Exchange RatesEssay Preview: Exchange RatesReport this essayMacroeconomic 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-Д -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.
The RBI and the RBI are in agreement to allow the issuance of interest-free loans to foreigners and nationals in India by the State government on a case-by-case basis to ensure the maximum degree of financial and monetary security available to the population and expatriates.
Under RBI rules, Indian citizens and nationals can not issue foreign bank notes and remittances after March 25, 2015. Foreign nationals are allowed to hold the note for two years if they become a resident and hold foreign-issued currency on July 1, 2015. Remittance of India bills from India into the USA, UK (England, New York, Canada, Australia). Foreign currency from India into the USA is allowed to be transferred through this channel. Interest rate fixed on the note (1 rupee or 5%) and interest rate fixed on the foreign dollar as determined by the RBI is subject to change in each calendar year. It remains to be seen when a U.S. bank will implement rates, such as those set for the Reserve Bank, that will be applicable for U.S. citizens, expatriates and others on account of current account situation in India.
Under U.S. and Canadian banks’ rules, the maximum amount of debt outstanding on foreign bank notes and remittance payments will be waived as per rule. Foreign money cannot be held outside India as it is under U.S. and Canadian banks’ rules.
The RBI and the RBI are also taking some steps toward fully implement this directive to facilitate the release of currency across the country. Additional penalties with regard to the remittance of foreign-issued money to citizens in India have been made.
In recent days India has announced financial transparency law. The law requires all banks to update credit management information. This means that no person cannot take any payment from the bank the day of their birth or be transferred from one credit facility to another by a bank or financial institution which provides financial services.
Indian banks have been required to provide documentation of their compliance with the U.S. Banking Act and their own documentation in order to receive U.S. loans. Financial institutions must submit their compliance logs to the appropriate authorities. These records are then sent to the RBI for use in any proceedings in order to verify compliance. These rules have been in place since 2015.
The RBI also has issued guidelines that further enable them to clarify the rules adopted by U.S. banks on the subject of interest-free lending and foreign exchange-related remittance payments.
In recent months, government of India announced its intention to amend the United States tax laws to provide relief to expatriates who are residing in the United States because all foreign income from such income constitutes foreign income and non-domiciled tax purposes under the tax laws