An Introduction To Foreign Exchange Trading In India
It was in the financial year of 2003-2004 that the foreign exchange trading in India touched the volume of 175 billion dollars on a monthly basis. In comparison to this all the other trading vehicles like cash, debt instruments and derivatives total for a volume of just $120 billion. By the coming of 2005-2006 the volume has grown up to $359 billion. For a country whose foreign exchange reserves had gone dangerously low some years back, this is an unparalleled act.
This has been made possible because of the recent policies of liberalization which have brought phenomenal changes in the foreign exchange market in the country. Today foreign exchange trading in India is among the biggest wealth movers in the country and is well on its way to acquire the top spot in this accord. Even though the Indian rupee is still not in the category of 'fully floating' currencies, it is way more liberal than it was in the first four decades of the departure of the British from India.
The position Indian Rupee is safe in the market thanks to the fact the Reserve Bank of India keeps on acting as guardian angel and occasionally jumps in the foreign exchange markets to buy the Rupee out of trouble or in some cases to ensure that its value does not become too appreciated so that the investment coming in India keeps its value. Despite this the foreign exchange reserves of the country are the fifth largest in the world and well on their way to become the fourth largest in the world.
The very birth of foreign exchange trading in India can be traced back to 1978 when the government made provisions for the various banks in the country to trade the foreign exchange among themselves. Even today more than 70% of the foreign exchange trade that takes place in the country is done by the banks among themselves. At present there are 90 Authorized Dealers of foreign exchange in the country. Most of them are banks. The foreign exchange trading in India is regulated by the Foreign Exchange Dealers Association of India (FEDAI) FEDAI is a self regulatory body and it is incorporated under the Companies Act of India, 1956. It is possible for the body to set up its own rules and regulations as well as directives and bye laws which govern the various aspects of foreign exchange trading in India. The current chairman of FEDAI is State Bank of India which is the largest bank in the country. Foreign exchange trading in India has become a key component of the economy of India and with the rupee approaching a fully floating status, the trading is going to increase in volume day bay day.
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