engage in any unauthorised act / transaction.
 RBI direction.
 FEMA provisions.
 Maintain books , accounts , etc.

19. SILENT FEATURE OF FEMA
 FEMA replaced the FERA which emphasize on
management of foreign exchange rather than
regulation of foreign exchange.
 No person can deal transfer foreign exchange other
than authorized person.
 The FEMA empowers the central government to
impose restriction on dealing in foreign exchange
and foreign security and payment to and receipt from
any person out side India.
 The act imposes restrictions on person resident in
India on acquiring ,holding or owing foreign
exchange, foreign security and immoveable property
and on transfer of foreign exchange and security
abroad.
 FEMA facilitates trade and also prevent misuse of
foreign exchange.

20. BASIS FOR COMPARISON FERA FEMA
Meaning An act promulgated, to
regulate payments and
foreign exchange in India, is
FERA.
FEMA an act initiated to
facilitate external trade and
payments and to promote
orderly management of the
forex market in the country.
Enactment Old New
Number of sections 81 49
Introduced when Foreign exchange reserves
were low.
Foreign exchange position
was satisfactory.
Approach towards forex
transactions
Rigid Flexible
Basis for determining
residential status
Citizenship More than 6 months stay in
India
Violation Criminal offence Civil offence
Punishment for contravention Imprisonment Fine or imprisonment (if fine
not paid in the stipulated
time)