“Structure and Composition of Foreign Exchange Management System”

An assignment submitted to the

Department of Business Administration, Tezpur University

in partial fulfillment of the requirements for course

Managerial economic

Course Code: BA 548

Semester: Autumn 2018

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Plagiarism check certificate

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Preface

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Abstract

The main objective of the project report entitled “Structure and Composition of Foreign
Exchange Management System” is to ……………………

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 Contents

Chapter 1 – Introduction

1.1 Meaning
1.2 History
1.3 Functions of foreign exchange
1.4 Objectives of the project
1.5 Methodology

1.5.1 Nature of research

1.5.2 Data collection

1.5.3 Data collection techniques

1.5.4 Significance and limitations

Chapter 2 – Associated Studies

2.1 Regulations of Foreign Exchange

2.2 Foreign Exchange Rate

2.3 Balance of Payment

Chapter 3 – Analysis

3.1 Composition of FOREX

3.2 Structure of FOREX Market in India

Chapter 4 – Conclusion

4.1 Limitations and suggestions

4.2 Bibliography

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Chapter 1 Introduction

1.1 Meaning

"FOREX" is the abbreviation of Foreign Exchange. FOREX (FX) is the market in

which currencies are traded all over the world. It is the largest financial market with a daily
turnover of over USD 2 trillion. It includes almost all of the currencies in the world such as
USD, Pound, Yen, and Euro, etc. The largest foreign exchange market in the world is London
followed by Zurich, New York, Tokyo and Frankfurt. There is no centralized market for
FOREX transactions. They are executed over the counter and around the clock, 24 hours a day,
five days a week, except for holidays. The leading foreign exchange market in India is
Calcutta, Mumbai, Delhi and Chennai, etc. There are also other centers accounting for bulk of
the exchange dealings in India. The policy of Reserve Bank of India decentralizes exchanges’
operations and develop broader base for exchange markets. The business in foreign exchange
markets in India has shown a steady increase with the increase in the volume of foreign trade
of the country, improvement in the communication system and greater access to the
international exchange markets.

1.2 History

The foreign exchange market of India has paved a long way from par value system to a basket
peg and it led to a float exchange management rate system. The par value system was followed
in India from 1947 to 1971. From 1966 to 1971, there was no change of the exchange rate of
rupee. In 1971, when major currencies were under the floatation period and the Bretton Woods
System came to end, the management of exchange rate policy faced a critical challenge to all
central banks all over the world as the fluctuation currency led to enormous opportunities to
invest in currencies in market across borders for various market players.

To ensure that the exchange rate is stable and to overcome the shortcoming of single currency
peg, a basket of currencies pegged the rupee from September 1975. The Reserve Bank had the
freedom to select the currency and assign the weights. In India, during this time the banks
developed interest in dealing in the foreign exchange.

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 During the formative period (1978 – 1992), the Reserve Bank officially determined the rupee
under certain terms and conditions based on the exchange rates which helped the Authorized
Dealers (ADs) to make merchant transaction or to perform trading across countries.

With the emergence of new profit making opportunities and voluminous trading, ‘Guidelines
for Internal Control over Foreign Exchange Business’ in the year 1981 were framed for the
banks. Till the early 1990s, the market for foreign exchange had many restrictions in various
sectors. The Hawala (unofficial) market, which is one of the most enormous and productive
market for the foreign exchange, was formed as a result of the Foreign Exchange Regulations
Act (FERA).

1.3 Functions of foreign exchange

Foreign exchange market perform the following functions-

1. Transfer function
It transfers the purchasing power between the countries involved in a transaction. This function
is usually performed through various credit instruments like bills of foreign exchange,
telephonic transfers, bank drafts.
2. Credit function
Credit function provides the credit for both the national and international foreign trade. The
bills of exchange, with a maturity period of three months, which are generally used for
international payment.
3. Hedging function
When there are situations of exchange risks, the foreign exchange market performs the hedging
function. When the exporters and importers enter into an agreement to sell and buy their goods
at the current prices and exchange rate on some future date, is called hedging.
In a free exchange market, when the value of foreign currency varies, there may be a gain or
loss to the traders concerned. To avoid or reduce this exchange risk, the exchange market
provides facilities for hedging .

1.4 Objectives of the project

The followings are the objectives of this project;

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1. To study the Composition of Foreign Exchange Market
2. To study the Structure of FOREX in India

1.5 Methodologies

1.5.1 Nature of research

The research is descriptive in nature.

1.5.2 Data collections

The Data for the study has been collected from Secondary source. The whole assignment is
based on published sources of data collected from journals, magazines, the official website of
Reserve Bank of India and www.forex.com. We have studied different data and statistics
available on those papers.

1.5.3 Data analysis technique

The Quantitative Data analysis was done with Microsoft Excel 2007. Descriptive aspect of the
findings was first made in Excel sheets, then they were analyzed through pie diagram and
curves. This method of analysis helped us in understanding the complexity of the previous
findings and helped us to reduce errors on analysis.

1.5.4 Significance and limitations

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 Chapter 2 Associated studies

2.1 Regulations of Foreign Exchange

2.1.1 FEMA ACT

The Foreign Exchange Management Act (FEMA) was an act which was passed in the winter
session of Parliament in 1999 which replaced Foreign Exchange Regulation Act.

The primary objective of FEMA is to facilitate external trade and payments. FEMA promotes
the orderly development and maintenance of foreign exchange market. It is applicable (a) to
the whole of India (b) to any branch, office and agency which is situated outside India, but is
owned or controlled by a person resident in India.

FEMA mainly covers three broad categories (a) person; (b) person resident in India; (c) person
resident outside India;

For the purpose of provision, a person shall include any of the following:

1. An individual
2. A company
3. A firm
4. An agency, office or branch owned or controlled by such person.

2.1.2 Role of FEDAI

The Foreign Exchange Dealers Association of India (FEDAI) is an association of banks in

India that is specialized in the foreign exchange markets in India. FEDAI were created in
1958. The association regulates the rules that determine commissions and charges that are
attached to inter-banking foreign exchange business.

FEDAI not only regulates or determines the rules of the day to day foreign exchange
transactions of FOREX but also sometimes acts as advisor to bank in training of bank
personnel and also acknowledges foreign exchange brokers. These institutions are also called
Authorized Dealers or ADs.

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 Accordingly FEDAI has evolved various rules for various transactions to protect interest of all
importers, exporters, general public and the authorized dealers. FEDAI an association
registered under Section 25 of companies Act, 1956 has subscribed to the

1. Uniform customs and practice for documentary credits(UCPDC)

2. Uniform rules for collection (URC)
3. Uniform rules for bank to bank reimbursement.

2.2 Foreign Exchange Rate

A foreign exchange rate is that rate at which one country’s currency is exchanged for another
currency. It compares one currency with another to show their relative value. For example, if a
“mekhela chador” maker of Assam sells his goods to a buyer in Gujarat he will receive the
payment in Indian rupees but if that seller decides to go to abroad for selling his goods then
there he will have to exchange Indian rupee into Franc or Dollar or Pound or Euro. Therefore,
he will approach a bank or broker for the transaction. The bank will then quote the day’s
exchange rate i.e., the rate at which the Indian rupee will be exchanged for foreign currency.

So in simple words, the foreign exchange rate is the main purchasing power of one particular
currency in respect to the other currency. It can be expressed in two ways:

1. The units of domestic currency required to purchase a unit of foreign currency.

2. The units of foreign currency that can be purchased in exchange for a domestic currency.

Foreign Exchange Rate can be classified into two types:

FIXED EXCHANGE RATE

In a fixed exchange rate, government fixes the value of a currency at a certain level as
compared to other currencies. So, a country’s currency does not vary according to the foreign
market. The purpose of a fixed exchange rate is to ensure stability in foreign trade and capital
movement and to achieve this stability government buy foreign currency when the exchange
rate becomes weaker and sell when the rate of exchange becomes stronger. In this system,
country keeps the value of its currency fixed in terms of some external standard. In this system
the government can influence the exchange rate as county’s government decides the worth of
its currency in terms of weight of an asset or a basket of other currencies. This systems has
some merits-

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 MNCs can engage in international trade without worrying about the future exchange rate and
also leads to lower borrowing cost.
 It helps in keeping inflation rate low.
 It also helps in reducing currency hedging cost.

Again it has some disadvantages as well-

 This system can lead to account imbalance

 It also limits the ability of central bank to adjust interest rates
 It can make a county more vulnerable to economic condition
 It doesn’t give any surety that whether its government will devalue or revalue its currency
 It may give rise to conflicts with other microeconomic objectives to maintain a fixed level of
exchange rate
 It is inflexible

FREE FLOATING EXCHANGE RATE

In this system currencies are allowed to move freely and adjust with the changing demand and
supply. Example of free floating exchange rate is dollar. Economists prefer this system because
this system can automatically adjust with economic circumstances. In this system, capital flows
and trade flows have an impact on the exchange rate. Here, market plays an important role
therefore it is considered as a self regulating system.

Some of the merits of this system are-

 It helps the country in tackling the balance of payment crisis

 It eliminates the needs of foreign exchange reserve
 It helps in preventing imported inflation
 Its gives freedom in setting the policy interest rate to meet the domestic objectives

Demerit-

 It makes international transactions riskier

 Because of its dynamism, it provoke unpredictability

Factors Affecting FOREX Rate:

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 Exchange rate is one of the most important determinates of a country’s economic position.
Exchange rate plays an important role in a country’s level of trade which is critical to most
every free market economy in the world. That’s why exchange rate is most watched and
analyzed also manipulated by the government because of its important in determining a
country economic health. A high exchange rate of a country will weaken its balance of trade
and a low exchange rate will strengthen its balance of trade with other countries.

Following are some of the factors affecting the exchange rate of FOREX but like many
aspects of economics these factors are in no particular order, the importance of these factors
are highly debatable.

1. Inflation: If a country is having higher inflation rate than another country than the country of
that will depreciate more than that another country. In this way exchange rate changes from
its previous rate.
2. Interest Rate: If a country’s lending rates are high then it will attract more foreign
investments, whereas if interest rates are low then it will attract less foreign investments.
Increase in foreign investments will increase the value of currency in which investments are
made and vice versa.
3. Current Account Deficit: It is one of the segments of the Balance of Payment where Balance
of trade stands negative. It happens when a country imports more than it exports. A country
higher current account deficit will happen to have depreciating currency value.
4. Investors Expectation: If investors expect that the currency of a country will increase in the
future than the investors will buy more of that currency which will move the exchange rate in
the favor of the country. On the other hand, if the investors expect that the value of the
currency will fall in near future then exchange rate will move against that country.
5. Political Stability: A country having stable economy and good economic performance will
attract foreign investments which will move the exchange rate in the favor of that particular
county. Similarly, country having an unstable economy will attract less. Foreign investments
and exchange rate will move against the country.
6. Government Debt: A country having high public debt will lose investor’s interest on belief,
which will result in depreciation of the currency of the particular country.
7. Trade Terms: If a country’s export prices are higher than its import prices then it will attract
more foreign investment or it will result in more inflow of foreign capital which will move
the foreign exchange rate in the favor of the country. On the other hand, if its import prices

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 are higher than its export prices then it will result in movement of exchange rate against
particular country.
8. Recession: When country goes through recession its interest rate falls which result in losing
of foreign investors interest, that further result in movement of exchange rate against the
particular country.

2.3 Balance of Payments (BOP)

Balance of payments of a country is a systematic record of all economic transactions between

the residents of the reporting country and residents of foreign country during a given period of
time. It is an annual statement which summarizes the economic transaction of a country with
other foreign nation (i.e. transactions between resident and nonresident entities) during a given
period of time. It compromises current and capital and financial accounts. BOP includes all
transaction related to visible to or invisible. Basically BOP adapts a double-entry book-keeping
system.

1. Current Account: As per Balance of Payment Manual, current account covers all transactions
that involve economic values and occur between resident and nonresident entities. BOP
included the value of both visible and invisible goods. These can be either surplus or deficit in
current account. The main components of Current Account are:
 Export and Import of visible Goods : Transactions done in foreign trade are generally
for export and import of visible items or goods. Payment for import of goods is written in the
debit side and receipt from export is shown in the credit side. The balance of this sides is
known as balance of trade.
 Export and import of Invisible goods: Invisible goods means services exchanged
between two countries. Services are generally of two types:
a). Shipping
b). Banking, and
c). Insurance
These transactions are written in the books the same as done in the case of visible items.
 Unilateral or Unrequited Transfers to and from aboard: These types of transactions are
generally one sided services with no expectation of any return services. These may included
gifts donation etc. Unilateral receipt are shown in the credit side of the book and unilateral
transfer to other nations in entered in the debit side
 Income receipts and payments to and from(Investments)

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2. Capital Account: The major components of the capital accounts are:

1. Capital transfers and

2. Acquisition/disposal assets.

Transactions that bring in foreign exchange like receipt of loan are recorded on the credit side
and the same way repayments of loan etc to other nation are recorded in the debit side.

3. Financial Account: The financial accounts record the economy transaction in external
financial assets and liabilities. It consists of two parts; the first part includes the domestic
ownership of foreign assets. If this increases, it adds to the financial account. The second part
includes the foreign ownership of domestic assets. If this increases, it subtracts from a
country's financial account.

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 Chapter 3 Analysis

3.1 Composition
3.1.1 Foreign Exchange Market
The foreign exchange market is a market in which participants buy, sell, exchange and
speculate on currencies. The participants of Foreign exchange markets are Banks, commercial
companies, central banks, investment management firms, hedge funds and retail firm, broker
and investors. FOREX or currency markets are the other names of the foreign exchange
market. It is widely accepted as the largest financial market in the world, followed by the bond
market. It is a decentralized market where an exchange does not come into play their role. It is
an over the counter market, for which it is less transparent. This market also has the highest
form of leverage that helps investors to trade beyond their limit. Leverage is loan given by the
broker to the investor. This borrowing helps the investor to increase their profit, as instead of
trading with limited money, a person can trade with excess money borrowed from the broker.

Benefits of Investing in Foreign Exchange market:

1. Flexibleness: A foreign exchange market provides lot of flexibility to the traders, because it
does not put any limit on the amount of money that can be used for trade. As the currencies are
traded over the counter market like interbank transaction, traders feel free to trade in it.
2. Liquidity: liquidity refers to the number of active traders and also the overall volume of trading
in the market. Traders in volume of trading bring liquidity to any market. In FOREX market,
the Financial Central Bank Survey of 2010, in coordination with Bank for International
Settlement Report, states that the average daily turnover was 23.98 billion in April 2010.
3. Leverage: in the foreign exchange market, investors can use the leverage facility to extend their
trade volumes. These borrowings will help them to maximize their profit.
4. Transaction cost: As compared to other markets, FOREX market carries a lower transaction
costs. As the transaction costs were lower, investors can pursue trade at a higher rate.

Types of Foreign Exchange Market:

1. Wholesale FOREX market: the wholesale foreign exchange market the trade is done by banks,
which is also known as interbank market. This is an unregulated market, which is also known
as over the counter market. In this market, the foreign exchange transactions have a great
volume and small discounts in the buying and selling rates. It is called as interbank foreign
exchange market, because here the banks involve in settlement and sales of foreign exchange.

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 Apart from bank, non-bank financial institution, Multinational Corporation, hedge funds,
insurance companies, mutual fund etc also participate in wholesale interbank market.
2. Client or Retail market: it is one of the segments of the larger foreign exchange market where
individuals speculate on different currencies exchange rate. The advanced dedicated electronic
trading platforms and internet, allows individuals to access the global luxury market which
resulted in its development. Before this FOREX trading was restricted to large financial
institution. Development of internet, trading software and bankers results in bringing the
conception of margin trading or leverage trading, which resulted in the growth of the Retail
foreign exchange market, most of the retail trading happens in the spot requirement because of
requirement of the participator here is not repetitive in nature.

3.1.2 Foreign Exchange Instrument:

1. Spot Transition: Spot Transition in Foreign Exchange is an agreement between two parties to
buy one currency in respect of another currency at an agreed price for settlement on a spot
date. It is also known as Fx spot. The exchange rate is called as spot exchange rate. In spot
transaction, instant delivery happens. Spot transactions were non-repetitive in nature. Spot
transaction happens mostly in the retail foreign exchange market. Foreign exchange spot
contracts usually have delivery period of two business days, whereas other financial instrument
settle in the next business day.
2. Exchange Trade Funds: Exchange trade funds in respect of foreign exchange market, is an
investment fund which is used to track foreign exchange rate in respect of two countries. Since
foreign exchange happening is calculated on one currency in respect of another counter
currency ETF tracks the movement of this exchange. The investors can without indulging in
direct purchase and sale of foreign currency can speculate in the movement of this ETF and
can make money.
3. Foreign Exchange Forward: Forward contracts in respect of foreign exchange are binding a
contract, which locks in the exchange rate for the purchase or sale of a currency on a future
date. Foreign exchange forward contracts are hedging tool that does not have any upfront
payment. One of the other foreign exchange is that it can be forward contract can be made to
be matured on a particular date with a particular amount. These are over the counter (OTC)
instrument, as they are not regulated by an exchange. Settlement can be made either on cash
delivery, but it has to be specified previously before making the contract and also it has to be
mutually accepted by the parties.

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 4. Foreign Exchange Future: Future contract in respect of foreign exchange are transferable future
contract, where the prices is specified in a country, in which another currency will be bought or
sold. The future market is highly regulated. It is controlled by exchange, so the risk of one
party playing the default game at the maturity date is being ruled out. It is also known as FX
future. It is a tool to hedge other trader on currency risks or to speculate on price movement in
currencies. These contracts vary market to market on daily basis because of which settlement is
made within a range of dates.
5. Foreign Currency Option: Foreign Currency Option is a derivative financial instrument which
gives the right but not the obligation to buy or sale the instrument between the maturity period.
It gives the right but not the obligation to buy or sell one currency into another currency at a
pre-agreed price on a specified date. The foreign exchange option market is the most liquid
option market. They are of two type-
 Call Option: Foreign currency call option is a contract where the option buyer find a rate at
which he will buy the another currency before the expiry period from option writer. In it the
option writer charges a premium to the option buyer for the facility he is providing of buying
the option at the pre-determine price.
 Put Option: Foreign currency put option is a contract where the option buyer gets the facility of
selling a currency at a pre-determined price and buys the right of buying it at a lower price. For
example if a option buyer sells a option at Rs 100/dollar and if the rate goes down to 60/dollar
then he makes a profit of Rs 40/dollar but if the rate goes to Rs 120/dollar then he makes a loss
of Rs 20/dollar. Here, too the option writer exchanges premium to the option buyer for his
service.

6. Foreign Currency Swaps: Foreign currency swap or FX swap is an agreement where one
party can borrow loan in foreign currency at lower rate of interest. This may be done to invest
in that particular foreign country. Here the principal and interest both get swapped. Swaps
instruments helps when two parties have different interest, but the value of their interest is
same.

3.1.3 MARKET PLAYERS

Super Banks: Super banks also play a major role in the foreign exchange rate. They make
transactions each day in the foreign exchange market both for their customer and for
themselves. Because of decentralized in the foreign exchange spot market Super banks
determine the exchange rate.

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 Large Commercial Companies: Large commercial companies usually take part in the foreign
exchange market for doing business. They act through commercial banks. They act as a dealer
between commercial banks and their clients in the foreign exchange market.
Central banks and government: central bank plays a very important part in the foreign
exchange market. Central banks do not involve in the foreign exchange market to earn profit.
In every country monetary policies are decided by the central bank and these policies affect the
exchange rate of a country. In India dollar is used as the primary exchange rate. In India
Reserve bank of India and Foreign Exchange Management Act 1999 set the legal provisions
relating to the foreign exchange reserves. Government also influences the foreign exchange
through different methods like buying foreign currencies, changing interest rates, borrowing
currencies.
Speculators: In general term speculators means variety of market participants. It includes
foreign exchange traders and brokers, commercial banks and other financial companies.
Usually speculators buy currency when it is low and sell when it is high in order to earn profit
from fluctuations in exchange rate. The commercial banks and financial companies play a very
important role in foreign exchange market. They help to determine buy and sell price of
currencies.
Hedgers: In regular course of business sometimes business end up in creating assets or liability
priced in foreign currency. So the importers and exporters engages in foreign trade. Due to
fluctuations in the foreign market in future losses may arise. So in order to protect these losses
hedgers take opposite position in the market. All the profits and losses are nullified and they
get stability in their business.

3.1.4 CURRENCY
Currency market is the largest market actively traded in the world. The majority of trading of
currency is done in the major financial centers such as London, New Work and Tokyo. In the
foreign exchange market in each transaction there is involvement of two traders where one
trader is selling one currency and other trader is buying one currency. So these type of
transactions where there is involvement of two currencies are known as pair.
Four popular currency pair in forex market:
1. The Euro and The U.S Dollar
2. The U.S dollar and the Japanese Yen
3. The British Pound sterling and the U.S Dollar

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 4. The U.S Dollar and the Swiss Franc
Banks giving the money exchange in India
1. ICICI-Money 2 India
2. SBI Express Remit
3. HDFC Bank-Quick Remit
4. Axis Remit
5. Click2Remit
6. Baroda Remit Xpress
7. IndRemit
8. IndusFastRemit

3.2 Structure of the Foreign Exchange Market in India

The main participants in the foreign exchange markets are

A) Commercial banks: The commercial banks operate at retail level for individual exporters’ and
corporations’ and at wholesale levels in the interbank market.

B) Foreign exchange brokers’ and other authorized dealers: The foreign exchange brokers’
includes individual brokers or corporations. Bank dealers often use brokers to stay unidentified
since identity of short-term quotes can be affected.

C) The monetary authorities: The monetary authorities involve Reserve Bank of India, which
intervene to maintain or influence the exchange rate of its currency within a range and to
follow the orders of the government.

Although the participants may be based within the individual countries, and countries may
have their own trading centers. The whole market itself is worldwide. The trading centers are
in contact with each another, and participants will deal in more than one market.

Primarily, the market functions through the use telephone and telex. Also, it is note that
currencies with limited convertibility play a very minor role in the exchange market. in
addition, only a small number of countries have established their full convertibility of their
currencies for full transactions.

The foreign exchange market in India consists of 3 segments or tiers as follows:

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1. transactions between the RBI and the authorized dealers.

2. The interbank market in which the Authorized Dealers deal with each other.

3. Transactions between Authorized Dealers and their corporate customers.

In the retail segment in addition to the Authorized Dealers, there are moneychangers, who are
allowed to deal in foreign currencies.

The Indian market started acquiring some features of a good functioning market, e.g.,
active market makers prepared to quote two-way rates only around 1985. Even then 2-way
forward quotes were not available. In the interbank market, forward quotes were even in the
form of near-term swaps mainly for authorized dealers to adjust their positions in various
currencies.

Apart from the Authorized Dealers currency brokers engage in the business of matching
sellers with buyers, in the interbank market collecting a commission from both. FEDAI rules
obligatory that deals between Authorized Dealers in the same market centers must be effected
through accredited brokers.

Foreign Exchange Reserve Management in India:

Forex reserves are only the foreign currency deposits and bonds held by central banks and
monetary authorities. However, the term includes foreign exchange and gold, SDRs and IMF
reserve positions. This broader figure is more available, but it is more accurately termed
official international reserves.

These are assets of the central bank held in different reserve currencies, mostly the US
dollar, and to a lesser extent the UK pound, the euro and the Japanese yen, and used to back its
liabilities (the local currency issued, and the various bank reserves deposited with the central
bank, by the government or financial institutions).

In flexible exchange rate system, official international reserve assets allow a central bank to
purchase the domestic currency, which is considered a liability for the central bank. The value
of the domestic currency can be stabilized by such action.

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 Central banks throughout the world have sometimes cooperated in case of buying and
selling official international reserves to influence exchange rates.

Ranking of countries according to their FOREX reserve holding:

official reserve assets

rank country (in billion of U.S. dollar)
1 China $3,520.40
2 Japan $1,321.00
3 Euro area $819.90
4 Switzerland $661.20
5 Saudi Arabia $580.70
6 Russian Federation $407.30
7 Hong Kong $380.20
8 Republic of Korea $372.60
9 India $366.20
10 Brazil $362.20

$4,000.00
$3,500.00
(in billion of U.S. dollar)

$3,000.00
official reserve assets

$2,500.00
$2,000.00
$1,500.00
$1,000.00
$500.00
$0.00

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The analysis of the data
shows that foreign exchange
reserves have materially
changed over the years. Total
reserves have increased from
13610 billion to 21376
billion, which reflects an
increase of 57%. Gold
reserves have fallen to 1192
billion with a share of 5.5%
in total reserves in 2015.
Reserve tranche position has
also fallen to 81 billion and has a share of 0.37% in total reserves. Special drawing rights stands at
249 billion with a percentage share of 1.16%. Foreign currency reserves have 19855 billion with a
percentage share of 92.88%, which shows that it is foreign currency reserves that are backing our
foreign exchange reserves. Foreign currency reserve is the only component among others that has
shown an increase in our study. Two factors responsible factors for increasing reserves are:
i) Capital inflows and
ii) Low current account deficit.

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Statistic of Indian Foreign Reserve:

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Chapter 4 Conclusion and recommendation

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