7/31/2019 10pgdm011 Dhara

1/13

RBI INTERVENTION INFOREX MARKET AND

CURRENCYDEPRICIATION

BY-DHARA PATEL(10pgdm011)

SUBMITTED TO :- RAJESH SIR

7/31/2019 10pgdm011 Dhara

2/13

MEANING OF RBI INTERVENTION

In the wake of the rupees slide, there has been much talk aboutthe RBIs intervention in the currency markets to support theIndian currency, including a massive sell-off of dollars.

Monetary policy - Management of money supply and interestrates by central banks to influence prices and employment

Expansion or contraction of investment and consumptionexpenditure.

7/31/2019 10pgdm011 Dhara

3/13

TYPES OF INTERVENTION

DIRECT INTERVENTION

INDIRECT INTERVENTION

STERILISED INTERVENTION

UNSTERILISED INTERVENTION

7/31/2019 10pgdm011 Dhara

4/13

RESERVE BANKS INTERVENTION

AND STERILIZATION

As observed during the various episodes of exchange ratevolatility in India, the Reserve Bank has been intervening in theforeign exchange market to curb volatility arising due to

demand-supply mismatch in the domestic foreign exchangemarket.

Sale of dollars in the foreign exchange market is generally

guided by excess demand conditions that may arise due toseveral factors.

7/18/2012 4

7/31/2019 10pgdm011 Dhara

5/13

Cont

Similarly, the Reserve Bank purchases dollars from the market

when there is an excess supply pressure. There is someevidence of co-movement in demand-supply mismatch proxiedby the difference between the purchase and sale transactionsin the merchant segment of the spot market and intervention bythe Reserve Bank.

Thus, the Reserve, Bank has been prepared to make sales andpurchases of foreign currency in order to curb volatility, evenout lumpy demand and supply in the foreign exchange marketand to smoothen jerky movements, while allowing the rupee to

move in both directions.

However, such intervention is generally not governed by anypre-determined target or band around the exchange rate.

7/18/2012 5

7/31/2019 10pgdm011 Dhara

6/13

CURRENCY DEPRECIATION

It means that Indian currency is worth lesser now in comparisonwith some other currency.

For India, this other currency is primarily US Dollars.

7/18/2012 6

7/31/2019 10pgdm011 Dhara

7/13

INDIAN RUPEE HAS BEHAVED INCOMPARISON TO US DOLLARS FOR

PAST 10 YEARS.

7/18/2012 7

http://insight.banyanfa.com/wp-content/uploads/2012/05/BFA-USD-INR-Rupee-chart.jpg

7/31/2019 10pgdm011 Dhara

8/13

Indian rupee appreciation against

dollar impacted heavily to the

following:

Exporters

ImportersForeign

investors

7/31/2019 10pgdm011 Dhara

9/13

DEMAND SUPPLY RULE

Rupee quotation follows the simple economic rule ofDemand & Supply.

If there is more demand for dollars in India than the supply for it,Rupee would depreciate and vice-versa.

Demand of dollars may be created by Importers requiring moredollars to pay for their imports, FIIs withdrawing theirinvestments and taking the dollars outside India, etc.

Supply is created by exporters bringing in more dollars fromtheir revenues, NRIs remitting more funds, FIIs bringing moredollar in India to drive their investments.

9

7/31/2019 10pgdm011 Dhara

10/13

OIL PRICES

With the increasing price of Oil in international markets, Indiahas to pay an increased amount of dollars to import the samequantity of oil.

Further more, with an increase in the quantity of oil importedinto India, a further pressure is imposed on the demand ofdollars to pay to our suppliers from whom we import Oil.

This increase in demand for dollars depreciates the Rupeefurther.

7/18/2012 10

7/31/2019 10pgdm011 Dhara

11/13

7/18/2012 11

http://insight.banyanfa.com/wp-content/uploads/2012/05/BFA-Brent-chart.jpghttp://insight.banyanfa.com/wp-content/uploads/2012/05/BFA-Brent-chart.jpg

7/31/2019 10pgdm011 Dhara

12/13

NEGATIVE IMPACT OF CURRENCYDEPRICIATION

Oil Infection

Higher Inflation

Poor Returns For Fiis

Repayment Of Loans

Foreign Education

Foreign Holidays

7/31/2019 10pgdm011 Dhara

13/13

7/18/2012 13

http://www.thinkplaninvest.com/wp-content/uploads/2011/09/rupee-symbol.jpg