Exchange requirements-, Financial Management

Assignment Help:

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.

 


Related Discussions:- Exchange requirements-

Explain capital investment project appraisal, Question: (a) The future ...

Question: (a) The future value (F) of a sum invested now can be calculated using the formula: F = P(1 + r) n Required: (i) Describe each of the other constituents in the

Agency problem, Discuss how a business might limit agency problem between m...

Discuss how a business might limit agency problem between management and creditors

Describe the concept of block of assets, Describe the Concept of Block of A...

Describe the Concept of Block of Assets? (a) Comment on the techniques of Risk Analysis commonly employed in Capital Budgeting. (b) Define clearly the concept of block of as

Illustrate the operating leverage, Q. Illustrate the Operating Leverage? ...

Q. Illustrate the Operating Leverage? Operating Leverage: - The operating leverage perhaps defined as the tendency of the operating profit to differ disproportional with sales.

Risk analysis, Your broker calls to offer you the investment opportunity of...

Your broker calls to offer you the investment opportunity of a lifetime, the chance to invest in mortgage-backed securities. The broker explains that these securities are entitled

What do you mean by variable working capital, Q. What do you mean by Variab...

Q. What do you mean by Variable working capital? Permanent or fixed: Permanent or fixed working capital is the minimum amount which is required to ensure effective utilization

Calculate the wacc and irr, The capital structure of Wild West Inc. is as f...

The capital structure of Wild West Inc. is as follows: Debts: $5,000,000 (face value) bonds with coupon rate at 8.00% and current price at par Preferred shares: $2,000,000

Degree of uncertainty in predicting cash balances, Q. Degree of uncertainty...

Q. Degree of uncertainty in predicting cash balances? Probability approaches identify a degree of uncertainty in predicting cash balances and allow for a range of outcomes to

What are the financing methods, Q. What are the financing methods? - Th...

Q. What are the financing methods? - The export transaction could be correlated to a bill of exchange. If this bill was established (guaranteed) by the bank it could be discoun

Financial control, Internal capital rationing is used by firms for exercisi...

Internal capital rationing is used by firms for exercising financial control. How does a firm achieve this?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd