GLOBALIZATION: ITS IMPACT ON THE COMPOSITION AND GROWTH OF INDIA’S FOREIGN EXCHANGE RESERVES WITH SPECIAL REFERENCE TO CAPITAL INFLOWS AND OUTFLOWS, FULL-CONVERTIBILITY AND OPTIMUM LEVEL OF FOREIGN EXCHANGE
Journal Title: International Journal of Physical and Social Sciences (IJPSS) - Year 2012, Vol 2, Issue 2
Abstract
Apart from highlighting the historical and theoretical aspects of foreign exchange rate, the study aims to analyze the composition of India‟s foreign exchange reserves during the period between 1991 and 2009 and the issues related to optimum level of holding of foreign exchange reserves, full capital account convertibility, flow of capital and interest rate have also been critically analyzed. The study shows that the exposition of Indian economy in 1991 to global has much perceived effect on accumulation of foreign exchange reserves but India , at present, can not move on to full capital account convertibility due to fiscal deficit, inflationary trends and lack of very sound global level financial centre. The study reveals that India has presently obtained more than optimum level of foreign exchange reserves and Indian interest rates and investment climate were conducive to foreign exchange inflows which accrued mostly from capital accounts to various sectors of Indian economy during period under study. Prior to first world war, the potentiality of earning foreign exchange by trading countries was limited due to the export of traditional commodities. Due to the situation, during the period between 1870 and 1914, there was no major currency crisis and the international trade and finance flourished without any major currency devaluation or revaluation(Friedrich Claus 1974)1.But, after the world wars, due to the industrialization and diversification of trading among the countries, the foreign exchange market in the international level has undergone remarkable changes which includes the emergence of fixed exchange rate, flexible exchange rate, flexible or fixed exchange rate with band, “dollarization”, Currency BOARDS , SDRs, EURO currency and other kinds of developments. Along with these developments, the determination of exchange rate based on basket of currencies by IMF in 1975 was also emerged and it resulted in assigning different weights to different currencies based on their exports and imports for fixing the exchange rate of the currencies of the individual countries. Though the problem of foreign exchange is very often dealt with by the World Bank and International Monetary Fund, the International Bank for Settlement, the central banks of individual countries or union of countries, the exchange rates among trading countries often pose to be destabilizing forces in the management of foreign exchange, domestic inflation and liquidity, growth of manufacturing industries, international trade and balance of payments of individual countries
Authors and Affiliations
Dr. Hala Raman
Keywords
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