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What is the RBI Forex Swap ? What steps does it involve?

Topic created · 5 Posts · 273 Views
  • In the recent step to infuse liquidity RBI has decided to introduce a 5 bn USD Forex Swap..
    What exactly does this step entails? what are the nitti gritties and technicalities of this central bank's instrument?
    A detailed discussion on this will be helpful for everyone !

  • @Tao
    Are you asking for meaning of these key terms and thus a general explanation or you already know these details and intend to have further discussion on probably repercussions it might carry 🧐

  • @Tao
    General beniftis

    1. Internalization of rupee
    2. better purchasing power parity contributing to better standard of life
    3. Current account deficit reduction

    P.s i may be wrong but this is just my view point

  • @Tao

    If only I knew how to upload photo here 😏.This would have been easy to explain in diagrammatic form

    Anyways here it’s the simple logic of demand and supply that applies ( in crude language)

    1. RBI intend to buy dollars from domestic banks for 3 year period in return of supplying them with Indian rupee
      2 so increased money supply and decreased dollar supply
      @ prevent appreciation of rupee
      @ reduction in interest rates ( rates at which banks would offer to lend money )
      @ potential benefits : push to exports and investment activities
      @ temporary increases in rbi forex
      @ potential threats : outflow of capital ( due to reduction in rate of interest)

    PS : it’s a preventive step as rbi anticipated probability of rupee appreciation due to upcoming dollars injection ( some Indian co. being bought by foreign co.)
    2 . Banks having limited liquidity in this financial year so move will provide them with enough liquidity also .

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