Forex Markets in India

Forex (Foreign Exchange) is the international financial market used for trade of world currencies. It has been working since 70s of the 20th century - from the moment when the biggest world nations decided to switch from fixed exchange rates to floating ones. India's share in world forex market has shown growth of 0.9% last year and will grow further. It is the fastest growth of any country. The growth rates of developed countries is much lower compared with developing countries.UK and US have shown the lowest change in contribution of foreign exchange. In India people are now more aware of the kinds of trading like derivative markets, options, swapping, hedging etc. The most important characteristic of forex is the impact on various currencies by the change in one currency rates. Any economic activity in world affects the forex market immediately. The overall approach to the management of India’s foreign exchange reserves takes into account the changing composition of the balance of payments and endeavours to reflect the ‘liquidity risks’ associated with different types of flows and other requirements. As capital inflows during 2007-08 were far in excess of the normal absorptive capacity of the economy, there was substantial accretion to foreign exchange reserves by US $ 110.5 billion. The foreign exchange reserves declined by US $ 23.4 billion from US $ 309.7 billion as at end-March 2008 to US $ 286.3 billion by end-September 2008 largely reflecting valuation effects. Excluding valuation effects, the decline was US $ 2.5 billion. Between October 2008 and January 16, 2009 foreign exchange reserves declined by US $ 34.1 billion to US $ 252.2 billion, including valuation effects. However, India’s current level of foreign exchange reserves remains comfortable.

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