Just like in any other country, India’s foreign exchange transactions (transactions in dollars, pounds, or any other currency) are also broadly classified into two accounts, namely, the current account transactions and capital account transactions. A “current account transaction” could be exemplified where an Indian citizen needing foreign exchange of smaller amounts, say $3,000, for travelling abroad or for educational purposes, can obtain the same from a bank or a money-changer. On the other hand, a “capital account transaction” involves someone who wants to import plant and machinery or invest abroad, and needs a large amount of foreign exchange, say $1 million. But, the importer will have to first obtain the permission of the Reserve Bank of India (RBI) only then that the transaction becomes a “capital account transaction”. This means that any domestic or foreign investor has to seek the permission from a regulatory authority, like the RBI, before carrying Continue reading
Indian Financial System
Over The Counter Exchange of India (OTCEI)
Over The Counter Exchange of India (OTCEI) was incorporated in October 1990 under Section 25 of the Companies Act, 1956 with the objective of setting up a national, ringless, screen-based, automated stock exchange. It is recognized as a stock exchange under Section 4 of the Securities Contracts (Regulations) Act, 1956. It was set up to provide investors with a convenient, efficient and transparent platform for dealing in shares and stocks; and to help enterprising promoters set up new projects or expand. their activities, by providing them an opportunity to raise capital from the capital market in a cost-effective manner. Trading in securities takes place through OTCEI’s network of members and dealers spanning the length and breadth of India. Over The Counter Exchange of India was promoted by a consortium of financial institutions including: Unit Trust of India. Industrial Credit and Investment Corporation of India. Industrial Development Bank of India. Industrial Continue reading
Initial Public Offering (IPO)
A good capital market is an essential prerequisite for the industrial and commercial development of a country. Capital market is a central coordinating and directing mechanism for free and balanced flow of financial resources into the economic system operating in a country. It helps the companies who require capital to expand, modernize or diversify their business. To get the capital that is required by the company it usually goes for the issue of shares and the process of issuing of shares is done in the primary market. The primary market in the simplest terms can be defined as a market where the securities are sold in order to raise the funds or the capital required by the company. It is a market for new issues i.e. a market for fresh capital. It provides the channel for sale of new securities. The securities can be in many forms such as equity Continue reading
Commercial Bills Market or Discount Market
A commercial bill is one which arises out of a genuine trade transaction, i.e. credit transaction. As soon as goods are sold on credit, the seller draws a bill on the buyer for the amount due. The buyer accepts it immediately agreeing to pay amount mentioned therein after a certain specified date. Thus, a bill of exchange contains a written order from the creditor to the debtor, to pay a certain sum, to a certain person, after a creation period. A bill of exchange is a ‘self-liquidating’ paper and negotiable/; it is drawn always for a short period ranging between 3 months and 6 months. Definition of Bill of Exchange Section 5 of the negotiable Instruments Act defines a bill of exchange as “an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to, or to Continue reading
Financial Sector Reforms in India
In India, a decade old on-going financial reforms have transformed the operating environment of the finance sector from an administrative regime to a competitive market base system. Since mid-1991, a number of reforms have been introduced in the financial sector in India. Rangarajan once noted that domestic financial liberalization has brought about the deregulation of interest rates, dismantling of directed credit, reforming the banking system, improving the functioning of the capital market, including the government securities market. The main emphasis on the financial sector reform has been on the banking system so as to improve the performance of public sector banks. The Narasimhan Committee constituted in 1991 laid the foundation for the revamping of the financial sector in India. The Committee had submitted two reports– in 1992 and 1998 which gave immense importance on enhancing the efficiency and viability of this sector. Taking a cue from the developments in the Continue reading
Prevention of Money laundering Act
Introduction:- Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that let to its production. Through the process of “money laundering” a person converts illegal money into a legal entity. Whosoever directly or indirectly attempts to indulge or knowingly assists or knowingly is a party or is actually involved in any process or activity connected with the proceeds of crime and projecting it as untainted property shall be held guilty of the offence of money laundering. The Schedule to the Prevention of Money Laundering Act (henceforth, PMLA), 2002, lists some of the offences under the following Legislations: Offences under the India Penal Code (part A) – eg. Waging or attempting to wage war, or abetting waging of war against the Government of India, Conspiring to commit offences punishable by s.121 against the state 1. Offences under the Narcotic Drugs and Psychotropic Continue reading