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International Monetary System

The document outlines key concepts of the international monetary system, focusing on foreign exchange, exchange rates, and exchange rate regimes, which include fixed, floating, and managed float systems. It details India's current exchange rate regime, highlighting that exchange rates are market-determined with the Reserve Bank of India intervening to stabilize the rupee. The document also notes the evolution of India's exchange rate policy from a par value system to a managed float system.

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Anirban Biswas
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8 views

International Monetary System

The document outlines key concepts of the international monetary system, focusing on foreign exchange, exchange rates, and exchange rate regimes, which include fixed, floating, and managed float systems. It details India's current exchange rate regime, highlighting that exchange rates are market-determined with the Reserve Bank of India intervening to stabilize the rupee. The document also notes the evolution of India's exchange rate policy from a par value system to a managed float system.

Uploaded by

Anirban Biswas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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INTERNATIONAL MONETARY SYSTEM

Important Concepts

Foreign Exchange: ‘Foreign exchange’ refers to money denominated


in a currency other than the domestic currency. Foreign exchange
can be cash, funds available on credit cards and debit cards, and bank
deposits.

Exchange rate: The rate at which a currency of one country


exchanges for another country's currency is called the ‘exchange
rate'.

Exchange rate regime: An exchange rate regime is the process by


which a country manages its currency with respect to foreign
currencies. Exchange rate regimes can broadly be categorized into
two extremes: fixed and floating.
FORMS OF EXCHANGE RATE REGIME
1. FIXED EXCHANGE RATE
Under a fixed exchange rate system, a country's monetary authority agrees to manage its affairs to maintain a fixed
ratio between the value of its own currency and that of other countries.

This is also called Pegged exchange rate system.

In a fixed exchange rate system, a rise in the exchange rate of the domestic currency vis-à-vis another foreign
currency is called a devaluation.

On the other hand, when the exchange rate falls, it is termed as a revaluation.
FORMS OF EXCHANGE RATE REGIME

2. FLOATING EXCHANGE
RATE
FORMS OF EXCHANGE RATE REGIME
FORMS OF EXCHANGE RATE REGIME

3. MANAGED FLOAT EXCHANGE


RATE
INDIA’S EXCHANGE RATE REGIME
The principal features of the current exchange rate regime in India can be stated as
follows:

 The rates of exchange are determined in the market.


 The freely floating exchange rate regime continues to
operate within the exchange control framework.
 RBI can intervene in the market to modulate the
volatility and sharp depreciation of the rupee.
 The US dollar is the principal currency for RBI
transactions.
 The RBI also announces a Reference Rate based on
the quotations of select banks in Bombay at noon
every day.

The main objectives of India’s exchange rate policy are to ensure that the economic fundamentals are truly reflected in
the external value of the rupee. In the post-independence period, India's exchange rate policy has shifted from a par
value system to a basket-peg and to a managed float exchange rate system.

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