Foreign Exchange Markets globally are getting more and more integrated and complex.

The Indian ForexMarket has moved away from a rigid regulated regime and getting more deregulated and global.

This is a crucial period of transition before Full Capital Account Convertibility.

The global scenario is also shifting. The main centre of gravity still around the USD. The emergence of Asian Economies shifting focus to Asian markets.

OVERVIEW OF FOREIGN EXCHANGE

Deposits, credits and balances payable in foreign currency

Drafts, travelers' cheques, letter of credit or bill of exchange expressed or drawn in Indian currency but payable in foreign currency

Drafts, travelers' cheques, L/Cs, etc. drawn by banks, institutions or persons outside India but payable in Indian currency

DEFINITION OF FROEIGN EXCHANGE

Individuals and HUFs Corporate’s and FIIs Banks and FIs RBI Brokers

FOREIGN EXCHANGE PARTICIPATION

Organizational setting within which individuals, governments and banks buy and sell foreign currencies

Only a small fraction of daily transactions in foreign exchange involve trading of currency

Most foreign exchange transactions involve transfer of bank deposits

FOREIGN EXCHANGE MARKET

Major banks that act as market-makers always give two-way quotes; gives depth and volume to the market

Fundamental reasons Technical reasons Speculation

FACTORS AFFECTING EXCHANGE RATE

FOREIGN EXCHANGE MARKETS FEDAI’s PERSPECTIVE

Foreign Exchange Dealer's Association of India (FEDAI) was set up in 1958 as an Association of banks dealing in foreign exchange in India.

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.

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.

INTRODUCTION TO FEDAI

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.

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.

FUNCTION

MEMBER BANKSPUBLIC BANKS

PRIVATE BANKS

FOREIGN BANKS

FINANCIAL INSTITUTIONS

Name of the Banks Currencies Rate % p.a.

Bank of Nova Scotia CAD 3.00

Bank of Tokyo-Mitsubishi Ltd.

JPY 1.475

Barclays Bank (Base Rate) GBP 0.50

Citibank N A USD 3.25

Deutsche Bank AG EUR 2.25

Swiss National Bank CHF 0.04*

PRIME RATES - FOREIGN CURRENCY FUNDS

FEDAI brings a common platform through its members and plays a role of Self Regulatory Organization(SRO).

In a free market while there are very few regulations the importance of Self Governance for healthy, vibrant, efficient functioning of market cannot be over emphasized.

Such Self Regulation or Governance is significant for the survival of the market itself as it grows and merges with global markets.

In order to have a level playing field and best practices for all participants there need to be a “CODE OF CONDUCT” and also Guidelines.

For this purpose an Association like FEDAI is the right platform to evolve such Best Practices.

FEDAI’s ROLE & PERSPECTIVE

A self regulatory organization. Plays a vital role for smooth functioning of markets. Ensures close coordination with RBI and other

organization FIMMDA, the forex association and various other participants.

FEDAI maximizes the benefits derived from synergies of member banks.

It brings innovations in areas like new customized products

FEDAI benchmarks against international standards on accounting market practices, risk management.

IMPORTANCE OF FEDAI

FEDAI are present in other International markets like London, New York and Singapore.

Further, FEDAI covers various aspects of the market like market dealing, trade transactions, accounting and training.

Indian entities big and small are more and more exposed to the risks in the foreign markets.

The need for training and developing the cadre of knowledge based foreign trades assumes great significance.

GLOBAL SCENARIO OF SROs

Authorized Dealer will decide its business hours for various types of foreign exchange

transactions at each centre where its branches undertake forex business.

whether they would like to have uniform hours of business for all categories or different business hours for different categories of fore business.

Heads of International Divisions/Forex Departments of Authorized Dealers shall advise their designated branches regarding the establishment of business hours for various types of foreign exchange transactions

1. HOURS OF BUSINESS

Authorized Dealers will purchase only Approved Bills. This includes bills tendered under forward contracts, letters of credit, letters of guarantee, letters of authority, orders to negotiate, orders for payment and any other type of document of similar nature.

Foreign currency bills will be purchased /negotiated/ discounted at the Authorized Dealers at current buying rate or at the contracted rate. Interest for the normal transit period, and usance period shall be recovered simultaneously.

Exporters are liable for the repatriation of proceeds of the export bills sent for collection by the Authorized Dealers.

Concept of Normal Transit Period and Notional Due Date

2. EXPORT TRANSACTION

“Bills” shall include all documentary/clean bills received under letter/s of credit, standby letter/s of credit, letter/s of guarantee, letter/s of authority, order/s to negotiate, order/s for payment and other document/s or undertaking/s of a similar nature or on collection basis covering imports into India.

Establishment and amendment of all import letters of credit shall be at the discretion of the Authorized Dealers.

For the purpose of determining stamp duty on import bills, the foreign currency amount of the bills shall be converted into Rupees at the exchange rates prescribed by Government of India from time to time.

3. IMPORT TRANSACTIONS

Foreign currency travelers cheques/currency notes will be en-cashed at the Authorized Dealers optional the travelers cheques /currency note encashment rates ruling on the date of such encashment.

Outward remittances shall be effected at the TT selling rate of the bank ruling on the date of such remittance or at the forward contract rate.

4.CLEAN INSTRUMENTS

Exchange contracts shall be for definite amounts and periods and contracts permitting option of delivery must state the first and last dates of delivery.

When a bill contract, mentions more than one rate for bills of different deliveries, the contract must state the amount and delivery against each such rate.

In all forward merchant contracts, the merchant whether a buyer or a seller will have the option of delivery.

5.FOREIGN EXCHANGE CONTRACTS

If the fixed date of delivery or the last date of delivery option is a holiday/declared a holiday the delivery shall be effected/delivery option exercised on the preceding working day.

The merchant purchase contract should state the tenor of the bills/documents. Acceptance of delivery of bills/documents drawn for a different tenor will be at the discretion of the bank.

At the request of the customer, unless stated to the contrary in the provisions of FEMA, 1999, it is optional for a bank to :

a. Accept or give early delivery. b. Extend the contract.

If a bank accepts or gives early delivery, the bank shall recover/pay swap difference, if any.

6.EARLY DELIVERY, EXTENSION, & CANCELLATION, OF FOREIGN EXCHANGE CONTRACTS

Foreign exchange contracts either short term or long-term contracts where extension is sought by the customers shall be cancelled and rebooked simultaneously only at current rate of exchange. The difference between the contracted rate and the rate at which the contract is cancelled shall be recovered from/paid to the customer at the time of extension.

In all cases of early delivery of purchase or sale contracts, swap cost shall be recovered from customers irrespective of whether an actual swap is made or not.

When Authorized Dealers make contracts through brokers, such contracts shall only be made through a broker an exchange brokerage be paid only to accredited exchange brokers.

No brokerage or other form of remuneration shall be paid by the Authorized Dealers to other bank employees on contracts made in respect of any foreign exchange business.

Accredited exchange brokers are permitted to contract exchange business on behalf of Authorized Dealers in foreign exchange.

7. BUSINESS THROUGH EXCHANGE FOREIGN BROKERS

Priya Pandaya – 37 Manisha Nigam – 34 Neha Soni – 03 Jash - 57 Chintan - 15 Vivek - 12 Himanshu - 20 Chirag – 60.

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