BANKING AFFAIRS

Detailed explanation-1: -To increase a currency’s rate, central bank can lower the supply of their currency which will have the effect of increasing the demand of the currency. Conversely, by selling the domestic currency in exchange for other currencies, this increases the supply of a currency and causes its value to fall.

Detailed explanation-2: -The Reserve Bank’s exchange rate policy focusses on ensuring orderly conditions in the foreign exchange market. For the purpose, it closely monitors the developments in the financial markets at home and abroad. When necessary, it intervenes in the market by buying or selling foreign currencies.

Detailed explanation-3: -Exchange control-The forex market is regulated by the RBI with impregnable exchange control regulations. The RBI does not permit a bank to purchase dollars from the RBI and speculate in the interbank market. Selling these dollars in the overseas cross currency market is prohibited by the central bank.

Detailed explanation-4: -RBI has an important role to play in regulating & managing Foreign Exchange of the country. It manages forex and gold reserves of the nation. On a given day, the foreign exchange rate reflects the demand for and supply of foreign exchange arising from trade and capital transactions.