exchange control.pptx

exchange contrl

1. NAME: JAGRITI SINGH B.COM SEMESTER 1 ROLL NO. : 228332 TOPIC: EXCHANGE CONTROL

2. EXCHANGE CONTROL CBE PRESENTATION BY JAGRITI SINGH

3. I WOULD LIKE TO EXPRESS MY SPECIAL THANKS AND GRATITUDE TO MS. AFREEN MAAM AS WELL AS OUR PRINCIPAL MAAM MRS. V PRAKASH WHO GAVE ME THE GOLDEN OPPORTUNITY TO DO THE ASSIGNMENT ON THE TOPIC EXCHANGE CONTROL. I CAME TO KNOW ABOUT NEW THINGS BY EXPLORING THE TECHNOLOGY WHICH DOES NOT ADD UP MY PRESENT KNOWLEDGE BUT ALSO HELP ME TO UNDERSTAND IT BETTER IN FUTURE . ACKNOWLEDGEMENT

4. PATICULARS SLIDES Introduction 4 Definitions 5 Evolution 6 Objectives 7-10 Methods of exchange control [direct method and indirect method.] 11-16 CONCLUSION 17 BIBLIOGRAPHY 18 INDEX

5. It is one of the major techniques in the hand of the government to make exchange rate favorable or to control and regulate the demand and supply of foreign exchange. It also helps in controlling international trade and payments. E xchange control

6. DEFINITIONS Prof. Haberlor Prof. Ellsworth State regulation excluding the free play of economic forces from the foreign exchange market. Exchange control deals with the balance of payment difficulties disregards market forces and substitutes for them the arbitrary decision of the government officials. Imports and other payments are no longer determined solely by international price comparisons but also by consideration of national needs.

7. The first period of exchange restrictions began in 1931 and lasted till 1939 during which the debtor countries of europe and latin america restricted payments in terms of foreign currencies. The second period was between the years 1945 to 1950 when exchange restrictions all over the world became common strategy for economic reconstruction. T he third period began in 1950 and the era of exchange control is still prevailing in many countries . EVOLUTION

8. O bjectives of exchange control T he overall objectives of exchange control is to stimulate/promote exports and substitute/ reduce imports. Stablisation Undervaluation

9. According to Crowther “ The Objective should be to prevent those fluctuations of the free market rate which are purely temporary without intervening with the change of rate which correspond to real alteration in the respective values of the different currencies.” Stablisation

10. Decreasing the value of the currency then the rate prevailing in the free exchange market. This is a deliberate method to deal with depression. This strategy is always adopted by the government so that exports can be promoted and imports can be discouraged. Undervaluation in the external value of the currency is always adopted when the country is facing the situation of depression or there is overproduction of goods with the decrease I the value of currency, the over produce goods will be attracted for exports as the quantity has increased with respect to currency value. UNDERVALUATION

11. METHODS OF EXCHANGE CONTROL Through direct method government openly enter into the exchange market and make use of intervention and restrictions for exchange control. If direct methods are not able to control the exchange then government methods to adopts the indirect method also. A. DIRECT METHODS: THE DIRECT METHODS OF EXCHANGE CONTROL ARE ADOPTED BY THE CENTRAL BANK WITH THE OBJECT OF RESTRICTING THE USE AND THE QUANTITY OF FOREIGN EXCHANGE.

12. 1. INTERVENTION: IT MEANS THE INVOLVEMENT OF GOVERNMENT IN FOREGIN EXCHANGE MARKET FOR SALE AND PURCHASE OF HOME CURRENCY SO AS TO MAINTAIN THE EXTERNAL VALUE OF CURRENCIES. THE GOVERNMENT OR MONETARY AUTHORITY DIRECTLY INVOLVE IN PURCHASE AND SALE OF LOCAL CURRENCY IN EXCHANGE OF FOREIGN CURRENCY AT FIXED RATE.

13. The main two methods under government intervention are: I A.EXCHANGE PEGGING. B.EXCHANGE EQUILISATION FUND.

14. 2. EXCHANGE RESTRICTIONS THE EXCHANGE RESTRICTIONS IS A MORE SEVERE FORM OF EXCHANGE CONTROL. THE EXCHANGE RESTRICTIONS INCLUDE SUCH POLICIES OR MEASURES AS ARE DIRECTED TO RESTRICT OR REDUCE COMPULSORILY THE FLOW OF DOMESTIC CURRENCY IN THE FOREIGN EXCHANGE MARKET. According to Crowther, [it is a compulsory reduction by the government of the supply of its currency coming into the market.] The essence of this type of control is the acquisition by the government or the central bank of all foreign exchange earnings and receipts and their exchange for domestic currency.

15. There are certain types of restrictions usually exchange adopted: BLOCKED ACCOUNTS MULTIPLE EXCHANGE RATES PAYMENT AGGREMENTS CLEARING AGGREMENTS STANDSTILL AGREEMENTS COMPENSATION AGGREMENTS DISCOURAGING CAPITAL EXPORTS UNOFFICIALLY TRANSFER MORATORIA PRIORITY ALLOCATION OF FOREIGN EXCHANGE

16. B.INDIRECT METHODS OF EXCHANGE CONTROL: Apart from the direct methods of exchange control, countries sometimes resort to indirect methods which are as follows: A. EXPORT SUBSIDIES: When the government follows the policy of subsidizing exports, the home exporters are induced to enlarge exports. This measure, on the one hand, can bring about an improvement in the BOP deficit and, on the other, can raise the external value of home currency. TARRIF AND NON- TARRIF RESTRICTIONS : The countries can resort to tariffs, import quotas and other quantitative restrictions. These measures reduce the volume of imports and the demand for foreign currencies gets reduced. That brings about an improvement in the balance of payments situation. The quantitative restrictions on imports result in appreciation of home currency relative to the foreign currency.

17. CONCLUSION There are various forms in which the exchange control system may be devised. Each form has its own merits and demerits and each one serves a specific purpose. Therefore, the whole economic situation of foreign trade of a country must be carefully viewed . While resorting to exchange control and more than one methods must be combined together.

18. BIBLIOGRAPHY: SOURCE : https://www.investopedia.com http://www.wikipedia.org

19. THANK YOU!