What determines forward premiums for the dollar against the rupee?
A. As one would expect, the dollar like other foreign currencies is at a premium to the rupee. However, in view of exchange control regulations and the absence of a well-developed term structure for the rupee money market in India, arbitrage opportunities exist. In international markets for convertible currencies, demand/supply imbalance in the forward markets, leads to spot rate fluctuations while the premiums/discount continue to reflect interest rate differentials. On the other hand in India, forward demand/supply imbalance lead to movements in premium with or without movements in spot rate. Q8. If an Indian exporter wants to discount his export documents at a future date, then how can the movements in the forex market affect him? A. If he has already booked a forward contract for this purpose before the date of discounting, then the documents will be discounted at the contracted rate. However, if a forward contract has not been booked, then the documents will be discounted at the r
