The market in which international currency trade takes place i. It is the organisational framework within which banks, merchants, firms, investors, individuals and government exchange foreign currencies for one another. The value for which one currency is exchanged for another or the value of one currency in terms of another currency is called exchange rate.
This is the exchange rate for Indian rupees in US dollars. The foreign exchange market in India started when in the government allowed banks to trade foreign exchange with one another. Foreign Exchange Market in India operates under the Central Government of India and executes wide powers to control transactions in foreign exchange. Interbank foreign exchange Trading is regulated by the Foreign Exchange Dealers Association of India FEDAI created in , a self-regulatory voluntary association of dealers or banks specializing in the foreign exchange activities in India that regulates the governing rules and determines the commissions and charges associated with the interbank foreign exchange business.
Since , clearing and settlement functions in the foreign exchange market are largely carried out by the Clearing Corporation of India Limited CCIL that handles transactions of approximately 3. The foreign exchange market in India consists of 3 segments or tires. The latter are mostly commercial banks.
As in any market essentially the demand and supply for a particular currency at any specific point in time determines its price exchange rate at that point. Prior to s fixed Exchange rate of the rupee was officially determined by RBI. This is explained as under.. The value of one currency against another is based on the demand of the currency. If the demand for dollar increases, the value of dollar would appreciate.
Besides the primary powers of demand and supply, the Indian exchange rate is affected by following factors:. A foreign currency ac maintained by a bank in India with a bank in abroad.
A rupee account of a foreign bank abroad with a bank in India. For example, Citi bank rupee ac with bank of India. Foreign Exchange Market in India December 30, To fund the unfunded.
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