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The foreign exchange market India is growing very rapidly. The annual turnover of the market is more than $400 billion. This transaction does not include the inter-bank transactions. According to the record of transactions released by RBI, the average monthly turnover in the merchant segment was $40.5 billion in 2003-04 and the inter-bank transaction was $134.2 for the same period. The average total monthly turnover was about $174.7 billion for the same period. The transactions are made on spot and also on forward basis, which include currency swaps and interest rate swaps. The Indian foreign exchange market consists of the buyers, sellers, market intermediaries and the monetary authority of India. The main center of foreign exchange transactions in India is Mumbai, the commercial capital of the country.
There are several other centers for foreign exchange transactions in the country including Kolkata, New Delhi, Chennai, Bangalore, Pondicherry and Cochin. In past, due to lack of communication facilities all these markets were not linked. But with the development of technologies, all the foreign exchange markets of India are working collectively. The foreign exchange market India is regulated by the reserve bank of India through the Exchange Control Department. At the same time, Foreign Exchange Dealers Association (voluntary association) also provides some help in regulating the market. The Authorized Dealers (Authorized by the RBI) and the accredited brokers are eligible to participate in the foreign Exchange market in India. When the foreign exchange trade is going on between Authorized Dealers and RBI or between the Authorized Dealers and the overseas banks, the brokers have no role to play. Apart from the Authorized Dealers and brokers, there are some others who are provided with the restricted rights to accept the foreign currency or traveler’s cheque.
Among these, there are the authorized money changers, travel agents, certain hotels and government shops. The whole foreign exchange market in India is regulated by the Foreign Exchange Management Act, 1999 or FEMA. Before this act was introduced, the market was regulated by the FERA or Foreign Exchange Regulation Act, 1947. After independence, FERA was introduced as a temporary measure to regulate the inflow of the foreign capital. But with the economic and industrial development, the need for conservation of foreign currency was felt and on the recommendation of the Public Accounts Committee, the Indian government passed the Foreign Exchange Regulation Act, 1973 and gradually, this act became famous as FEMA.
Forex Facilities for Residents Private Travel- Foreign exchange up to US$ 10,000 is permissible in any calendar year for tourism or private travel to any country other than Nepal and Bhutan on the basis of self-certification. When traveling to Nepal and Bhutan, you can carry as much Indian currency as you wish, except currency notes with denominations of Rs.500 and above.
Study Abroad / Medical treatment abroad / Employment abroad / Emigration / Maintenance of close relatives abroad- Foreign exchange up to US$ 100,000 is permissible on the basis of self-certification. For students the limit of $100,000 is applicable for each academic year. For medical treatment in addition to $100,000, foreign exchange up to US$ 25,000 can be taken for meeting boarding/lodging/travel expenses of the patient and also for the accompanying attendant on self-certification. Amounts in excess of the limits can be released on basis of documentary evidence of requirement. Remittance for Miscellaneous Purposes up to US$ 5000- Remittances can be made up to US$ 5000, for any miscellaneous purpose, without furnishing documents.
Donations- Donations can be made to anybody up to US$ 5,000 every year per remitter on self certification. International Credit Cards- International Credit Cards can be used for: Meeting expenses or making purchases while abroad without any limit. Making payments in foreign exchange for purchase of books and other items through the Internet. Residents holding a foreign currency account in India or with an overseas bank, are free to obtain ICCs issued by overseas banks and other reputed agencies.
Surrender of Foreign Exchange on Return- Foreign exchange up to US$ 2,000, in the form of foreign currency notes or travelers’ cheques (TCs) can be retained indefinitely for future use. Amounts in excess of $2000 have to be surrendered to a bank within 90 days and TCs within 180 days of return. Foreign coins can be retained indefinitely without any limit. Resident Foreign Currency (Domestic) Account- Residents can open Resident Foreign Currency (Domestic) Account with a bank in India for crediting: Unspent Balances after travel abroad Currency ,TCs, bank drafts received as gifts from or for services rendered to nonresident while in India Foreign exchange earnings received, through banking channel, as honorarium, consultancy, royalty, for any services or towards exports of goods.
Liberalised Remittance Scheme of USD 100,000/- for Resident Individuals- All Resident individuals are eligible to avail of the facility under the scheme. This facility is not available to Corporates, Partnership firms, HUF, Trusts etc. This facility is available for making remittance up to USD 100,000/- per financial year for any current or Capital account transactions or a combination of both. Under this facility, Resident Indians will be free to acquire and Hold immovable property or shares or any other asset outside India without prior approval of the Reserve Bank of India. Individuals will also be able to maintain and hold foreign currency accounts with a bank outside India for making remittances under the scheme without prior approval of the Reserve Bank of India. The foreign currency account may be used for conducting transactions connected with or arising from remittances eligible under the scheme.
Methods of transacting in Foreign Exchange:
- Foreign Currency Travelers Cheques- Travellers Cheques are a safe and easy way to protect your money when you travel. You can encash them only when you need to, and only against your signature, unlike cash which can be stolen and misused by anybody, immediately.
- Loss of Travellers Cheque can be reported anywhere in the world by making a single phone and the pre-fixed amount on the cheques are made refundable. Travellers Cheques are offered in major currencies like USD, GBP, Euro, CAD, AUD and JPY. These are available in various denominations to suit your needs.
- Foreign Currency Cash- Foreign Currency Cash is a convenient way of meeting personal expenses along your journey, paying for taxis / internal travel, food expenses etc. Foreign Currency Cash can be availed in USD, GBP, EURO, AUD and CAD.
- Foreign Currency Prepaid Card- A pre-paid traveller's card designed to give you a secure and hassle-free travel experience. No more chasing moneychangers or paying transaction charges for shopping abroad. This card is ideal for travelers since it can be hot-listed if stolen & reloaded, while you are still abroad, In fact, it is the perfect answer to all your foreign exchange needs.
- Foreign Currency Demand Drafts- Generally used for payment of University fees abroad, making a gift remittance to a friend or relative, payment of application fees for various exams like TOEFL , GMAT etc or payment for medical treatment abroad