by Role of Forex Manager
Have an Idea about the Historical Development of the International Trade and Evolvement of Forex Management:
The Forex manager must have a fair idea of how the current international trade and Forex management has reached its present status. The continuously evolving changes in the alliances between the countries in the nature of political, economic, social conditions of the countries and the economic superpowers of the globe help to have a proper idea about the current Global Economic situation, and can also provide him with experiences of past.
Able to Forecast the Future Trends:
The Forex manager should be able to forecast about the future trends of the Global Economy from the history and current scenario, so as to be able to exploit the opportunities emerging out and in turn to reduce the risks faced by firm.
Able to analyse the Various Situation in a Comparative Manner (Comparative Analytical Skills):
The Forex manager should be able to comparatively analyse various situations currently arising with the past events and situations, and be able to forecast it properly.
He should also be able to analyse the various components of costs of the goods and services and changes in the various rates like shipping rates, insurance costs, other regulatory charges, etc. It is also required to decide whether it would be beneficial for organization to involve in export activities or to do domestic trade only or both and in which proportions.
Knowledge of Forex Market:
He should have an in-depth knowledge of the functioning of Forex Markets and the rules and regulations to be followed. He should also have in depth knowledge of the size, profile and movement of foreign currency exchange rates with various currencies of the globe, so as to have proper pricing of International Deals.
Knowledge of Interest Rates:
He should have an idea of interest rates prevailing and expected movement in interest rates of various countries of the globe, and to estimate and judge the expected future currency exchange rates. Such knowledge and skills will support him to take necessary steps to reduce the risks going to arise due to them.
Willingness to Undertake Risk:
He should be armed with the knowledge of Forex management, and should be able to take reasonable level of risks as and when needed, and try to reduce its overall impact on the organization.
Covering and Protection Strategies (Hedging Strategies):
He should have a proper understanding and awareness about the techniques useful for reducing the risk proportions and risk exposures. Hedging means to cover or protect the current position. As per Forex management, he should be able to hedge his positions to the best extent possible, keeping in view the timing and current changes in the Forex market.
FDI v/s FPI
Foreign Portfolio Investment (FPI) and Foreign Direct Investment (FDI) are the two essential and well-sought type of foreign capital by the countries, especially by the developing world. Post Union Budget FY 2019-20, most of you surely would have heard the words “FPIs” being used, in the context of the stock markets crash through financial news channels or social media platforms.
Foreign Direct Investment (FDI)
FDI pertains to foreign investment in which the investor obtains a lasting interest in an enterprise in another country.
It involves establishing a direct business interest in a foreign country, such as buying or establishing a manufacturing business, building warehouses, or buying buildings. Also, it tends to involve creating more of a substantial, long-term interest in the economy of a foreign country.
Due to the significantly higher level of investment required, FDIs are usually undertaken by MNCs, large institutions, or venture capital firms. FDI tends to be viewed more favorably since they are considered long-term investments, as well as investments in the well-being of the foreign country itself.
This kind of investment may result in the transfers of funds, resources, technical know-how, strategies, etc.
There are several ways of making FDI like:
- Creating a joint venture
- Through merger and acquisition
- By establishing a subsidiary company
Foreign Portfolio Investment (FPI)
FPI, on the other hand, refers to investing in the financial assets of a foreign country, such as stocks or bonds available on an exchange.
In simple words, FPI involves the purchase of securities that can be easily bought or sold.
The intent with FPI is generally to invest money into the foreign country’s stock market with the hope of generating a quick return.
Hence, this type of investment is at times viewed less favourably than direct investment because portfolio investments can be sold off quickly and are at times seen as short-term attempts to make money, rather than a long-term investment in the economy.
In India, FPIs includes investment groups of Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) and subaccounts, etc. NRIs doesn’t come under FPI.
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FDI |
FPI |
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| Meaning | FDI refers to the investment made by the foreign investors to obtain a substantial interest in the enterprise located in a different country. | When an international investor, invests in the passive holdings of an enterprise of another country, i.e. investment in the financial asset, it is known as FPI. |
| Role of investors | Active | Passive |
| Management of Projects | Efficient | Comparatively less efficient. |
| Investment in | Physical assets | Financial assets |
| Entry and exit | Difficult | Relatively easy. |
| Results in | Transfer of funds, technology and other resources. | Capital inflows |
| Degree of control | High | Very less |
| Term | Long term | Short term |
Role of FEDAI in Foreign Exchange Market
The Foreign Exchange Dealers Association of India (FEDAI) is an association of commercial banks that specializes in the foreign exchange (forex) markets in India. These institutions are also called Authorised Dealers or ADs.
Created in 1958 and incorporated under Indian law, Section 25 of The Companies Act of 1956, the Association regulates the rules that determine commissions, fees, and charges that are attached to the interbank foreign exchange business.
FEDAI is a self-regulatory body that evolved various rules and guidelines for transactions related to foreign exchange like rules regarding trading hours, Transit period, Crystallization, Forward covers, etc. Besides, it has prescribed a code of conduct in settling issues /matters related to forex dealing of member banks and provided a standardized settlement process for all market participants. FEDAI represents member banks while liaising with RBI and other organizations like Fixed Income Money Market and Derivatives Association (FIMMDA), the Forex Association of India, International Chamber of Commerce, and other world bodies related to foreign trade and business. Further, it is liaising with other market participants, in its endeavor for reforms and development of the forex market.
The FEDAI’s core functions include:
- Advising and supporting member banks with issues that arise in their dealings
- Representing member banks on the Reserve Bank of India (India’s central bank)
- Announcement of daily and periodical interest rates to member banks
- Guidelines and Rules for Forex Business.
- Training of Bank Personnel in the areas of Foreign Exchange Business.
- Accreditation of Forex Brokers.
The other functions of FEDAI include circulating various policies matters and decisions related to foreign exchange business amongst the members, approving Foreign Exchange brokers, circulating ‘spot date’ to its members at the start of each trading day to ensure uniformity in a settlement between different market participants. It also provides at the end of a calendar month a schedule of forwarding rates to be used by AD’s for revaluating foreign currency denominated assets and liabilities.
