$hahid kapoor

amrita rao

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How does a country controls its foreign exchange?

Paul Einzig is his book exchange controls has mentioned as many as 41 different methods of exchange control. They can be categorized as

1. Direct Method
2. Indirect Method

They are discussed here as under.

1. DIRECT METHOD

The direct method is further classified as:

Intervention

For an effective control of foreign exchange rates and the foreign exchange market the government usually has a central authority i.e. the Central Bank that has the complete power to control and regulate the foreign exchange market. Under this method any body who either wants to purchase or sell foreign exchange he has to deal with the central bank. All the selling and purchasing transactions of foreign exchange is controlled by the central bank which helps it to adjust demand and supply of foreign exchange according to the need of the country.

Restriction

Exchange restriction is another powerful weapon of exchange control. It refers to the policy by which the government restricts the supply of its currencies coming into the exchange market. It is achieved either by one of the following methods.

1. By centralizing all trading in foreign exchange with central bank of the country.
2. To prevent the exchange of national currency against foreign currency with the permission of the government.
3. By making all foreign exchange transactions through the agency of the government.

Exchange Clearing Agreement

Under this method the countries engaged in trade pay to their respective central bank the amounts payable to their respective foreign creditors. The central banks they use the money in off setting the corresponding claims after fixing the value of the foreign currencies by common agreement. The basic principle is to offset international payments so that they have not to be settled through the medium of the foreign exchange market.

INDIRECT METHODS

The most commonly used direct method or tool of exchange control is the use of tariff duties and quotes and other quantitative restrictions on the volume of international trade. By imposing tariff and quotes the demand for the foreign currency falls down in the case of restricting the imports.

Rate of Interest

Another method of indirect exchange is the rate interest. The rate of exchange is the result of demand and supply of each other currencies arising out of trade and capital movement. A high rate of interest in a country attracts short term capital from other countries that leads to a exchange rate for the currency in terms of other currencies goes up.

How does a bill of exchange is drafted?

• class-12

While drafting a bill of exchange the following are necessary.

1. STAMP

To prepare a bill of exchange in the form of a legal document, the drawer of the bill has to pay a tax to the Government which is accepted by issuing a stamp. The value of the stamp depends upon the amount for which the bill has been drawn.

2. AMOUNT PAYABLE

The amount payable should be written clearly. It is necessary that the amount should be written in words and figures.

3. DATE

The date on which the bill is being drawn or prepare should be posted accurately. The date is usually written on the upper side of the bill.

4. NAME OF THE DRAWEE

It is necessary that the name of the drawee should be mentioned in the bill. The words ‘’OR ORDER OR BEARER’’’ indicate the persons to whom the bill has to be paid.

5. FOR VALUE RECEIVED

A bill of exchange is always drawn against a certain amount or value. Therefore the words ‘’For Value Received’’’ should always be written on the bill.

6. SIGNATURE OF THE DRAWEE

A bill lacking the signature of the drawer is unacceptable and unlawful. Such type of a bill can be dishonored. That is why the structure of the drawer are essential.

7. NAME & ADDRESS OF THE DRAWEE

The closing of the bill includes the name and address of the drawee. It is written on the left side corner of the bill.