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By Author: Anthony Green
Total Articles: 36
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The foreign exchange market was generally stable during 2001-02 except for brief periods of uncertainty during May 2001, September 2001 and December 2001 (terrorist attack on the Indian Parliament). In order to stabilise the domestic financial markets during these episodes, the Reserve Bank undertook a series of measures.

A number of steps were taken in continuation of the phased approach to capital account liberalisation during the year. Non-resident nonrepatriable (NRNR) account and non-resident special rupee account schemes were discontinued with effect from April 1, 2002 in order to provide full convertibility on non-resident deposit schemes. While no new deposits would be accepted under these schemes, existing term deposit accounts under both the schemes have been allowed to continue up to the date of maturity. Existing NRSR accounts, other than term deposits, have been allowed to continue up to September 30, 2002. On maturity, the proceeds of NRNR scheme shall be credited to the account holders� non-resident account, while those in the case of NRSR scheme shall be credited to the account holder�s non-resident ...
... account.

Amongst the facilities available to corporates, existing limits for Indian direct investment overseas under the automatic route were raised from US $ 50 million in a financial year to US $ 100 million. Indian investors can now purchase foreign exchange up to 50 per cent of their net worth as on the date of last audited balance sheet as against the existing limit of 25 per cent. At present, corporates are allowed to prepay external commercial borrowings (ECBs) to the extent of the balances in their EEFC accounts. Exportoriented units and others can credit up to 70 per cent and 50 per cent, respectively, of their foreign exchange earnings to their EEFC accounts. In order to enable the Indian companies more flexibility and to take advantage of lower interest rates and prepay their ECBs, the corporates were allowed to credit higher than the stipulated proportions of export proceeds to their EEFC accounts on a case-by-case basis.

Issues of Foreign Currency Convertible Bond were allowed under the automatic route up to US $ 50 million. The Indian companies were permitted to raise the 24 per cent limit on Foreign Institutional Investors investment to the sectoral cap/statutory ceiling as applicable. As announced by the Finance Minister in his Budget speech for 2002- 03, FIIs� portfolio investments will hence forth not be subject to sectoral limits for foreign direct investment except in specified sectors.

With the introduction of Euro notes and coins, the Reserve Bank started announcing reference rate for Euro in addition to the US dollar. The Central Government has given the option to the Reserve Bank to use Euro as intervention currency in addition to US dollar.

The Reserve Bank intervenes in the foreign exchange market in order to even out lumpy demand or supply and maintain orderly conditions in the foreign exchange market. The Reserve Bank conducts operations in the spot, forward and swap segments of the market combined with monetary and other administrative measures as part of its intervention strategy.

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