Format for Submission of ProjectSynopsis1. Title2. Acknowledgement3. Team4. Project Leader5. Team Members (Roll Numbers)6. Objective/ Aim7. Technical details8. Innovativeness & Usefulness9. Current Status of Development10. Market Potential & Competitive advantage11. Anything else which one may want to addOn Outcome measures ( results from past efforts)andthe measures that drive performanceObjective, easily quantified outcome measures andsubjective, somewhat judgmental performancedriversLagging and leading indicatorsShort-term and long-term objectivesStakeholdersMeGlobally, operations in the foreign exchangemarket started in a major way after the breakdown ofthe Bretton Woods system in 1971, which also markedthe beginning of floating exchange rate regimes inseveral countries. Over the years, the foreignexchange market has emerged as the largest marketin the world. The decade of the 1990s witnessed aperceptible policy shift in many emerging marketstowards reorientation of their financial markets interms of new products and instruments, developmentof institutional and market infrastructure andrealignment of regulatory structure consistent with theliberalised operational framework. The changingcontours were mirrored in a rapid expansion of foreignexchange market in terms of participants, transactionvolumes, decline in transaction costs and moreefficient mechanisms of risk transfer.6.2 The origin of the foreign exchange market inIndia could be traced to the year 1978 when banksin India were permitted to undertake intra-day tradein foreign exchange. However, it was in the 1990sthat the Indian foreign exchange market witnessedfar reaching changes along with the shifts in thecurrency regime in India. The exchange rate of therupee, that was pegged earlier was floated partiallyin March 1992 and fully in March 1993 following therecommendations of the Report of the High LevelCommittee on Balance of Payments (Chairman: Dr.C.Rangarajan). The unification of the exchange ratewas instrumental in developing a market-determinedexchange rate of the rupee and an important step inthe progress towards current account convertibility,which was achieved in August 1994.6.3 A further impetus to the development of theforeign exchange market in India was provided withthe setting up of an Expert Group on ForeignExchange Markets in India (Chairman: Shri O.P.Sodhani), which submitted its report in June 1995.The Group made several recommendations fordeepening and widening of the Indian foreignexchange market. Consequently, beginning fromJanuary 1996, wide-ranging reforms have beenundertaken in the Indian foreign exchange market.After almost a decade, an Internal Technical Groupon the Foreign Exchange Market (2005) wasconstituted to undertake a comprehensive review ofthe measures initiated by the Reserve Bank andidentify areas for further liberalisation or relaxationof restrictions in a medium-term framework.6.4 The momentous developments over the pastfew years are reflected in the enhanced risk-bearingcapacity of banks along with rising foreign exchangetrading volumes and finer margins. The foreignexchange market has acquired depth (Reddy, 2005).The conditions in the foreign exchange market havealso generally remained orderly (Reddy, 2006c).While it is not possible for any country to remaincompletely unaffected by developments ininternational markets, India was able to keep thespillover effect of the Asian crisis to a minimumthrough constant monitoring and timely action,including recourse to strong monetary measures,when necessary, to prevent emergence of selffulfillingspeculative activities (Mohan, 2006a).6.5 Against the above background, this chapterattempts to analyse the role of the central bank indeveloping the foreign exchange market. Section Iprovides a brief review of different exchange rateregimes being followed in emerging marketeconomies (EMEs). Section II traces the evolution ofIndias foreign exchange market in line with the shiftsin Indias exchange rate policies in the postindependenceperiod from the pegged to the marketdetermined regime. Various regulatory and policyinitiatives taken by the Reserve Bank and theGovernment of India for developing the foreignexchange market in the market determined set uphave also been highlighted. Section III presents adetailed overview of the current foreign exchangemarket structure in India. It also analyses the availablemarket infrastructure in terms of market players,trading platform, instruments and settlementmechanisms. Section IV assesses the performanceof the Indian foreign exchange market in terms ofliquidity and efficiency. The increase in turnover inboth onshore and offshore markets is highlighted inthis section. Empirical exercises have also beenattempted to assess the behaviour of forward premia,bid-ask spreads and market turnover. Havingdelineated the market profile, Section V thendiscusses the journey of the Indian foreign exchangemarket since the early 1990sasures are Balanced between