All good things must come to an end.
We are moving away from quest to a new version of ForumIAS ( Beta ) at
You can no longer create new posts or comments. You will be able to access private messages. Topics and comments have already moved to , you can find respective link at the bottom of every topic. Requests you , do not create same topics again in beta.
All ForumIAS members selected for CSE 2019 Personality Test must submit their details and DAF and register below to receive further instructions and guidance from ForumIAS. Click here to register now
ForumIAS Official Telegram Channel Click to Join

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

Topic created · 5 Posts · 364 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 .

Log in to reply