A Project Report on “Swot Analysis of Indian Foreign Exchange Markets"

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A project report on “SWOT Analysis of Indian Foreign Exchange Markets"

Table of Contents

1. History of Indian Foreign Exchange Market ........................................................................................... 3 1.1. Early Stages: 1947-1977 ................................................................................................................. 3 1.2. Formative Period: 1978-1992 ......................................................................................................... 4 1.3. Post-Reform Period: 1992 onwards ............................................................................................... 5 1.4. Measures Initiated to Develop the Foreign Exchange Market in India .......................................... 6 1.4.1.Institutional Framework ......................................................................................................... 6 1.4.2.Increase in Instruments in the Foreign Exchange Market ...................................................... 7 1.4.3.Liberalization Measures .......................................................................................................... 7 1.4.4.Disclosure and Transparency Initiatives ................................................................................. 7 2. An Overview: Fera And Fema ................................................................................................................. 8 3. Strengths of the Indian Foreign Exchange Market ............................................................................... 10 4. Weaknesses of the Indian Foreign Exchange Market .......................................................................... 11 5. Current World Forex Market Size ......................................................................................................... 12 6. Updates on Foreign Exchange Markets ................................................................................................ 18 6.1.1.Significant Milestones in the Development of Derivatives Market are:............................... 19 6.1.2.Exchange traded currency futures........................................................................................ 19 6.1.3.Currency futures ................................................................................................................... 19

International Finance

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History of Indian Foreign Exchange Market
Early Stages: 1947-1977
The evolution of India’s foreign exchange market may be viewed in line with the shifts in India’s exchange rate policies over the last few decades from a par value system to a basket-peg and further to a managed float exchange rate system. During the period from 1947 to 1971, India followed the par value system of exchange rate. Initially the rupee’s external par value was fixed at 4.15 grains of fine gold. The Reserve Bank maintained the par value of the rupee within the permitted margin of ±1 per cent using pound sterling as the intervention currency. Since the sterling-dollar exchange rate was kept stable by the US monetary authority, the exchange rates of rupee in terms of gold as well as the dollar and other currencies were indirectly kept stable. The devaluation of rupee in September 1949 and June 1966 in terms of gold resulted in the reduction of the par value of rupee in terms of gold to 2.88 and 1.83 grains of fine gold, respectively. The exchange rate of the rupee remained unchanged between 1966 and 1971 Given the fixed exchange regime during this period, the foreign exchange market for all practical purposes was defunct. Banks were required to undertake only cover operations and maintain a ‘square’ or ‘near square’ position at all times. The objective of exchange controls was primarily to regulate the demand for foreign exchange for various purposes, within the limit set by the available supply. The Foreign Exchange Regulation Act initially enacted in 1947 was placed on a permanent...
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