A Discussion On Forex Market History In India

The foreign exchange currency trading in India is growing at a really good pace however it is said that the forex market is still in the early phase in India. Nevertheless there are already several big players in the Indian forex market. Let us find out details on the forex market history in India to know more about Indian forex market.

The history of forex market in India owes its origin to an important decision taken by the Reserve Bank of India (RBI) in the year 1978 which allows banks to undertake intra-day trading in foreign currency exchange. As a result of this step, the agreement of maintaining ‘square’ or ‘near square’ position was to be complied with only at the close of business every day. The history of currency trading in India also clearly shows that during the initial period when these economic reforms started, the exchange rate of national currency i.e. Indian rupee used to be determined by the RBI in terms of a weighted basket of currencies of India’s major trading partners. Moreover, there were some fairly significant restrictions on the current account transactions.

Then again during early nineties, more economic reforms were introduced which witnessed the important two-step downward adjustment in the exchange rate of the Indian rupee in order to place it at a suitable level in line with the inflation differential so that the competitiveness in exports could be maintained. With these economic reforms which resulted in the unification exchange rate of the rupee heralded the commencement of the new era of market determined forex currency rate regime of rupee in the Indian forex history which was based on the demand and supply principle in the forex market.

Another landmark in Forex history of India came with the appointment of an Expert Group committee on Forex currency in 1994. This committee was made to study the forex market in detail so that step can be taken out to develop, deepen and widen the forex market in India. The result of this exercise was that banks were significant freedom in many of its market operations related to like forex market development and liberalization. The freedom was granted to banks in term of fixing their trading limits, allowed to borrow and invest funds in the overseas markets up to specified limits, accorded freedom to make use of derivative products for asset-liability management purposes.

The corporate were granted the flexibility to book forward cover based on previous turnover and were given freedom to make use of financial instruments like interest rates and currency swaps in the international currency exchange market. The other feature of forex history in India is that a large sum of foreign exchange in India came through the large Indian population working in foreign countries. However, the common man was not much interested in forex trading. the things are changing now and with the growing economy more and more people are showing interest in forex trading and are looking out for hedging currency risks.

National Stock Exchange of India popularly known as NSE was the first recognized exchange in Indian forex history to launch forex currency futures trading in India. These currency futures are beneficial over overseas forex trading especially to comparatively small traders and retail investors. Another important point to know is that before discussing the history of forex market in India, it is important to know the central government of India has the powers to control transactions in foreign exchange and hence forex transactions in India are managed by the government authorities.