IFM 3 STRUCTURE OF INDIAN FOREIGN EXCHANGE MARKET.pptx

The Indian Foreign Exchange Market is a dynamic and regulated system that facilitates the exchange of currencies to support international trade, investment, and economic stability. It operates under the supervision of the Reserve Bank of India (RBI) and adheres to guidelines established by the Foreign Exchange Management Act (FEMA), 1999. The market is a combination of organized and unorganized sectors catering to diverse participants, from individuals to multinational corporations.

1. Dr D Divya Assistant Professor Department of MBA Sri Ramakrishna College of Arts & Science

2. The Structure of the Indian Foreign Exchange Market is a well-organized system regulated by the Reserve Bank of India (RBI). It facilitates foreign currency transactions for trade, investment, hedging, and speculation. Below is the structure outlined in three levels: 1. Regulatory Framework The Indian forex market operates under strict regulation by: Reserve Bank of India (RBI): Supervises and regulates the market, including intervention to stabilize exchange rates. Foreign Exchange Management Act (FEMA), 1999: Governs forex transactions to ensure legal compliance and promote orderly market functioning.

3. 2. Market Participants The participants in the Indian forex market can be categorized into the following : a. Authorized Dealers (ADs) Commercial banks and other financial institutions authorized by the RBI to deal in forex. ADs handle currency exchange for trade, tourism, and financial transactions . b. Interbank Market The interbank forex market involves trading between banks. Banks act as major players, executing trades for their clients or their proprietary purposes . c. Corporates and Businesses Engage in forex transactions for trade settlements, capital investments, and hedging currency risk .

4. d. Retail Customers Includes individuals exchanging money for travel, education, remittances, or investments . e. Forex Brokers Act as intermediaries between buyers and sellers, facilitating transactions in the interbank market . f. Speculators and Arbitrageurs Seek profit from currency price movements and differences across markets . g. Reserve Bank of India Intervenes in the market to manage currency volatility and maintain financial stability

5. 3. Segments of the Indian Forex Market The market is divided into multiple segments to cater to different transaction types : a. Spot Market Immediate settlement of currency transactions (T+2 basis ). b. Forward Market Contracts to buy or sell currency at a predetermined rate for a future date . c. Futures Market Standardized contracts traded on recognized exchanges like NSE or BSE for future delivery of currency . d. Options Market Provides the right, but not the obligation, to buy or sell currency at a specific rate . e. Swaps Market Agreements to exchange currencies at specific rates for a given period.

6. Features of the Indian Forex Market Over-the-Counter (OTC): Most transactions occur in the OTC market between banks and clients . Exchange-Traded Derivatives: Futures and options are traded on platforms like NSE and BSE . Volume and Liquidity: India's forex market has grown significantly in size and liquidity . Technology-Driven Trading: Use of platforms like Reuters and Bloomberg for electronic forex trading.