SCOPE OF FOREX MANAGEMENT

Forex Management has quite a wide scope of operation. We can cover in its ambit all those transactions which involve use of foreign exchange. Let us consider the following illustrations:

  • ** A Citizen of India travels abroad on a business visit and purchased foreign currency from an authorized dealer.
  • ** An Indian citizen goes to USA for a period of three years under an employment contract. He periodically remits US dollars to his bank account in India.
  • ** An Indian Student subscribes to a British Scientific magazine and pays for it through an international credit card held by him.
  • ** An Indian Industrialist imports raw material from Malaysia for his plant under a Letter of Credit arrangement provided by his bank.
  • ** A Sports goods manufacturer of India exports his consignment to Europe and gets paid for it in foreign currency received through banking channels.
  • ** Indian subsidary of a Multinational corporation imports white goods in completely knocked down (CKD) from the chinese affiliate. After reassembling these goods, the same are exported to Europe.
  • ** The world Bank disburses aid to an Indian State under an infrastructure developement project.
The above illustrations shows how individuals, companies and states transact in forex. When goods are services are imported into a country, these are paid for in the currency of the country on a short visit, he needs foreign currency of that country for meeting his expenses. When he stays in that country for a longer duration for employment purposes, he earns foreign currency of that country. When an Indian firm exports goods to Europe, it is earning foreign exchange. Thus when goods and services are sent abroad by India, foreign currencies are earned by them.

Forex management being involved in all the trade and non-trade transactions involving forex, it is essential to have a broad idea of international banking and trading practices. Since the transactions are taking place among counter parties from different countries, a standardized format of documentation is used to minimise errors.

Apart from the transaction value, forex management finds scope as a mode of investment. Because of the frequent and often miniscule fluctuation in forex values, enough arbitrage and speculative opportunities crop up in forex market for astute investors. There are many expert forex dealers specializing in trading of forex.

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