EXTERNAL SECTOR
All economic activities of an economy which take place in foreign currency fall in sectors such as export, import foreign investment, external debt, current account, capital account, balance of payment etc.
FOREIGN CURRENCY ASSETS
The sum of all the foreign currencies an economy possesses at a particular time is its Foreign Currency Assets/Reserves. India has it at $285 billion (RBI) in end January, 2008.
FOREIGN EXCHANGE RESERVE
This contains basically three components.
* The Foreign Currency Assets, the total gold reserves and the total Special Drawing Rights (SDRs) of an economy in the IMF.
FIXED CURRENCY REGIME
In this system Exchange Rate of a particular currency was fixed by the IMF keeping the currency in front of a basket of important world currencies.
* Exchange Rates of currencies were modified by the IMF from time to time.
FLOATING CURRENCY REGIME
* In the Floating Exchange Rate System a domestic currency is left free to float against a number of foreign currencies in its Foreign Exchange Market and determine its own value.
* Such exchange rates are also called Market Driven or Based Exchange Rates.
* Which are regulated by the factors such as the demand supply of the domestic and the foreign currencies in the concerned economy.
MANAGED EXCHANGE RATE
A Managed Exchange Rate System is a hybrid or mixture of the fixed and Flexible Exchange Rate Systems in which the government of the economy attempts to affect the Exchange Rate directly by buying or selling foreign currencies or indirectly through Monetary Policy.
FOREIGN EXCHANGE MARKET
The market where different currencies can be bought and sold is called the Foreign Exchange Market.
* Out of the trades in different currencies, the Exchange Rate of the currency is determined by the economy.
TRADE BALANCE
The monetary difference of the total export and import of an economy in one financial year is called Trade Balance.
* It might be positive or negative, known to be either favourable or unfavourable, respectively to the economy.
TRADE POLICY
The economic policy which regulates the export-import activities of any economy is known as the Trade Policy.
* It is also called the Foreign Trade Policy or the Exim Policy.
* This policy needs regular modifications depending upon the economic policies of the economies of the world or the trading partners.
DEPRECIATION
This term is used to mean two different things.
* It is a situation when domestic currency loses its value in front of a foreign currency if it is Market-Driven.
* In domestic economy, Depreciation means an asset losing its value due to either its use, wear and tear or due to other economic reasons.
* Depreciation here means wear and tear.
* This is also known as Capital Consumption.
DEVALUATION
In the Foreign Exchange Market when exchange rate of a domestic currency is cut down by its government against any foreign currency, it is called Devaluation.
REVALUATION
A term used in Foreign Exchange Market which means a government increasing the exchange rate of its currency against any foreign currency. It is official appreciation.
APPRECIATION
In Foreign Exchange Market if a free floating domestic currency increases its value against the value of a foreign currency, it is Appreciation.
CURRENT ACCOUNT
It has two meanings
* One is related to the Banking Sector.
* Other to the External Sector.
* In Banking Industry a business firm bank account is known as Current Account.
* The account is in the name of a firm run by authorised person or persons in which no interest is paid by the bank on the deposits.
* In the External Sector, it refers to the account maintained by every government of the world in which every kind of current transactions is shown.
* Basically this account is maintained by the Central Banking Board of the economy on behalf of the government.
* All transactions are shown as either inflow or outflow (Credit or Debit).
* At the end of the year the current account might be positive or negative.
* The positive one is known as a Surplus Current Account.
* And the negative one is known as a Deficit Current Account.
CAPITAL ACCOUNT
Every transaction in foreign currency (inflow or outflow) considered as capital is shown in this account.
* External lending or borrowing private remittance's inflow or outflow, issuing of external bonds etc. There is no deficit or surplus in this account like the Current Account.
BALANCE OF PAYMENT (BOP)
The outcome of the total transactions of an economy with the outside world in one year is known as the Balance Of Payment (BOP) of the economy.
* It is the net outcome of the Current and Capital account of an economy.
* It might be favourable or unfavourable for the economy.
* The BOP of an economy is calculated on the principles of accountancy (double-entry book-keeping) and looks like the balance sheet of a company.
CONVERTIBILITY
* If domestic currency is allowed to convert into foreign currency for all current account purpose, it is a case of full current account convertibility.
* The issue of currency convertibility is concerned with foreign currency outflow only.
Convertibility in India
* India had always been tight in foreign currency earning that is why it has all possible provisions to check the foreign exchange outflow, be it for Current Purposes or Capital Purposes.
* But the process of economic reforms has changed the situation to unidentifiable levels.
1. Current Account
* The full amount of the foreign exchange required by someone for current purposes will be made available to him at official exchange rate and there could be an unprohibited outflow of Foreign Exchange.
2. Capital Account
* India is still a country of partial convertibility (40 : 60) in the capital account but inside this overall policy, enough reforms have been made and to certain levels of foreign exchange requirements, it is an economy allowing full capital account Convertibility.
LERMS
India announced the Liberalised Exchange Rate Mechanism System (LERMS) in the Union Budget 1992-93 and in March 1993 it was operationalised.
* India delinked its currency from the fixed currency system and moved into the era of floating Exchange Rate System under it.
* Indian form of exchange rate is known as the dual exchange rate. One exchange rate of rupee is official and the other is Market-Driven.
NEER
The Nominal Effective Exchange Rate (NEER) of the rupee is a weighted average of exchange rates before the currencies of India's major trading partners.
REER
When the weight of inflation is adjusted with the NEER we get the Real Effective Exchange Rate (REER) of the rupee.
* Since inflation has been the higher side in recent months the REER of the rupee has been more against it than the NEER.
EFF
The Extended Fund Facility (EFF) is a service provided by the IMF to its member countries which authorises them to raise any amount of foreign exchange from it to fulfill their BOP crisis but on the conditions of structural reforms in the economy put by the body.
* It is an agreement of its kind.
* India had signed this agreement with the IMF in the financial year 1981 - 82.
IMF CONDITIONS ON INDIA
The BOP crisis of early 1990s made India borrow from the IMF which came on some conditions.
* The medium term loan to India was given for the restructuring of the economy on the following conditions:
i) Devaluation of rupee by 22 percent (done in two consecutive fortnights - rupee fell from Rs.21 to Rs.27 against every US dollar).
ii) Drastic custom cut to a peak duty of 30 percent from the erstwhile level of 130 percent for all goods.
iii) Excise duty to be increased by 20 percent to neutralise the loss of revenue due to custom cut.
iv) Government expenditure to be cut by 10 percent per annum.
HARD CURRENCY
* It is the international currency in which the highest faith is shown and is needed by every economy.
* The strongest currency of the world is one which has a high level of liquidity.
* The economy with the highest as well as highly diversified exports that are compulsive imports for other countries will also create high demand for its currency in the world and become the Hard Currency. It ia always scare.
SOFT CURRENCY
* A term used in the Foreign Exchange Market which denotes the currency that is easily available in any economy in its Forex Market.
* For example rupee is a Soft Currency in the Indian Forex Market.
* It is basically the opposite term for the Hard Currency.
HOT CURRENCY
A term of the Forex Market and is a temporary name for any Hard Currency.
* Due to certain reasons if a Hard Currency is existing an economy at a fast pace for the time being the Hard Currency is known to be Hot.
HEATED CURRENCY
A term used in Forex Market to denote the domestic currency which is under enough pressure of Depreciation due to a Hard Currency's high tendency of existing the economy.
* It is also known as currency under heat or under hammering.
CHEAP CURRENCY 
A term first used by the economist J.M. Keynes (1930s).
* If a government starts re-purchasing its bonds before their maturities the money which flows into the economy is known as the Cheap Currency also called Cheap Money.
* In banking industry it means a period of comparatively lower/ softer interest rates regime.
DEAR CURRENCY
This term was popularised by the other economists in early 1930s to show the opposite of the cheap currency. When a government issues bonds the money which flows from the public to the government of the money in the economy in general is called Dear Currency and also called as Dear Money.
* In the banking industry, it means a period of comparatively higher/costlier interest rates regime.
SEZ
* Special Economic Zone, is essentially an industrial cluster meant largely for exports.
* An SEZ is governed by a special set of rules aimed at attracting direct investment for export oriented production.
Salient features of SEZs are
* Manufacturing or service activities are allowed.
* Full freedom for sub-contracting.
* No routine examination by customs authorities of export/import cargo.
* Units in SEZs have to become net foreign exchange earners within three years.
* Domestic sales from them are subject to full customs duty and the import policy in force.
AUTONOMOUS BODIES
The Government of India, time to time did set up many autonomous bodies in the form of boards, councils, organisations, etc. to promote the cause of External Trade.
A brief account them are:
Coffee Board: The Coffee Board was setup under section (4) of the Coffee Act, 1942.
* It is the oldest board under the Department of Commerce.
* The primary functions of the board include formulating and implementing programmes and projects for growth and development of the coffee industry.
* Promoting Coffee Consumption in India and Exports in the International Market.
* Supporting research, extension and developmental activities for raising productivity.
* Evolving pest and disease-resistant varieties and prescribing and enforcing quality standards at all stages.
* The board is headed by a chairperson and functions from Bangalore.
Rubber Board
The Rubber Board was setup under Section (4) of the Rubber Act, 1947 with headquarters at Kottayam in Kerala and Five Zonal Offices, Thirty Nine Regional Offices, a number of field stations, Rubber Development Centres and Regional Nurseries.
* It is headed by a Chairman.
* The Board is engaged in the development of the Rubber Industry.
Tea Board
The Tea Board was constituted as a statutory body on April 1st, 1954 under Section (4) of the Tea Act, 1953.
* It has sixteen Regional and Sub-Regional offices spread over different parts of India
* Besides, the Board has three foreign offices.
* The primary functions of the Tea Board include rendering financial and technical assistance for cultivation, manufacture and marketing of tea; promoting tea exports.
* Aiding Research and Developmental Activities for Augmentation of tea production and improvement of tea quality.
Tobacco Board
The Tobacco Board was set up as a statutory body on January 1st, 1976 under the Tobacco Act, 1975.
* The Board with headquarters at Guntur in Andhra Pradesh is headed by a Chairman and is responsible for the development of the Tobacco Industry.
* The Board also has a Directorate of Auctions at Bangalore.
* The primary functions of the Board include regulating the production and curing of Virginia Tobacco.
* Keeping a constant watch on the Virginia Tobacco market in India and abroad.
* Ensuring fair and remunerative prices to growers.
* Maintaining and improving existing markets and developing new markets abroad by devising appropriate.
Marketing Strategies
Spices Board
The Spices Board was constituted as a statutory body on February 26th, 1987 under the Spices Board Act, 1986.
* The Board has its head office at Kochi in Kerala and is headed by a Chairman.
* It has seventeen regional offices, thirteen zonal offices and thirty one field units.
The Primary functions of the Board are:
* Increasing the production and productivity of small and large cardamom.
* Developing new varieties through selection/ hybridisation for crop improvement.
* Assisting exporters in setting up in-house laboratories.
* Assisting the Government in the development of National Quality Standards on Spices and implementing various export development programmes like Promotion of Indian Brands abroad.
Indian Institute of Foreign Trade
The Indian Institute of Foreign Trade (IIFT) is in New Delhi registered under the Societies Registration Act, 1860, is headed by a Director.
* The Institute has been conferred Deemed university status and is engaged in the following activities.
* Training of Personnel in modern techniques of international trade; conducting market research, or surveys.
* Commodity surveys related to foreign trade
* Dissemination in information arising from is research and market studies.
Indian Institute of Packaging
The Indian Institute of Packaging (IIP), Mumbai is registered under the societies Registration Act, 1860.
* The main aim of this Institute is to undertake research of raw materials for the packaging industry, to organise training programmes on Packaging Technology and to stimulate consciousness of the need for good packaging.
Marine Products Export Development Authority
* It became functional from April 20th, 1972.
* The Authority is responsible for the development of the marine products industry with special focus on marine exports.
Agricultural and Processed Food Products Export Development Authority:
The Agricultural and Processed Food Products Export Development Authority (APEDA), New Delhi was also setup under the Act of Parliament of 1986 and entrusted with the task of promoting agricultural exports including the export of processed foods in value added form.
OTHER ORGANISATIONS
Federation of Indian Export Organisations (FIEO), NEW DELHI
The Federation of Indian Export Organisations is an apex body of various export promotion organisations and institutions with its major regional offices at Delhi, Mumbai, Chennai and Kolkata. It Provides the content, direction and thrust to India's global export effort.
Indian Council of Arbitration (ICA), New Delhi
The ICA set up under the societies Registration Act, promotes arbitration as a means of settling commercial disputes and popularises the concept of Arbitration among traders, Particularly those engaged in International Trade.
* The main objectives of the council are to promote knowledge and use of arbitration and provide arbitration facilities for amicable and quick settlement of commercial disputes with a view to maintaining a smooth flow of trade, particularly export trade on a sustained and enduring basis.
Indian Diamond Institute (IDI), Surat
* It was established in 1978 with the objective of strengthening and improving the availability of trained manpower for the gems and jewellry industry by conducting various Diploma/Post Graduate Diploma level course in this field.
