RTMU N DELHI EXCHANGE RATE MECHANISM TREASURY MARKETING UNIT NEW DELHI.

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Presentation transcript:

RTMU N DELHI EXCHANGE RATE MECHANISM TREASURY MARKETING UNIT NEW DELHI

RTMU N DELHI

EXCHANGE RATE MECHANISM EXCHANGE RATE IS THE CONVERSION RATE OF ONE CURRENCY IN TERMS OF OTHER CURRENCY

RTMU N DELHI WHY DO WE NEED EXCHANGE RATES WHY DO WE NEED EXCHANGE RATES INTERNATIONAL TRADE: Economic Dependencies, Economies of scale and Cost arbitrage INTERNATIONAL BUSINESS REQUIRES CROSS BORDER PAYMENTS. DIFFERENT COUNTRIES HAVE DIFFERENT CURRENCIES. IMPORTER/EXPORTER REQUIRE PAYMENT IN THEIR RESPECTIVE CURRENCIES.

RTMU N DELHI DEMAND OF FOREX IMPORTS INVISIBLES CAPITAL OUTFLOWS FIIs LOAN REPAYMENTS SPECULATORS (FUNDAMENTAL/TECHNICALS) RBI

RTMU N DELHI SUPPLY OF FOREX EXPORTS INVISIBLES CAPITAL INFLOWS FIIs ECB DRAWDOWN SPECULATORS RBI

RTMU N DELHI DEALING ROOM DEALING ROOM BANKS HAVE TO SELL CURRENCIES BOUGHT IT ALSO HAS TO BUY BACK CURRENCIES SOLD THIS PROCESS OF MATCHING IS CALLED COVER OPERATIONS BANKS DEAL AMONGST THEMSELVES TO ADJUST MISMATCHES THIS GIVES RISE TO INTER BANK MARKET BANKS ALSO BUYS AND SELLS ON THEIR OWN ACCOUNT TRADING (CURRENCY TRADING)

RTMU N DELHI INTER BANK MARKET CONSISITS OF BANKS, CORPORATES AND BROKERS MARKET REMAINS OPEN ROUND THE CLOCK EXCEPT ON SATURDAYS, SUNDAYS AND LOCAL HOLIDAYS NO RATE DIFFERENCE INSPITE OF DIFFERENT GEOGRAPHICAL LOCATIONS ALL CURRENCIES ARE QUOTED AGAINST US DOLLAR ALL QUOTES ARE TWO-WAY (BID, ASK, SPREAD) MOST CURRNECIES ARE IN DIRECT MODE EXCEPT EUR,GBP,AUD AND NZD

RTMU N DELHI INTER BANK MARKET READY AND FORWARD RATES DISCOUNT AND PREMIUM FORWARD/SWAP POINTS LONG/SHORT/SQUARE DAYLIGHT/OVER NIGHT/STOP LOSS LIMIT ( FOR RISK MANAGEMENT) TRENDING OF QUOTES

RTMU N DELHI TYPE OF TRANSACTIONS SPOT TRANSACTIONS TOM TRANSACTIONS CASH TRANSACTIONS FORWARD TRANSACTIONS

RTMU N DELHI WHAT FACTORS AFFECT EXCHANGE RATE MOVEMENTS POLITCAL ECONOMIC SPECULATIVE

RTMU N DELHI POLITICAL FACTORS POLITICAL FACTORS TYPE OF GOVERNMENT STABILITY TRACK RECORD OF THE COUNTRY CURRENT POLITICAL DEVELOPMENTS VISION OF POLITICAL LEADERSHIP

RTMU N DELHI ECONOMIC FACTORS GROWTH RATE OF ECONOMY INTEREST RATES BOP POSITION MOVEMENT OF CAPITAL PURCHASING POWER PARITY CENTRAL BANK INTERVENTION

RTMU N DELHI SPECULATIVE FACTORS BUYING/SELLING BY BANKS IN ORDER TO MAKE MONEY SPECULATIVE ACTIVITES BY CORPORATES/ INVESTEMT HOUSES MAILY IN INTERNATIONAL MARKETS

RTMU N DELHI OTHER FACTORS AFFECTING EXCHANGE RATE Exchange Rate Terrorism Oil Prices Capital Flows Inflation Interest Rates

RTMU N DELHI ROLE OF CENTRAL BANK AVOIDING EXCESS VOLATILITY VERBAL INTERVENTION ACTUAL SALE/PURCHASE

RTMU N DELHI CURRENCY QUOTES RIC BID ASK NAME TIMEHIGH LOW INR= SBTM JPY= BOTQ GBP= NWBL EUR= BNPP AUD= CBAS XAU= ABCL BUY LOW SELL HIGH

RTMU N DELHI Inter Bank Deal SBTM:USD/INR 2 CIBY:80/83 SBTM:MINE CIBY:OK DONE SBTM:To reconfirm at I buy USD 2 mio My USD to SBI N York chipsuid value 09/08/10 CIBY:All agreed. My INR to my Mumbai Tx deal n bifn.

RTMU N DELHI Exchange Rate Arithmetic USD/INR 44.80/85, USD/SGD /15 What rate exporter in SGD can sell proceeds to get INR? 44.80/ = USD/INR 44.80/85, GBP/USD /15 What rate importer in GBP buy GBP against INR? 44.85x =

RTMU N DELHI

Fx Reserves ($ Bio in Sep 09) Fx Reserves ($ Bio in Sep 09) CHINA2273 JAPAN1052 RUSSIA441 S ARABIA395 TAIWAN341 INDIA285 S KOREA264 HONG KONG240 BRAZIL235 GERMANY184 Source: Reuters

RTMU N DELHI External Debt March ’09 (USD Mio) Multilateral39,566 Bilateral20,587 Trade Credits14,604 Commercial Borrowings (ECB)62,676 NRI & FC Deposits41,554 Rupee debt1,527 Short term debt49,373 Total229,887 Amounts 20% of GDP

RTMU N DELHI World GDP (Trillion USD) USA ,002,000,000,000 Japan4.992 China4.832 Germany3.060 France2.499 UK2.007 Italy1.987 Spain1.397 Brazil1.268 Canada1.229 India1.185