Essay On Foreign Exchange Market

transactions, such as imports of luxury goods, to conserve foreign currency. In terms of exports, exchange control rules could require that exports are properly paid for and payment is forthcoming within a reasonable time, that is, proceeds from exports are to be repatriated to the country’s bank within a given period of time after shipment. In India dealing in foreign exchange is permitted only with the approval of RBI. RBI is the authority to administer exchange control in India. It also has the responsibility to maintain the external value of rupee.

Features of foreign exchange market

• The market has no physical presence.

• It s the largest market on Earth

• It is mostly speculative in nature.

• It is a 24 – hour market.

Some New York banks maintain 2 shifts (one arriving at office at 3 am when London and Frankfurt are open) Large New York banks also have branches in Tokyo, Frankfurt, and London. Thus, they are in contact with all financial centers 24 hours

Functions of the Foreign Exchange Market

The foreign exchange market is the mechanism, by which a person of firm transfers purchasing power from one country to another, obtains or provides credit for international trade transactions, and minimizes exposure to foreign exchange risk.

Transfer of Purchasing Power:

Transfer of purchasing power is necessary because international transactions normally involve parties in countries with different national currencies. Each party usually wants to deal in its own currency, but the transaction can be invoiced in only one currency.

Provision of Credit: Because the movement of goods between countries takes time, inve...

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...Nostro is derived from the latin term"ours."

VOSTRO ACCOUNT

Vostro is the type of account in India in Indian rupees maintained by the overseas bank. If Citi Bank in New York opens an account with BOI in India it is known as a Vostro Account. It is “YOUR ACCOUNT WITH US”. Any draft, TC, issued by overseas correspondent in Indian rupees is paid in India, to the debt of vostro account.

EEFC ACCOUNT

Exchange Earners Foreign Currency Account (EEFC) is an account that is maintained in foreign currency with an Authorized Dealer i.e. a bank, dealing in foreign exchange. It is a facility provided to the foreign exchange earners, including exporters, to credit 100 per cent of their foreign exchange earnings to the account, so that the account holders do not have to convert foreign exchange into Rupees and vice versa, thereby minimizing the transaction costs.