Importers were confident that the Reserve Bank of India RBI would intervene to halt any rupee decline where as exporters were of the view that the Rupee has always been over rated and that there is no way that it shall appreciate from the present value. This traditional mindset has kept companies away from hedging their exposures. Going forward, companies do take cognizance of the importance of currency risk management; however, one is not certain how many of the companies are working towards building capacity to deal with this changing scenario.
However, many firms still prefer to keep their risk exposures un-hedged as they find the forward contracts as cost centres. The problem is accentuated by the fact that in the Indian context the market for derivatives in India other than forward contracts is very shallow.
Need for a dynamic foreign exchange (FX) market in India
Nevertheless, new financial derivatives have been allowed in the market to provide for exposures arising out of increased business activity in the external sector. In the current formative phase of the development of the foreign exchange market, as we take a closer look at the initiatives taken by corporate enterprises, it would be worthwhile to provide indicative recommendations on the way forward:. I do believe that the aforementioned steps if implemented can definitely make the FX market deep and vibrant, which will make the working of the corporate sector easier in dealing with the currency exposure.
The focus of next generation regulation in domestic securities market should be on inclusive growth, i. Whatever path the foreign exchange markets in India takes, it is necessary to keep it aligned with public policy objectives, as exchanges are the mechanism through which market capitalism survives.
In recent years, China is becoming more attractive to foreign investors, which leads to capital inflows. History of currency trading in China shared in the above article will help you know more about the development in forex market. At the start of the reform era at the end of , China's foreign exchange reserves were minimal, but enough to cover the requirements of a country with a very small import bill. High trade deficits in and eroded the reserves in those years.
The reserves were held above this level for another two years. By the trade and current accounts were in deficit, but the acceleration in inward FDI flows kept foreign exchange reserves rising for most of the rest of the decade.
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By the end of September , the reserves topped USD 1. It remained around this level until the end of as trade growth slowed and foreign investment inflows declined.
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The onward march resumed in and by September foreign-exchange reserves had reached USD 3. Related Papers.
Foreign Exchange Risk Management in India
By Madan N. Annual report RBI By Govind Bevara. By Sulagna Bhattacharya.
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Join our Community. Foreign Exchange Forex is an important economic aspect to be understood properly for an economic agent like consumer, producer, government etc. Trade between two countries needs the support of Forex Market due to variations in their currencies and necessitates a reasonable common forex value of their individual currencies.
The much criticised Liberalisation, Privatisation, Globalisation Economic Reforms in one way helped our economy to get more forex reserves today. Due to its limited availability, Forex has been a controlled commodity in India for many years despite huge inflow of Forex after LPG economic reforms in