Foreign Exchange market in India

Foreign Exchange market in India:

The forex market in India is regulated by Reserve Bank of India. Participants in this market are the Authorized Money Changers and the Authorized Dealers.

Authorized Money Changers:

In order to provide facilities for encashment of foreign currency to visitors from abroad, especially foreign tourists, Reserve Bank has granted licenses to certain established firms, hotels and other organizations permitting them to deal in foreign currency notes, coins and travellers cheques subject to directions issued to them from time to time. These firms and organisations who are generally known as "authorized money changers" fall into two categories, viz. "Full-fledged money changers" who are authorized to undertake both purchase and sale transactions with the public and "Restricted money changers" who are authorized only to purchase foreign currency notes, coins and travellers cheques, subject to the condition that all such collections are surrendered by them in turn to an authorised dealer in foreign exchange / full fledged money changer.

Authorised Dealers in Foreign Exchange:

Authorisations in the form of licenses to deal in foreign exchange are granted to banks which are well equipped to undertake foreign exchange transactions in India. Authorisations have also been granted to certain financial institutions to undertake specific types of foreign exchange transactions incidental to their main business.

Turnover in the Foreign Exchange market has two components, merchant transactions, i.e. transaction undertaken by importers and exporters and inter-bank transactions. The Inter-bank transactions are much larger as compared to the merchant transactions. The transactions are either Foreign currency / Indian Rupee or Foreign Currency / Foreign Currency.

The nature of transactions in case of merchant transactions in Spot, Forward and Forward Cancellation whereas in case of inter-bank transactions, it is Spot, Swap and Forward.