Exchange requirements-, Financial Management

Exchange Requirements

To ensure money supply, some central banks require some or all of its foreign exchange receipts (generally from exports) be exchanged for the local currency. The rate that is used to purchase local currency may be market-based or arbitrarily fixed by the bank. This is generally applied in the countries where the currency is non-convertible or partially convertible.

The need for this tool is that the recipient of the foreign currency on conversion to local currency may easily dispose of these funds, may hold the funds with the central bank for some period or may be allowed to use these funds with certain restrictions. In simple words, the means to hold or use the foreign exchange may be otherwise limited.

Under this policy tool, money supply tends to increase when the central bank purchases the foreign currency by issuing/selling the local currency. This increase can be subsequently controlled through various issuances like selling bonds, foreign exchange interventions, etc.

Major Central Banks: Every country or a group of member states, for example European Union, shall have a central bank. Some of the major Central Banks are:

  • The US Federal Reserve
  • The Bank of England
  • The Reserve Bank of India (1935)
  • The Bank of Japan
  • The Deutsche Bundesbank
  • The Bank of Canada
  • The Reserve Bank of Australia
  • The European Central Bank.

 

Posted Date: 9/11/2012 2:58:12 AM | Location : United States







Related Discussions:- Exchange requirements-, Assignment Help, Ask Question on Exchange requirements-, Get Answer, Expert's Help, Exchange requirements- Discussions

Write discussion on Exchange requirements-
Your posts are moderated
Related Questions
Q. Definition of Capital Budgeting? Capital Budgeting is the procedure of making decisions for investment in long-term assets. It is a method of deciding whether or not to inve

What is risk aversion? If common stockholders are risk averse, how do you explain the fact that they often invest in very risky companies? Risk aversion is the tendency to evad

FORMS OF DIVIDEND Cash Dividend Many Companies pay dividend in cash. Often cash dividend may be supplemented by a bonus issue (stock dividend).  When the company chooses

What is behind the wave of mergers in the banking industry? A: Various economic factors have caused banking institutions to merge over the past various years. These factors inclu

Q. Drawbacks or Criticism of MM Approach? Risk Perceptions of personal as well as corporate leverages are different: - It is incorrect to presume that 'personal leverage' is a

Q. Diffrence between present values of future cash ? The difference among the present values of future cash inflows generated by an asset and its cost is known as net present v

Using a spreadsheet program or a calculator, solve Tracy’s problem of how often to go to the ATM when the nominal interest rate on her bank account is 10 percent, she spends $30 ea


Suppose today's settlement price on a CME DM futures contract is $0.6080/DM. You comprise a short position in one contract. Your margin account at present has a balance of $1,700.

Federal Reserve Board The Federal Reserve Board controls the nation's monetary policy, regulates banks, and searches to keep the financial stability of the United States. Its t