RBI Announces Regulatory Measures for the Foreign Exchange Market
Distilled Policy Brief
- The Reserve Bank of India has restricted Authorised Dealers from permitting users to rebook cancelled foreign exchange derivative contracts involving INR, while continuing to allow rollovers on maturity subject to extant provisions.
- The threshold for foreign exchange derivative transactions and exchange-traded currency derivatives taken without establishing underlying exposure has been reduced from USD 100 million equivalent to USD 5 million equivalent.
🎯 Prelims High-Yield Examination Points
Note the revised limit of USD 5 million for currency derivative contracts without establishing underlying exposure and the cash reserve requirement under FERR.
⚖️ Mains Analytical & Syllabus Linkages
Analyze how macroprudential regulations on currency derivatives curb speculative volatility and protect domestic macroeconomic stability.
🎯 UPSC Prelims Practice Drill
With reference to the regulatory measures announced by the Reserve Bank of India (RBI) for the foreign exchange market, consider the following statements: 1. Authorised Dealers are restricted from permitting users to rebook cancelled foreign exchange derivative contracts involving INR. 2. The threshold for undertaking foreign exchange derivative transactions without establishing an underlying exposure has been reduced from USD 100 million to USD 5 million equivalent. 3. Users hedging contracted exposures must provide an undertaking that the same underlying exposure has not been hedged with any other Authorised Dealer. Which of the statements given above are correct?
- [A] 1 and 2 only
- [B] 2 and 3 only
- [C] 1 and 3 only
- [D] 1, 2 and 3
▶ Reveal Official Answer & Analytical Explanation
All three statements are correct based on the RBI circulars. The RBI restricted Authorised Dealers from permitting users to rebook cancelled foreign exchange derivative contracts involving INR, while allowing rollovers on maturity. It also reduced the threshold for taking forex derivative positions without establishing underlying exposure from USD 100 million to USD 5 million equivalent. Furthermore, Authorised Dealers must obtain an undertaking from users confirming that the same underlying exposure has not been hedged with any other dealer.
🏛️ Historical Twin PYQ Anchor (2021)
Consider the following statements regarding the "National Clean Air Programme (NCAP)": 1. It is implemented by the Ministry of Environment, Forest and Climate Change. 2. Central Pollution Control Board acts as the sole regulatory executive body.