Priya gupta HPGD/AP15/3341 Specialization - finance

Role of RBI in Controlling Currency Fluctuation

FLOW Introduction Definition Functions of RBI Currency Impact on economy currency fluctuations effects of currency fluctuations on economy Role of rbi Instrument of credit control The Global Influence of Currencies – Examples Conclusion

Introduction The Reserve Bank of India (RBI) is India's central banking institution, which controls the monetary policy of the Indian rupee. The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It is a member of the Asian Clearing Union

Definition of RBI “The central bank of India, which was established on April 1, 1935, under the Reserve Bank of India Act. The RBI uses monetary policy to create financial stability in India and is charged with regulating the country's currency and credit systems.”

Function of rbi Regulator and supervisor of the financial system Bank of Issue Monetary Authority Managerial of Exchange Control Issuer of Currency

Merchandise trade Economic growth Inflation Capital flows Currency Impact on the Economy Merchandise trade Economic growth Capital flows Inflation Interest rates

CURRENCY FLUCTUATION The exchange rate of one currency versus the other is influenced by numerous fundamental and technical factors. A currency has value, or worth, in relation to other currencies, and those values change constantly. Some currencies fluctuate freely against each other, such as the Japanese yen and the US dollar, others are pegged, or linked.

Effect of currency fluctuation on the economy Currency fluctuations are a natural outcome of the floating exchange rate system It include relative supply and demand of the two currencies, economic performance, outlook for inflation, interest rate differentials A currency’s level is largely supposed to be determined by the underlying economy

ROLE OF RBI Acts as the currency authority Controls money supply and credit Manages foreign exchange Serves as a banker to the government Supervises banks cts as the banker of banks

INSTRUMENTS OF CREDIT CONTROL QUANTITATIVE OR GENERAL METHOD QUALITATIVE OR SELECTIVE METHOD

QUANTITATIVE OR GENERAL METHOD Bank rate Open market Operation Change in cash Reserve ratio (CRR) Statutory liquidity ratio Repo and reverse repo ration

Selective credit control Rationing of credit Moral persuasion QUALITATIVE OR SELECTIVE METHOD Selective credit control Rationing of credit Moral persuasion Direct action

The Global Influence of Currencies – Examples The Asian crisis of 1997-98 China’s undervalued yuan Japanese yen’s gyrations from 2008 to mid-2013 Euro fears (2010-12)

CONCLUSION Central bank plays important role in achieving economic growth of a developing country It promotes economic growth with stability It helps in attaining full employment balance of payment disequilibrium and in stabilizing exchange rate. The rbi operates a number of government mints that produces currency and coins.

Bibliography https://en.wikipedia.org/wiki/Reserve_Bank_of_India:_Working_and_Functions http://www.timespro.com/media-centre/blog/role-and-function-of-the-reserve-bank-of-india-rbi/23-role-and-function-of-the-reserve-bank-of-india-rbi