FOREX MANAGEMENT

Name Roll

No• Scarlet Almeida 04• Mihir D Bhammar 05• Deepa Karappan 13• Kunal Doshi 15• Dipti Gawas 19• Siddesh Kurdikar 33• Sandeep Pandita 39

Group 2

FOREX MARKETS INTRODUCTION

The FOREX market provides the physical and institutional structure through which the money of one country is exchanged for that of another country.

A foreign exchange transaction is an agreement between a buyer and a seller that a fixed amount of one currency will be delivered for some other currency at a specified rate.

"Foreign Exchange" is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example Euro/US Dollar (EUR/USD) or US Dollar/Japanese Yen (USD/JPY).

HISTORY OF FOREX MARKETS

• International Trade - Barter • Bond issues to finance infrastructure projects in developing

countries (19th century) • Gold Standard (1879 - 1934) • Bretton Woods (1944 - 1971) • 1960s: Decline of U.S Economy • 1971: Devaluation of Dollar • Managed / Dirty float • America, Germany first to free capital flows • Britain, 1979, Japan, 1980 (mostly) • France, Italy remove restrictions in 1990 • Currency Board in Hongkong, Argentina- Dollarisation? • Creeping peg in Brazil

INTRODUCTION – FX MARKETS

There are six main characteristics of the FOREX markets

The geographic extent

The three main functions. (transferring purchasing power, funding inventory in transit by letter of credits, hedging forex risk)

The market’s participants (2 tier – wholesale market or interbank & retail market) (3 tier system in India)(Bank and non bank foreign exchange dealers, Individuals and firms, conducting commercial or investment transactions,Speculators and arbitragers, Central banks and treasuries, Foreign exchange brokers)

Its daily transaction volume

Types of transactions including spot, forward and swaps

Methods of stating exchange rates, quotations, and changes in exchange rates.

0

5,000

10,000

15,000

20,000

25,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Measuring FOREX Market Activity: Average Electronic Transactions Per HourMeasuring FOREX Market Activity: Average Electronic Transactions Per Hour

GMT

Tokyoopens

Asiaclosing

10 AMIn Tokyo

Afternoonin America

Londonclosing

6 pmIn NY

Americasopen

Europeopening

LunchIn Tokyo

FOREX Market Geography

TRANSACTIONS IN FOREX MARKETS

GLOBAL FOREX TURNOVER

Forex Market Daily turn over

Forex Swaps, 1765, 46%

Outright Forwards, 475, 12%

Spot Transactions, 1400, 36%

Currency Swaps, 43, 1%

Options and other products, 207, 5%

Spot Transactions

Outright forwards

Forex swaps

Currency swaps

options and other products

Amount in Bn USD

Daily turnover to be approximate 3.98 trillion USDDaily turnover of Indan forex market is approximated between 2 to 3 bn USD.

FOREX RESERVES - 2009

Current forex reserves are 298.31bn USD

Forex Markets

• Forex" or simply "FX," allows banks and other institutions, as well as individuals, to buy and sell different types of currencies on a worldwide-scale.

The foreign currency market is unique and important because of: • High trading volumes,• Relatively large liquidity,• Factors that can influence exchange rates.

• A higher exchange rate means that it is more costly to "buy" units of that foreign currency (in terms of another currency) than a lower exchange rate.

• Exchange rates are a function of the supply and demand for currency.

• Exchange rates fluctuate for a variety of reasons related to the supply and demand model, such as relative changes in levels of income, inflation, employment and output between countries.

• The foreign exchange market is one of the largest markets in the world. By some estimates, about 3.2 trillion USD worth of currency changes hands every day

Foreign C urrenc y Ac c ounts

F O R E IG N C U R R E N C Y A C C O U N T

N O ST R O A C C O U N T

V O ST R O A C C O U N T

L O R O A C C O U N T

Foreign Currency Accounts

NOSTRO ACCOUNTS

• Foreign exchange transactions are settled through Nostro and Vostro accounts

• NOSTRO Account:: Our Account with you;

• A nostro is our account of our money, held by you

• The account maintained by an Authorized Dealer ( Indian Bank) with a foreign bank is called "NOSTRO" Account meaning "Our Account with You".

• Eg BOI’s USD ACCOUNT WITH CITI BANK NY

• Nostro accounts are mostly commonly used for currency settlement, where a bank or other financial institution needs to hold balances in a currency other than its home accounting unit.

• A Nostro account is a specific designation for a type of banking account that shows who the owner of the capital is.

Foreign Currency Accounts

VOSTRO ACCOUNTS

• A VOSTRO is our account of your money, held by us

• A Vostro Account is an account where money is being held by an outside party.

• The bank calls it a Vostro account because it is the customer’s money that the bank is holding.

• Foreign banks (Correspondents) also maintain accounts with any bank in India in Indian Rupees for the purpose of settling their rupee transactions and these accounts are called "VOSTRO" Accounts meaning "Your Account with us".

• Eg. CITI BANK RUPEE ACCOUNT WITH BANK OF INDIA

Foreign Currency Accounts

LORO ACCOUNTS

• A LORO is our account of their money, held by you

• It is a record of an account held by a second bank on behalf of a third party

• My record of their account with you

• In practice this is rarely used, the main exception being complex syndicated financing.

• Eg: State bank Of India maintaining an account with foreign correspondent say BNP New York, Canara Bank may also maintain a Nostro Account with them.

• When SBI advises BNP New York for transfer of funds to Canara Bank Account with them, Canara Bank Account is titled as LORO Account "i.e. their account with you".

SWIFT

• Society for Worldwide Interbank Financial Telecommunication

• Founded in 1973, headquartered in Brussels, Belgium.

• It is a worldwide financial messaging network where messages are securely and reliably exchanged between banks and other financial institutions

Why SWIFT ?

• Secure network

• Set of syntax standards for financial messages

• Set of connection software and services, allowing financial institutions to transmit messages over SWIFT network.

SWIFT

Advantages of SWIFT• Improved cash forecasting, liquidity management and internal control

• integration with existing systems, for example with TMS and enterprise resource planning (ERP) systems, especially in a multi-bank situation.

• The cash management service gives the ability to move money around securely and efficiently.

• Information: the corporate has the ability to query where the payment is in a situation where the beneficiary claims non-receipt.

• Implementing SWIFT is becoming less expensive resulting in savings to be realised on compliance costs and banking fees and the reduction in number of potential errors.

ROLE OF SWIFT

• SWIFT has a broad role to play in helping to define and implement the next generation of generic standards for the FX market.

• At one level SWIFT plays an 'active' role in developing new standards and is currently focusing on building business and logical message models for FX orders, confirmations and options for the treasury market.

• At another level, its role is entirely 'proactive', bringing disparate parties together to achieve, at a very minimum, a convergence of purpose - not to mention, an economy of effort - in mapping out a standards approach across the FX community.

• SWIFT is working proactively with its members to overcome message incompatibility between different industry segments.

Message Type(MT) - SWIFT

A specific type of Standards message that is expressed in the SWIFT proprietary syntax and is identified by a unique 3-digit number. e.g. MT100, MT101, MT202…

Series CategoryMT100 Customer TransferMT200 Financial TransferMT300 Treasury TransactionsMT400 Documentary Collections TransactionsMT500 Securities Transaction/ Depository ServicesMT600 Precious Metals/ Syndicate TransactionsMT700 Documentary Credits and Gurantee TransactionsMT900 Statement reports, such as Daily statements, debit & credit

Quoting Conventions

• Direct Quote is expressed in a manner that reflects the exchange of a specified number of domestic currencies vis-à-vis one unit of foreign currency. Rs 48= US $1 ,Rs 76.80 =£ 1

• Indirect Quote is expressed in a manner that reflects the exchange of a specified number of foreign currencies vis-à-vis one unit of local currency. US $ 0.02083= Re1, 0.01302= Re 1.

• Direct quotations are known as European quotations ; Indirect quotations as American quotations

• Inter Bank markets generally use quotation conventions adopted by ACI (Association Cambiste Internationale)

• A currency quote is denoted by a three letter code for two currencies separated by an oblique or a hyphen. Eg: USD/INR

• The first currency in the pair is the ‘base’ currency and the second the ‘quoted’ currency.

Quoting Conventions

• A two-way quote is a kind of quote that provides the bid price and ask price of a foreign exchange, giving the trader the indication of what rate the instrument was purchased at, and the rate at which they intend to move it on.

• Eg.£ 1= Rs 78.1000 –Rs. 78.1500

• First two digit before decimal pt is know as figure, two digit after decimal pt is know as Point and rest two know as PIPS

• Spread is difference between the ask price and the bid price.

Spread

• For example, this quotation shows participants in a market are willing to pay 1.2635 for the EURUSD, and are conversely willing to sell the same pair at 1.2638. This creates a 1.2635/38 spread, which is 3 basis points wide.

• Cross Rate is the rate of exchange of two currencies on the basis of exchange quotes of other pairs of currencies.

• Eg. New Zealand $/US S 1.7908-1.8510

• Rupee/US $ 48.0465-48.211111

• Rupee/ New Zealand $ 25.9571-26.9215

Spot & Forward

• Spot Rate is the rate of exchange of the day on which transaction has taken place and of the day the transaction is executed.

• Forward exchange rate is the rate of exchange applicable for delivery of foreign exhange at future date.

Settlement conventions

• A Spot exchange rate applies to a FX transaction with a settlement date that is 2 business days after the trade date(T+2).

• Value tomorrow exchange rate applies to FX transaction with settlement date that is 1 business day after trade date (T+1).

• A forward Exchange rate applies to FX transaction with settlement date that is more than 2 business days and upto 2 years after the trade date.

Exchange Rate Arrangements

• Price of one country's money in relation to another's.

• The most famous fixed exchange-rate system was the gold standard; in the late 1850s, one ounce of gold was defined as being worth 20 U.S dollars

• For example an exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 91 is worth the same as USD 1.

• Domestic currency will be issued only against foreign exchange and that it remains fully backed by foreign assets, eliminating traditional central bank functions, such as monetary control and lender-of-last-resort, and leaving little scope for discretionary monetary policy.

Types of Exchange Rate systems

Fixed Exchange Rate system

• Prior to the 1970’s most countries operated under a fixed exchange rate system known as the Bretton-Woods system

• The exchange rates of the member countries were fixed against the U.S. dollar, with the dollar in turn worth a fixed amount of gold.

• In a fixed exchange rate system, the Central Bank stands ready to exchange local currency and foreign currency at a pre-announced rate.

• The central bank announces a fixed exchange rate for the currency and then agrees to buy and sell the domestic currency at this value

The basic motivation for keeping exchange rates fixed is the belief that a stable exchange ratE will help facilitate trade and investment flows between countries by

reducing fluctuations in relative prices and by reducing uncertainty.

• Advantages:• fixed exchange rates offer much greater stability for the enterprisers and stimulate

international trade; • the importers and exporters can plan their policy without begin afraid of

depreciation or appreciation of the currency.• fixed exchange rates make the producers more disciplined, i.e. they are forced to

keep up with the quality of their production and to control the costs of the production to stay competitive compared to international enterprisers.

• This advantage of fixed exchange rates allows the government to decrease inflation level and stimulate international trade and economical growth in the long period.

• Disadvantages:

• The high vulnerability of the economical system to speculative attacks• The government artificially supports the exchange rate, which is not adjusted to

changed economical condition.• Interest rates, which directly depend on the exchange rate, can stop possible

economical growth in case of their disparity to market needs

Fixed Exchange Rate system

Types of Fixed Exchange Rate

• Exchange Arrangements with No separate Legal Tender: The currency of another country circulates as the sole legal tender or the member

belongs to a monetary or currency union in which the same legal tender is shared by the members of the union

• Currency Board Arrangements: A monetary regime based on an explicit legislative commitment to exchange

domestic currency for a specified foreign currency at a fixed exchange rate, combined with restrictions on the issuing authority to ensure the fulfillment of its legal obligation.

Currency board:• A currency board is a fixed exchange rate regime where there are enough foreign

currency reserves to convert all domestic money into foreign currency. Example In Argentina’s currency board,which was 1 peso to 1 dollar, the

Argentinean Central Bank could only issue as many pesosas it had dollar reserves. I In Hong Kong’s currency board which was 7.28 HK dollars to the U.S. dollar the

monetary authority in Hong Kong could only issue 7.28 times as many HK dollars as they have U.S. dollars in reserve.

• Conventional Fixed Peg Arrangements: The country pegs its currency (formally or de facto) at a fixed rate to a major

currency or a basket of currencies where the exchange rate fluctuates within a narrow margin of at most ±1 percent around a central rate.

Types of Pegged Exchange Rates

Conventional Fixed Peg Arrangements: The country pegs its currency (formally or de facto) at a fixed rate to a

major currency or a basket of currencies where the exchange rate fluctuates within a narrow margin of at most ±1 percent around a central rate.

• Pegged Exchange Rates Within Horizontal Bands:The value of the currency is maintained within margins of fluctuation around a formal or de facto fixed peg that are wider than ±1 percent around a central rate. This is just a fixed exchange rate system like the one described above except that the fixed rate changes in a pre-determined manner instead of in an arbitrary way.

• Example: The Brazilian government would announce a fixed exchange rate of 10,000 cruzeiros to the dollar and also state that the rate would devalue by 10% each year

• Crawling Pegs:The Currency is adjusted periodically in small amounts at a fixed, preannounced rate or in response to changes in selective quantitative indicators.

Floating/Flexible Exchange Rate system

• The value of the currency is determined by the market, i.e.by the interactions of thousands of banks, firms and other institutions seeking to buy and sell currency for purposes of transactions clearing, hedging, arbitrage and speculation.

A currency that uses a floating exchange rate is known as a floating currency. • Higher Demand/Decrease in Money supply = Currency Appreciation• Lower Demand/Increased in supply = Currency Depreciation.• Most OECD countries have flexible exchange rate systems: the U.S., Canada, Australia,

Britain, and the European Monetary Union.• Advantages:• As floating exchange rates automatically adjust, they enable a country to dampen the impact

of shocks and foreign business cycles, and to preempt the possibility of having a balance of payments crisis.

• It automatically determines interest rates within the country and therefore allows controlling the economical balance more effectively

• Disadvantages:• A free floating exchange rate increases foreign exchange volatility• These economies have a financial sector with one or more of following conditions:• high liability dollarization • financial fragility • strong balance sheet effects  • When liabilities are denominated in foreign currencies while assets are in the local currency,

unexpected depreciations of the exchange rate deteriorate bank and corporate balance sheets and threaten the stability of the domestic financial system.

Types of Floating Exchange Rate

• Exchange Rates Within Crawling Bands: The Currency is maintained within certain fluctuation margins around a central rate that is

adjusted periodically at a fixed preanounced rate or in response to changes in selective quantitative indicators.

• Managed floating with no preannounced path for exchange rate: The monetary authority influences the movements of the exchange rate through active

intervention in the foreign exchange market without specifying, or precommitting to, a preannounced path for the exchange rate.

• Independent Floating: The exchange rate is market determined, with any foreign exchange intervention aimed at

moderating the rate of change and preventing undue fluctuations in the exchange rate, rather than at establishing a level for it.

Managed floating rate systems

• A managed floating rate systems = fixed exchange rate + flexible exchange rate system.

• In a managed floating exchange rate system, the central bank becomes a key participant in the foreign exchange market

• The central bank has either an implicit target value or an explicit range of target values for their currency: it intervenes in the foreign exchange market by buying and selling domestic and foreign currency to keep the exchange rate close to this desired implicit value or within the desired target values.

• Example: Suppose that Thailand had a managed floating rate system and that the Thai central bank wants to keep the value of the Baht close to 25 Baht/$. In a managed floating regime, the Thai central bank is willing to tolerate small fluctuations in the exchange rate (say from 24.75 to 25.25) without getting involved in the market.

• IF Demand for Baht = Appreciation of Baht below 24.75 then the Central Bank increases the supply of Baht by selling Baht for dollars

• If Supply of Baht = Depreciation above the 25.25 level the Central Bank increases the demand for Baht by exchanging dollars for Baht and

running down its holdings of U.S dollars.

As of 2007, 111 countries adopted fixed exchange rates. Specifically, 41 countries have no separate legal tender, 7 countries have currency boards, 52 countries have fixed pegs, 6 horizontal bands, and 5 crawing pegs.76 countries adopted floating. (source: IMF).

Dollarisation

• Dollarization occurs when the inhabitants of a country use foreign currency in parallel to or instead of the domestic currency. The term is not only applied to usage of the United States dollar, but generally to the use of any foreign currency as the national currency.

• The major advantage of dollarization is promoting fiscal discipline and thus greater financial stability and lower inflation.

• The biggest economies to have officially dollarized as of June 2002 are Panama (since 1904), Ecuador (since 2000), and El Salvador (since 2001).

The United States dollar, the euro, the New Zealand dollar, the Swiss franc, the Indian rupee, and the Australian dollar were the only currencies used by other countries for official dollarization.

Exchange Rate Mechanism II

• The European Exchange Rate Mechanism, ERM, was a system introduced by the European Community in March 1979, as part of the European Monetary System (EMS), to reduce exchange rate variability and achieve monetary stability in Europe, in preparation for Economic and Monetary Union and the introduction of a single currency, the euro, which took place on 1 January 1999.

• The adoption of the euro, policy changed to linking currencies of countries outside the Eurozone to the euro (having the common currency as a central point).

• The goal was to improve stability of those currencies, as well as to gain an evaluation mechanism for potential Eurozone members. This mechanism is known as ERM2.

• The ERM is based on the concept of fixed currency exchange rate margins, but with exchange rates variable within those margins. This is also known as a semi-pegged system.

• On 31 December 1998, the European Currency Unit (ECU) exchange rates of the Eurozone countries were frozen and the value of the euro, which then superseded the ECU at par, was thus established.

• In 1999, ERM II replaced the original ERM.

FOREX PRODUCTS IN INDIA

The forex derivative products that are available in Indian financial markets can be sectored into three broad segments viz. forwards, options, currency swaps.

•Forwards Contract - A Hedging Instrument entered into to hedge oneself against exchange risk. customer locks-in the exchange rate at which he will buy or sell Discount and Premiumcurrency at premium if more expensive in the forward market than in the spot market. Let us assume the following USD/INR quotesUSD/INR Spot :: 40.50/51

USD/INR 3 Months :: 40.76/78

So the dollar is expected to be more expensive in the future and hence is at a premium against the rupee

•Forward Buying RateDollar/ Rupee Market Spot Buying Rate :: 40.50Add : Forward Premium ORLess : Forward Discount Thus give the Forward Buying Rate for USD/INR

FOREIGN EXCHANGE OPTION

• foreign exchange option is a derivative financial instrument where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date

• example : GBPUSD FX option-owner has the right but not the obligation to sell £1,000,000 and buy $2,000,000 on December 31.

• when rate < 2.0000 ie dollar is stronger and the pound is weaker, then the option will be exercised, allowing the owner to sell GBP at 2.0000 and immediately buy it back in the spot market at 1.9000,

• profit = (2.0000 GBPUSD - 1.9000 GBPUSD)*1,000,000 GBP = 100,000 USD

• in GBP this amounts to 100,000/1.9000 = 52,631.58 GBP.

• Also used as hedge against exchange rate risk.

CURRENCY SWAPS

• Involve an exchange of cash flows in two different currencies used to raise funds in a market where the corporate has a comparative advantage, at a cost lower than if he accessed the market of the second currency directly an exchange rate.

• Generally the prevailing spot rate is used to calculate the amount of cash flows, apart from interest rates relevant to these two currencies.

• These instruments are used for hedging risk arising out of interest rates and exchange rates contract which commits two counter parties to an exchange, over an agreed period, two streams of payments in different currencies.

• Each calculated using a different interest rate, and an exchange, at the end of the period, of the corresponding principal amounts, at an exchange rate agreed at the start of the contract.

CURRENCY SWAPS

CONSIDER A SWAP IN WHICH:

• Bank UK commits to pay Bank US, over a period of 2 years, a stream of interest on USD 14 million, the interest rate is agreed when the swap is negotiated.

• in exchange, Bank US commits to pay Bank UK, over the same period, a counter stream of sterling interest on GBP 10 million; this interest rate is also agreed when the swap is negotiated.

• Bank UK and Bank US also commit to exchange, at the end of the two year period, the principals of USD 14 million and GBP 10 million on which interest payments are being made; the exchange rate of 1.4000 is agreed at the start of the swap.

• We can now see from the above that currency swaps differ from interest rate swaps in that currency swaps involve:

• An exchange of payments in two currencies.

• Not only exchange of interest, but also an exchange of principal amounts. • Unlike interest rate swaps, currency swaps are not off balance sheet instruments

since they involve exchange of principal at the end of the period.

CURRENCY SWAPS

• The idea of entering into the currency swap is that, Bank US is probably expecting an amount of GBP 10 million at the end of the period, while Bank UK is expecting an amount of USD 14 million, which they agreed to exchange at the end of the period at a mutually agreed exchange rate.

• The interest payments at various intervals are calculated either at a fixed interest rate or a floating rate index as agreed between the parties.

• Currency swaps can also use two fixed interest rates for the two different currencies – different from the interest rate swaps.

• The agreed exchange rate need not be related to the market.

• The principal amounts can be exchanged even at the start of the swap

Currency Futures, Forex Futures

• Are legally binding contracts between buyers and sellers to buy or sell a specific sum of currency in exchange for another at a specified exchange rate.

• Delivery of the same is meant to take place on a specific future date. Currency futures are traded in specialized futures exchanges.

• Main participants of this organized market comprise bankers, importers, exporters, multinational corporations and private speculators.

• Only the exchange rate can be negotiated by the buyers and sellers. The remaining specifications, such as defining the underlying currency, trading unit and delivery month, are set by the futures exchange.

• Companies hedge by either purchasing currency futures for their future payables, or sell the futures on currencies for their future receipts.

• Speculators may also buy or sell futures on a foreign currency as a protection against the strengthening or weakening of the US dollar.

• So, speculators may be able to earn profit from the rise or fall of these exchange rates.

FOREIGN EXCHANGE TURNOVER

Capital Inflow : The way forward for India

• Emerging economies grappling with Foreign Investments

• IMF – change of view on the capital controls for developing & developed countries

• Developed countries : high Fiscal Deficit & rising debts levels

• Emerging Economies high speed growth recovery

• Resulting in prices of goods & services increasing and the Impact on the exchange rates

Policy Responses recommended - IMF

• A flexible exchange rate allowing appreciation of currency

• Reserve accumulation through currency intervention

• Reduction in domestic Interest Rates

• Tightening of fiscal policy to allow for lower interest rates

• Strengthening prudent regulation

• Liberalization of Capital out flow controls

The fact – Indian scenario

• Flexible exchange rate currency appreciation Rupee to appreciate , this is not possible with Fiscal Deficit

4% of the GDP & any further increase will erode India’s external Competitiveness

• Reserve Accumulation through currency buying excess dollar would mean that injecting further liquidity in system, Given the high inflation rate, this is a flawed response

• Reduction in the Domestic Interest Rates India is in the mode of monetary tightening to contain

inflation, which is exceptionally high and rising, so interest rates must rise

• Tightening of fiscal policy – lower Rates This has already begun but, since monetary tightening will

continue for some time it is unlikely to reduce interest rates enough to dissuade capital inflows

• Strengthening prudent regulation  India has a prudent, well-recognised regulatory regime, which helped it

weather the global financial crisis. There is little room to further strengthen prudential regulations that could help deal with capital inflow surges and their attendant financial risks

• Liberalization of Capital out flow The last option from the IMF report is to relax capital outflow controls.

India has been liberalising its capital outflows and has gradually lifted the cap on capital outflows from both resident individuals and corporate entities

• The IMF states in its GFSR(Global Financial Stability Report) that if its policy options appear insufficient to meet with the sudden or large increase in capital inflows “capital controls may be a useful element in the policy toolkit”

Cont..

Capital Controls Method

• Administrative Capital control

• Price or Market Based Control

• Administrative Capital control India already maintains administrative controls on capital account

which are either prohibitive in nature or prescribe quantitative limits.

During times of excess or scanty capital inflows, India had resorted to tightening or loosening of administrative controls, largely on debt flows

• Market Based Control Discourages Capital transactions by increasing their cost. This is done

in two ways unremunerated reserve requirements (URR) Followed by countries like Colombia (2007-08) and Thailand (2006-08)

The other way is taxes on capital inflows  Brazil in 2008 and again from October 2009

• India has relied largely on administrative controls to tackle a surge in capital inflows

• In both debt and equity inflows

• Debt inflows are subject to limits

• In the case of equity inflows, while there is no overall limit imposed on the amount, a cap in terms of their proportion to a company’s share capital is imposed

• However, if FII equity inflows continue to be excessive, the authorities may need to seriously consider a move to price-based controls

• Imposing an unremunerated reserve requirement or a tax on FIIs may be the only viable way forward

Bibliography

• www.imf.org

• www.moneycontrol.com

• www.fxstreet.com

• www.voxeu.org

• www.eastasiaforum.org

Thank You