EXCHANGE CONTROL EXCHANGE CONTROL MEANS OFFICIAL INTERFERENCE IN - PowerPoint PPT Presentation

Chapter No. Page No. 4 72 International Finance EXCHANGE CONTROL IN INDIA EXCHANGE CONTROL EXCHANGE CONTROL MEANS OFFICIAL INTERFERENCE IN THE FOREIGN EXCHANGE DEALINGS OF A COUNTRY. THE CONTROL MAY EXTEND A WIDE AREA COVERING: � IMPORT AND EXPORT OF GOODS AND SERVICES. � REMITTANCES FROM THE COUNTRY. � INFLOW AND OUTFLOW OF CAPITAL. CONT….

Chapter No. Page No. 4 72 International Finance EXCHANGE CONTROL IN INDIA EXCHANGE CONTROL � RATE OF EXCHANGE. � METHOD OF PAYMENT. � MAINTENANCE OF BALANCE AT FOREIGN CENTERS. � ACQUISITION AND HOLDING OF FOREIGN SECURITIES. � FINANCIAL RELATIONS BETWEEN RESIDENTS AND NON- RESIDENTS.

Chapter No. Page No. 4 72 International Finance EXCHANGE CONTROL IN INDIA EXCHANGE CONTROL OBJECTIVES: � TO MAINTAIN THE VALUE OF THE COUNTRY’S CURRENCY IN TERMS OF OTHER CURRENCIES. � TO BRING ABOUT AND MAINTAIN AS FAR AS PRACTICABLE AND EQUILIBRIUM IN THE COUNTRY’S BALANCE OF PAYMENT.

Chapter No. Page No. 4 72 International Finance EXCHANGE CONTROL IN INDIA EXCHANGE CONTROL METHODS: � CONTROL OF THE EXCHANGE RATE, i.e. FIXING THE EXCHANGE RATE OF THE COUNTRY’S CURRENCY IN TERMS OF OTHER CURRENCIES. � FIXING CURRENCY AREAS, i.e. FIXING THE CURRENCIES IN WHICH PAYMENTS FOR IMPORTS AND EXPORTS SHOULD BE MADE AND RECEIVED, TO AND FROM SPECIFIED COUNTRIES. � BILATERAL AGREEMENTS i.e. TRADE AGREEMENT BETWEEN TWO COUNTRIES FOR THE PURPOSE OF AVOIDING THE BALANCE OF PAYMENTS DEFICITS.

Chapter No. Page No. 4 73 International Finance EXCHANGE CONTROL IN INDIA EXCHANGE CONTROL ADMINISTRATION: � THE EXCHANGE CONTROL POLICY IS DETERMINED BY THE MINISTRY OF FOREIGN TRADE, GOVT. OF INDIA, ON THE BASIS OF THE FOREIGN EXCHANGE MANAGEMENT ACT 1999. � DAY-TO-DAY ADMINISTRATION IS LEFT TO THE RESERVE BANK. � EXCHANGE CONTROL DEPARTMENT WORKS HAND IN HAND WITH TRADE CONTROL AUTHORITIES.

Chapter No. Page No. 4 74 International Finance EXCHANGE CONTROL IN INDIA EXCHANGE CONTROL CONTROL OVER SPENDING: � THE IMPORT POLICY IS ANNOUNCED BY THE CENTRAL GOVERNMENT. � THE IMPORT LICENCE , GRANTED BY THE DIRECTOR GENERAL OF FOREIGN TRADE PERMITTING IMPORT OF GOODS, CARRIES WITH IT PERMISSION TO PAY FOR THEM. � RESERVE BANK PRESCRIBES, MORE CORRECTLY THE CURRENCIES AS WELL AS THE MANNER IN WHICH THE PAYMENT SHOULD BE MADE.

Chapter No. Page No. 4 76 International Finance EXCHANGE CONTROL IN INDIA TRANSACTIONS SUBJECT TO CONTROL � PURCHASE AND SALE OF FOREIGN EXCHANGE. � EXPORT AND IMPORT OF CURRENCY, CHEQUES DRAFTS AND OTHER FINANCIAL INSTRUMENTS AND SECURITIES. � FOREIGN TRAVEL EXCHANGE AND THEREOF. � ACQUISITION AND HOLDING OF FOREIGN SECURITIES AND DISPOSAL OF IMMOVABLE PROPERTY IN INDIA BY FOREIGN NATIONALS AND COMPANIES AS WELL AS OUTSIDE INDIA BY RESIDENTS IN INDIA. CONT….

Chapter No. Page No. 4 76 International Finance EXCHANGE CONTROL IN INDIA TRANSACTIONS SUBJECT TO CONTROL � TRANSFER OF SECURITIES BETWEEN RESIDENTS AND NON-RESIDENTS. � TRADING, COMMERCIAL AND INDUSTRIAL ACTIVITIES IN INDIA OF FOREIGN FIRMS, COMPANIES AND FOREIGN NATIONALS. � ACQUISITION OF BUSINESS UNDERTAKING AND HOLDING OF SHARES IN INDIAN COMPANIES BY FOREIGN NATIONALS, FIRMS AND COMPANIES . � SETTING UP OF JOINT VENTURES / SUBSIDIARIES OUTSIDE INDIA BY INDIAN COMPANIES.

Chapter No. Page No. 4 76 International Finance EXCHANGE CONTROL IN INDIA PERMITTED CURRENCIES � THE PERMITTED CURRENCIES ARE FOREIGN CURRENCIES WHICH ARE FREELY CONVERTIBLE AND FOR WHICH A FAIRLY ACTIVE MARKET EXISTS FOR DEALING AGAINST THE MAJOR CURRENCIES. � AUTHORIZED DEALER MAY MAINTAIN BALANCES AND POSITION IN ANY PERMITTED CURRENCY.

Chapter No. Page No. 4 78 International Finance EXCHANGE CONTROL IN INDIA CONVERTIBLE CURRENCIES � IT IS A CURRENCY WHICH CAN BE CONVERTED INTO GOLD OR ANY OTHER CURRENCY FREELY, i.e. WITHOUT HAVING TO OBTAIN THE PRIOR PERMISSION OF THE MONETARY AUTHORITIES OF THE COUNTRY CONCERNED. � A CURRENCY IS SAID TO BE FULLY CONVERTIBLE WHEN THERE IS NO RESTRICTION, EXCEPT THE EXCHANGE RATE OF THE CURRENCY IN TERMS OF OTHER CURRENCIES. � A FULLY CONVERTIBLE CURRENCY IS REFERRED TO AS ‘HARD CURRENCY' WHILE A CURRENCY NOT CONVERTIBLE WAS CALLED A ‘SOFT CURRENCY’.

Chapter No. Page No. 4 79 International Finance EXCHANGE CONTROL IN INDIA AUTHORIZED DEALER � AN AUTHORIZED DEALER, NOW REPLACED WITH FEMA, 1999 IS A PERSON AUTHORIZED IN WRITING BY THE RESERVE BANK TO DEAL IN FOREIGN EXCHANGE. � THE AUTHORIZATION IS EFFECTED THROUGH A LICENCE GRANTED BY THE RESERVE BANK. � THIS DELEGATION WAS NECESSARY BECAUSE THE RESERVE BANK DOES NOT DEAL IN FOREIGN EXCHANGE WITH THE PUBLIC.

Chapter No. Page No. 4 79 International Finance EXCHANGE CONTROL IN INDIA AUTHORIZED DEALER � AN AUTHORIZED DEALER MAY HAVE THE AUTHORITY TO DEAL IN ALL FOREIGN CURRENCIES OR ONLY IN SPECIFIED CURRENCIES, OR TO UNDERTAKE TRANSACTIONS OF ALL DESCRIPTIONS IN FOREIGN CURRENCIES OR ONLY CERTAIN SPECIFIED TRANSACTIONS. THE AUTHORITY MAY BE FOR A SPECIFIC PERIOD OR WITHIN SPECIFIED AMOUNT. � THERE ARE AT PRESENT 82 AUTHORIZED DEALERS, CONSISTING OF STATE BANK OF INDIA AND ITS SUBSIDIARIES, IN ADDITIONS THERE ARE CERTAIN FIRMS , HOTELS, SHOPS etc, HAVE BEEN AUTHORIZED TO DEAL IN FOREIGN CURRENCY, AS ‘MONEY CHANGERS’.

Chapter No. Page No. 4 80 International Finance EXCHANGE CONTROL IN INDIA AUTHORIZED DEALER (POWERS) � AN AUTHORIZED DEALER, DEAL IN FOREIGN CURRENCIES, OPEN AND MAINTAIN ACCOUNTS ABROAD IN SUCH CURRENCIES. � APPROVE APPLICATIONS FROM RESIDENTS FOR THE PURCHASE OF FOREIGN CURRENCIES. � MAINTAIN RUPEE ACCOUNTS IN THE NAME OF NON-RESIDENTS AND PASS DEBITS IN SUCH ACCOUNTS.

Chapter No. Page No. 4 80 International Finance EXCHANGE CONTROL IN INDIA AUTHORIZED DEALER � PURCHASE TTs, MTs, DRAFTS, BILLS, DRAWN IN ANY PERMITTED CURRENCY FREELY AGAINST RUPEE FROM BANKS AND PUBLIC AND ALSO MAKE REMITTANCES. � COLLECT IMPORT AND EXPORT BILLS OF CUSTOMERS. � OPEN LETTER OF CREDIT OR ISSUE TRAVELER’S CHEQUES SUBJECT TO EXCHANGE CONTROL REGULATIONS. � PURCHASE FOREIGN CURRENCY NOTES AND COINS FROM ANY PERSON, BANK OR MONEY CHANGER IN INDIA, SUBJECT TO REALIZATION OF THE PROCEEDS THROUGH HIS OVERSEAS BRANCH / CORRESPONDENT. CONT….

Chapter No. Page No. 4 80 International Finance EXCHANGE CONTROL IN INDIA AUTHORIZED DEALER � SELL AND PURCHASE POUND STERLING FOR SPOT DELIVERIES TO AND FROM RESERVE BANK U.S. DOLLARS, DEUTSCH MARKS AND YEN FOR BOTH SPOT AND FORWARD DELIVERIES. � GIVE GUARANTEES ON BEHALF OF CUSTOMERS TO FOREIGN BUYERS AND SELLERS EXCEPT DEFERRED PAYMENT GUARANTEES FOR WHICH PRIOR APPROVAL OF RESERVE BANK IS NECESSARY. � OPEN AND MAINTAIN NON-RESIDENT ACCOUNTS OF FOREIGN BANKS.

Chapter No. Page No. 4 81 International Finance EXCHANGE CONTROL IN INDIA AUTHORIZED DEALER'S TRANSACTION WITH RBI � LEGAL OBLIGATION TO RBI: RBI IS UNDER OBLIGATION TO SELL AND BUY U.S. DOLLARS TO AND FROM THE AUTHORIZED DEALERS FOR PURPOSES APPROVED BY THE CENTRAL GOVT. � FOR COVER OPERATIONS FOR MERCHANT TRANSACTIONS ONLY: THIS RECOURSE TO THE RESERVE BANK FOR TRANSACTIONS IN FOREIGN CURRENCIES IS AVAILABLE TO THE AUTHORIZED DEALERS FOR THEIR COVER OPERATIONS ONLY. � CURRENCIES DEALT IN BY RESERVE BANK: THE RESERVE BANK BUYS SPOT ONLY US DOLLARS AND NOT BUY EITHER SPOT OR FORWARD ANY OTHER CURRENCY. CONT….

Chapter No. Page No. 4 82 International Finance EXCHANGE CONTROL IN INDIA AUTHORIZED DEALER’S TRANSACTION WITH RBI � MINIMUM AND MULTIPLE OF SALES / PURCHASE: THE PURCHASE AND SALES OF US DOLLARS WILL BE IN MULTIPLES OF 5000 WITH A MINIMUM OF U.S.$25,000. � ADVICE TO FEDERAL RESERVE BANK, NEW YORK: IN THE CASE OF PURCHASE BY AN AUTHORIZED DEALER THE RESERVE BANK WILL SEND NECESSARY INFORMATION TO THE FEDERAL RESERVE BANK OF NEW YORK TO ARRANGE PAYMENTS OF FUNDSOT THE NEW YORK OFFICE. � PAYMENT OF RUPEE VALUE: THE PAYMENT OF RUPEE VALUE AGAINST SALE OF FOREIGN CURRENCY TO THE RESERVE BANK WILL BE MADE BY THE RESERVE BANK’S CONCERNED ACCOUNT OF THE AUTHORIZED DEALER WITHOUT WAITING FOR THE CREDIT INFORMATION.

Chapter No. Page No. 4 83 International Finance EXCHANGE CONTROL IN INDIA FEDAI � THE FOREIGN EXCHANGE DEALER’S ASSOCIATION OF INDIA FIXES, IN CONSULTATION WITH RESERVE BANK , THE RUPEE-STERLING RATES FOR TRANSACTIONS IN STERLING BETWEEN THE BANKS AND THE PUBLIC, AND SUPPLY THE RATES TO THE BANKS FROM TIME TO TIME. � FEDAI LAYS DOWN THE RULES FOR THE GUIDANCE OF THE AUTHORIZED DEALERS IN RESPECT OF THE FOREIGN EXCHANGE TRANSACTIONS. � FEDAI ALSO FIXES THE CHARGES FOR HANDLING DOCUMENTARY BILLS, L /C OPENING AND GUARANTEE COMMISSION, TRANSIT PERIOD etc. � THE RULES LAID DOWN BY THE FEDAI ARE BINDING UPON THE AUTHORIZED DEALER.

Chapter No. Page No. 4 83 International Finance EXCHANGE CONTROL IN INDIA CORRESPONDENT � IT IS AN OVERSEAS BANK WITH WHICH A BANK IN THE HOME COUNTRY MAINTAINS AN ACCOUNT AND ROUTES ITS BUSINESS IN CONNECTION WITH THE FOREIGN EXCHANGE TRANSACTION UNDERTAKEN BY IT, WHICH INCLUDES: � CONFIRMING LETTERS OF CREDIT. � NEGOTIATING BILLS DRAWN UNDER LETTER OF CREDIT. � HONOURING DRAFTS. MTS, TTS, ETC ISSUED BY THE DOMESTIC BANK. � MAKING PAYMENT ON BEHALF OF DOMESTIC BANK. � GRANTING/GUARANTEEING OF LOANS AND OVERDRAFTS.