Exchange Rates

Macroeconomic Trends (Inflation, BoP etc):

The Indian rupee is still not fully convertible on capital account except for certain transactions carried out by foreign institutional investors, within certain limits, and liberalisation on Investment abroad by Indian Individuals/ companies wherein they can freely convert their foreign currency/rupee

assets into Indian/foreign currency assets by way of investment in Indian/ foreign capital market. Recently, Indian companies have also been permitted to invest, up to 25 per cent of its net worth, in shares of foreign companies, having a minimum of 10 per cent of the share capital of a

company listed in a recognized stock exchange in India. Mutual Funds are permitted to invest in ADRs/GDRs of the Indian companies, rated debt instruments and also invest in equity of overseas companies with an overall cap of USD 1 billion. Furthermore, under the Liberalised

Remittance Scheme of USD 25,000, resident individuals are free to acquire and hold immovable property, shares or any other asset outside India without prior approval of RBI, enabling them to convert their rupee denominated assets into foreign currency denominated assets. These are steps closer to full convertibility of rupee. As all these measures do have an impact on exchange rate of rupee as well as forward premia of US dollar vis-Ð" -vis Indian rupee, developments on these fronts are worth noticing for players active in the Indian forex market. Further, banks can hold both rupee as well as foreign currency deposits and can transmit their influence on interest rates as well as on forward premia.