foreign exchange-

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Foreign Exchange:

Foreign Exchange Foreign exchange is the system or process of converting one national currency into another, and of transferring money from one country to another

Foreign Exchange Market:

Foreign Exchange Market The foreign exchange market is a market in which foreign exchange transactions take place

Functions of foreign exchange market:

Functions of foreign exchange market Transfer of purchasing power Provision of credit Provision of Hedging facilities

Transactions in the foreign exchange markets:

Transactions in the foreign exchange markets Spot and forward exchanges Swap operations arbitrage

Participants in foreign exchange markets:

Participants in foreign exchange markets Traders- commercial banks Brokers- brokerages firms Speculators- long position and short position Hedgers Arbitrageurs governments

Determination of exchange rates:

Determination of exchange rates Purchasing power parity (PPP)- Gustav Cassel Balance of payment theory-Demand and supply theory

Exchange Rate Systems:

Exchange Rate Systems Fixed exchange rates Flexible exchange rates

Convertibility of the Rupee:

Convertibility of the Rupee Free convertible- Partial convertibility -1992-93 in current account LERMS- Market rate and Official rate

Why partial convertibility? :

Why partial convertibility? 1. to make foreign exchange available at a low price for essential prices. At times of large deficit in current account- it is risky to go for full convertibility To bring in a stability in rupee value

Merits of convertibility:

Merits of convertibility Real value of rupee It encourages exports Encourages import substitutions Attracts remittances by NRIs

Eurocurrency market:

Eurocurrency market The money market in which Eurocurrency, currency held in banks outside of the country where it is legal tender, is borrowed and lent .

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