exchange control

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how to control exchange rate


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Exchange management and Exchange control:

Exchange management and Exchange control By: Maryam Asadi & Shifo Sheralieva

Foreign exchange (Forex or FX) :

Foreign exchange ( Forex or FX) Any currency other than the local currency which is used in settling international transactions . Also called foreign currency . Purchase or sale of one national currency in exchange for another nation's currency, usually conducted in a market setting. Foreign exchange makes possible international transactions such as imports and exports and the movement of capital between countries. The value of one foreign currency in relation to another is defined by the exchange rate .Foreign exchange transactions encompass everything from the conversion of currencies by a traveler at an airport kiosk to billion-dollar payments made by corporate giants and governments for goods and services purchased overseas. Increasing globalization has led to a massive increase in the number of foreign exchange transactions in recent decades.

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The foreign exchange market ( forex , FX, or currency market) is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers. The foreign exchange market determines the relative values of different currencies. [1] The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert one currency to another currency.The global foreign exchange market is by far the largest financial market, with average daily volumes in the trillions of dollars. The foreign exchange market is unique because of its huge trading volume, leading to high liquidity ; its geographical dispersion; its continuous operation: 24 hours a day except weekends the variety of factors that affect exchange rates ;


Contd ……… Any company involved in importing or exporting products or services needs to fully understand their foreign exchange risk to ensure it is effectively managed. foreign exchange risk refers to the chance that a fluctuation in an exchange rate will result in a gain or loss for a company. An Effective foreign exchange management increases profits and diversifies your income. Additional profits emerge with international business expansion. Meanwhile, diversification offers the chance to earn international profits, while the domestic economy suffers from recession.

Foreign Exchange Risks :

Foreign Exchange Risks Foreign exchange risks relate to adverse currency movements. When holding a particular currency, you lose purchasing power if its valuation begins to decline. Alternatively, a corporation may be unable to compete internationally if its domestic currency were to appreciate sharply. This corporation's goods could then become prohibitively expensive for many foreign buyers.

Foreign Exchange Management Act (FEMA) :

Foreign Exchange Management Act (FEMA) is an act that provides guidelines for the free flow of foreign exchange in India. It has brought a new management regime of foreign exchange consistent with the emerging frame work of the World Trade Organization (WTO). Foreign Exchange Management Act was earlier known as FERA (Foreign Exchange Regulation Act), which has been found to be unsuccessful with the proliberalisation policies of the Government of India.


Contd ….. The main objective behind the Foreign Exchange Management Act (1999) is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments. It was also formulated to promote the orderly development and maintenance of foreign exchange market in India.The FEMA head-office, also known as Enforcement Directorate is situated in New Delhi and is headed by a Director. The Directorate is further divided into 5 zonal offices in Delhi, Mumbai, Kolkata, Chennai and Jalandhar and each office is headed by a Deputy Director. Each zone is further divided into 7 sub-zonal offices headed by the Assistant Directors and 5 field units headed by Chief Enforcement Officers.FEMA is applicable in all over India and even branches, offices and agencies located outside India, if it belongs to a person who is a resident of India.

What exchange control mean???:

What exchange control mean??? Types of controls that governments put in place to ban or restrict the amount of foreign currency or local currency that is allowed to be traded or purchased. Common exchange controls include banning the use of foreign currency and restricting the amount of domestic currency that can be exchanged within the country.

Objectives of exchange control::

Objectives of exchange control: Protection of Balance of Payments Reducing Burden of Foreign Debt. Raising the Level of Prices Elimination of Short-term Fluctuations in Exchange Rate . Prevention of Export of Capital. Economic Planning Encouragement of Certain Economic Activities .

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