Introduction to FEDAI: Pioneering Foreign Exchange Standards in India
The Foreign Exchange Dealers' Association of India (FEDAI) has been a cornerstone in the Indian forex landscape since its inception in August 1958. Established with the Reserve Bank of India (RBI) approval, FEDAI, a self-regulatory organization, has played a pivotal role in shaping the regulatory framework and operational standards for foreign exchange dealings in India. In this article, we will delve into the history, objectives, roles, and impact of FEDAI on the Indian economy in a very simple language.
The Genesis of FEDAI
FEDAI was formed to centralize and standardize the foreign exchange functions previously managed by the Exchange Banks' Association across major Indian cities like Mumbai, Kolkata, Delhi, Chennai, and Amritsar. On 16th August 1958 RBI instructed all the banks authorised to handle Foreign exchange to abide by the terms and conditions prescribed by FEDAI for transacting the Foreign Exchange Business. Fundamentally, the establishment aimed at enhancing the governance of foreign exchange transactions and bringing uniformity in practices among all banks authorized to handle foreign exchange.
Objectives of FEDAI
The primary objective of FEDAI is to facilitate smooth and efficient operations in the forex market, ensuring that authorized foreign exchange dealers can operate under a standard set of guidelines. It supports interaction among banks, the public, forex brokers, the RBI, and other organisations. Collaborations with the Indian Banks' Association (IBA) and the Fixed Income Money Market and Derivatives Association of India (FIMMDA) further amplify its efforts to organise essential events for the forex market. The Association has a Chairman, Vice Chairman, Additional Vice Chairman and Managing Committee, these representatives from member banks of the Association.
Key Roles and Responsibilities of FEDAI
Standardising Foreign Exchange Operations
FEDAI creates standardized rules and guidelines to ensure fair practices across all authorised dealers. It includes setting directives on transaction protocols, ethical standards, and compliance requirements.
Supporting RBI and Promoting Foreign Trade
By working closely with the Reserve Bank of India and various export promotion councils, FEDAI plays a crucial role in fostering the growth of India's foreign trade. It also assists RBI in conducting educational programs across different regions to enhance forex-related knowledge among businesses.
International Collaborations
FEDAI represents India globally, particularly in discussions and updates on international trade financing tools. It engages with the International Chamber of Commerce (ICC) in Paris to share and update India's stance on global trade regulations.
Broker and Electronic Service Provider Oversight
The association is also responsible for the accreditation of brokers and electronic service providers in the forex market. It monitors and regulates their activities to ensure compliance with established standards.
Providing Expertise and Guidelines
FEDAI offers valuable advice, information, and operational guidelines to its member banks about the foreign exchange business. It identifies industry priorities and sets specific goals and objectives to enhance market efficiency.
Market Influence and Financial Stability
Rate Announcements by FEDAI
FEDAI announces several critical rates that influence market operations, including:
Revaluation Rates: Banks need to adjust the value of their foreign currency assets and liabilities to reflect current market values for accurate financial reporting. Read Revaluation rate in details here
Weekly / Quarterly Average Rates: These rates help stabilise financial reports against the daily fluctuations in forex rates, providing a consistent basis for financial assessment over extended periods.
Interest Rates on FCNR (B) Deposits: FCNR (B) stands for Foreign Currency Non-Resident (Banks) deposits, which are a type of fixed deposit account available for non-resident Indians (NRIs) and persons of Indian origin (PIO). These deposits allow NRIs and PIOs to invest their foreign earnings in foreign currencies, thereby avoiding the risks associated with exchange rate fluctuations.
USD/INR 10YR LAV (Largest Annual Volatility): The term "USD/INR 10YR LAV" (Largest Annual Volatility) appears to refer to a measure of the highest annual volatility experienced in the exchange rate between the US Dollar (USD) and the Indian Rupee (INR) over a ten-year period.
Enhancing Market Efficiency and Discipline
FEDAI aims to streamline market operations and focuses on increasing the depth, liquidity, and overall discipline within the Indian forex market. It advocates for best practices and supports developing and maintaining financial derivatives and related documentation.
Mediation and Advisory Roles
As a mediator between its members and various financial and trade bodies, including the RBI and commerce chambers, FEDAI facilitates smooth communications and operations across the foreign exchange spectrum.
FEDAI's role in the Indian foreign exchange market is indispensable. Through its comprehensive regulatory framework, FEDAI ensures that India's foreign exchange dealings are conducted fairly, efficiently, and transparently. By fostering a stable forex environment, FEDAI significantly enhances India's position in international trade and finance. Whether you're a market participant or someone interested in the dynamics of forex in India, understanding FEDAI's impact helps you appreciate the complexities and vital nature of foreign exchange management in today's global economy.
Comments