In order for the floating exchange rate to work, currency systems in both the United States and Japan need to be in the floating exchange rate zone. After the establishment of the Smithsonian Agreement in when the U.
Exchange Rate System in India: Objectives and Reforms Article shared by: Read this article to learn about the Exchange Rate System in India: An exchange-rate regime is the way an authority manages its currency in relation to other currencies and the foreign exchange market.
Between the two limits of fixed and freely floating exchange regimes, there can be several other types of regimes. In their operational objective, it is closely related to monetary policy of the country with both depending on common factors of influence and impact.
The exchange rate regime has a big impact on world trade and financial flows. The volume of such transactions and the speed at which they are growing makes the exchange rate regime a central piece of any national economic policy framework.
Under a pure fixed-exchange-rate regime point Aauthorities intervene so that the value of the domestic currency vis-a-vis the currency of another country, say the US Dollar, is maintained at a constant rate.
Under a freely floating exchange-rate regime, authorities do not intervene in the market for foreign exchange and there is minimal need for international reserves. As such, India was obliged to adopt the Bretton Woods system of exchange rate determination. This system is known as the par value system of pegged exchange rate system.
The Bretton Woods system collapsed in This system continued through the s; through the exchange rate was allowed to fluctuate in a wider margin and to depreciate modestly with a view to maintaining competitiveness. However, the need for adjusting exchange rate became precipitous in the face of external payments crisis of As a part of the overall macro-economic stabilisation programme, the exchange rate of the rupee was devalued in two stages by 18 per cent in terms of the US dollar in July With that, India entered into a new phase of exchange rate management.
Objectives of Exchange Rate Management: Subject to this predominant objective, the conduct of exchange policy is guided by the following: Reduce volatility in exchange rates, ensuring that the market correction of exchange rates is effected in an orderly and calibrated manner; ii.
Help maintain an adequate level of foreign exchange reserves; iii. Prevent the emergence of destabilisation by speculative activities; and iv.
Help eliminate market constraints so as to assist the development of a healthy foreign exchange market. Exchange rate reforms have proceeded gradually beginning with a two- stage cumulative devaluation of rupee by about 20 per cent effected in July The net result was an effective devaluation of the rupee by around 35 per cent in nominal terms and 25 per cent in real terms between July and March Features of the Current Regime: The principal features of the current exchange rate regime in India can be briefly stated as follows: The rates of exchange are determined in the market.
The freely floating exchange rate regime continues to operate within the framework of exchange control.
Current receipts are surrendered or deposited to the banking system, which in turn, meets the demand for foreign exchange. RBI can intervene in the market to modulate the volatility and sharp depreciation of the rupee.
It effects transactions at a rate of exchange, which could change within a margin of 5 per cent of the prevailing market rate. Convertibility on Current Account: In a further move, announced inthe RBI liberalised the existing regulations in regard to payments for various kinds of feasibility studies, legal services, postal imports and purchases of designs and drawings.
By attaining the Article VIII status, India has reached a position by which it can instill confidence among the international investor community, paving the way for further inflow of foreign capital. Further, India is also committed to allowing free outflow of current account payments like interest even if there is a serious foreign exchange crisis.
Notwithstanding the above, the government still retains many controls on current account. Among these, the following may be specifically mentioned: Repatriation of export proceeds within six months; ii.
Caps on the amounts spent on the purchase of services abroad; iii. Restrictions on the repatriation of interest on rupee debt; iv. Dividend-balancing for FDI in some consumer goods industries; v.
Restrictions on the repatriation of interest on NRI deposits; vi. The rupee is not allowed to be officially used as international means of payment. Indian banks are not permitted to offer two- way quotes to NRIs or-non-resident banks.Floating Exchange Rate Essay Floating exchange rate is the price of a nation’s currency in terms of the price of the currency of another nation that is determined by the foreign exchange market based on the demand and supply of the currencies.
Managed Float Exchange Rate Regime Is Followed By India Economics Essay In finance, an exchange rate also known as the foreign-exchange rate, forex rate or FX rate Published: Mon, 5 Dec A floating exchange rate is a regime where a nation's currency is set by the forex market through supply and demand for that particular currency relative to other currencies.
“managed float exchange rate regime is followed by india” Meaning of Fixed Exchange rate: A fixed exchange rate, sometimes called a pegged exchange rate, is also referred to as the Tag of particular Rate, which is a type of exchange rate regime where a currency’s value is fixed against the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold.
Complete 6 page APA formatted essay: Spain Economy. The ERM is essentially a managed float exchange rate regime where the currencies of the participating countries are allowed to float . Exchange rate systems normally fall into one of the following categories: i.
Fixed Exchange Rate ii. Floating Exchange Rate iii. Managed Float Exchange Rate iv. Pegged Exchange Rate i. Fixed Exchange Rate: In a fixed exchange rate system, exchange rates are either held constant or allowed to fluctuate only within very narrow boundaries.