How to do Forex Management ?

Posted by admin on July 1, 2009 under Forex Trading | Be the First to Comment

Forex was considered a rate commodity and was subject to strict control in almost all countries of the world till 1970s. Exchange control was the order of the day. Today we talk of Forex Management and not exchange control. But the fact is that Forex Management from the national point of view is only exchange control or regulation, though in a diluted form.

The term exchange control refers to the control, by the government or a centralized agency of transactions involving forex. In a broad sense, any stipulation or regulations which restrict the free play of forces in the forex market can be termed exercise of exchange control. The rate of exchange under exchange control regime tends to be different from the one that would exist in the absence of such control under Forex Management measures.

The origin of exchange control can be traced to nineteen-thirties. After the First World War, many countries of Europe found themselves with depleted gold reserves and forex. They imposed payment restrictions to prevent massive capital withdrawals and instill stability in the domestic economy. Since then exchange control has been adopted by a large number of countries and for different purposes within the framework of Forex Management measures.

With the onset of globalization and liberalization beginning at the commencement of 1990s, the tendency throughout the world has been that of relaxing exchange control. Even earlier, some countries like United States of America proclaimed that they had no exchange control. But the fact is even today exchange control exists in all countries, with varying intensity.

Thus, the Forex Management act seeks to bring the law on the subject up to date keeping in view the changed environment. This act aims at amending and consolidating the law involving forex for the purposes of facilitating payments and external trade as well as for promoting the orderly development and maintenance of forex markets. The important features noticed in the new act as compared with the previous one are:

1. The seriousness of non-compliance with the regulation is diluted. It is only of civil and no criminal consequence.
2. The nature of capital account and current account transactions has been clearly defined.
3. The new enactment if positive in the sense that all current account transactions not otherwise restricted can be freely carried on.
4. The definition of residents as well as non-residents takes into account the duration of their stay in the state, as in the case of federal tax act.