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The exchange process has been going on for a long time. This started a long time ago when the exchange of stuff started in society. At first, they used to exchange different stuff with themselves. After that, different types of items were exchanged in which people got the required stuff. This particular item had a fixed value, and people used to provide the exact amount of that value to get the required stuff for that person. At times, this thing has become currency. And nowadays, there is currency exchange at the rate of cost. It is essential to know what exchange rate management is in India and how it works?
Currency Exchange
The modern form of a very ancient culture, exchange, has eventually become currency exchange. In ancient days people used to exchange their stuff, then the currency came with a fixed value, where anyone could get the stuff they wanted.
Nowadays, this process is also there, but some more are added to it. There are different countries globally; there are different currencies throughout the world. And all of those have different currencies. The Exchange of these currencies is known as the Currency Exchange.
What is Exchange Rate Management in India, and How Does it Work?
Exchanging different currencies based on their price in the world market is the exchange rate. Along with that, there are fixed values for those exchange rates, and India, by following the IMF, has to exchange that foreign currency at that particular rate; this is known as exchange rate management.
There are different ways to calculate and manage the exchange rate of different foreign currencies in India. Since its independence, India has transited the exchange rate into different countries over time. Although, the rate of exchange in India has permanently been fixed since now. The rate can maximum have a difference of 1% over time. So, for currency exchange, you need to pay a particular amount in the Indian rupee to get that foreign currency, where the amount is not fixed, but the parameter to decide the amount is fixed. It will help you learn more about exchange rate management in India and how it works?
Parameters of Exchange Management
The parameter will also be fixed for any exchange rate, especially which is completely fixed. Though the parameters for exchange rates in India have changed several times, every time, it remains fixed.
- 1947-1971: During this era, the exchange rate management was known as the per value system, where the rate has a parameter of gold. 4.15 grains of fine gold was getting compared to 1 Indian rupee at that time.
- 1971-1992: It was known as the pegged regime in this period. At that time, the Indian currency was pegged to the USD. This period was from 1971 August to 1991 December. So, the exchange rate is used to get decided per the USD value.
- 1991 onwards: From this time onwards, the Indian currency gets calculated with the value of the Pound Sterling. Some changes can be experienced, where the first time, the value was adjusted at 18-19 percent to a rupee. After that, when the liberalized exchange rate management system was introduced, the rate was changed and fixed to under 40 percent. This has been fixed where the foreign currency is. And the rest 60 will be converted at the rate which the market has determined.
There are also two types of markets to buy and sell foreign currency. This market also impacts What exchange rate management in India is and how it works.
- Spot Market
In this market, the exchange happens within two days of the period. The rate of the exchange remains the same as the market rate on the same day of the deal. This is also known as the spot exchange rate.
- Forward Market
This market exchanges the currency within 90 days of the deal. In this case, the buyer and seller decide the rate of exchange. Based on the decided rate, the exchange happens. This is known as the forward exchange rate.
Conclusion
Being under the IMF, there are specific rules for exchange rate management in India. That is why there are different parameters and market rates. That helps to decide the exchange rate. You need to remember that the exchange rate is not the same or fixed. But the parameters to decide the exchange rate are permanently fixed. And you need to know these to understand what is exchange rate management in India and how it works?
