Abstract
The process of economic reform in India embraced also the foreign exchange market. The present paper analyzes the reform measures and their impact in this context. The measures of reform included, inter alia, adoption of managed floating exchange rate arrangement, rationalization of the very structure of the market, introduction of variety of activities, such as options and swaps, etc., gradual move towards the capital account convertibility and infusion of stability in the market. The study finds the outcome very positive. The turnover of the transactions surged up more especially in the inter-bank segment. The foreign exchange market in India moved towards greater efficiency in view of reduced bid-ask spread, forward premia, being to a great extent, in line with the interest rate differentials and being, to a great deal, a predictor of future spot rate, and a lower degree of the RBIRBIâ€'s intervention giving way to the free play of market forces. Nevertheless, oscillations in foreign exchange transaction should be checked in order to transfuse greater stability in the Indian foreign exchange market.
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