Foreign Exchange Management Agreement

Notification No. FEMA 25/2000-RB of May 3, 2000 – In the exercise of the powers conferred by Section h) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of 1999), the Reserve Bank adopts the following rules to promote the orderly development and maintenance of the foreign exchange market in India, namely: 3A. A person residing outside India may enter into a futures contract with a licensed trader in India, subject to the conditions prescribed from time to time by the Reserve Bank of India, to cover the foreign exchange risk arising from his proposal for foreign direct investment in India.3B. An Indian-based person with foreign direct investments in India may enter into futures contracts with Ruupien as one of the currencies, provided that maturity hedging is taken only after the board approves the price, in order to cover the risk of “Curency” on the dividends it receives from the Indian company. (Via paragraph 3A. – 3B. was emptied notification No. FEMA 104/2003-RB, DT. 21.10.2003) 2A. A non-resident Indian may, under the conditions prescribed from time to time by the Reserve Bank of India, occasionally impose currency contracts (excluding rupees) in order to convert balances held in FCNR (B) accounts into another foreign currency in which FCNR (B) deposits may be held. (via paragraph 2A. was the subject of a No. FEMA 104/2003-RB, DT.

21/10/2003 Currency derivative contract of a person established in India Authorized at the same time as IFEMA for foreign exchange transactions, other master contracts have been developed by the same groups for different types of transactions, namely ICOM for international market options and FEOMA, the exchange and options framework contract, which mainly covers IFEMA and ICOM agreements, foreign exchange transactions and exchange options. This grouping of foreign exchange agreements was then completed by the International Foreign Exchange and Currency Option Master Agreement (IFXCO) in 2005 (again drafted by the same four groups). Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 surveys conducted at the time IFXCO was completed, showed that, although there have been some significant changes in the foreign exchange market since 1997 and that, although many new contracts have been concluded with an updated ISDA management contract (from 2002), many participants also use the IFEMA (and FEOMA) agreements. In general, this is due either to the fact that they had been executed some time earlier and had not been replaced, or because counterparties (including, until now, many non-traders, such as hedge funds) wanted to act only in exchange and/or exchange rate options transactions, and that IFEMA and FEOMA preferred because they were simpler agreements. The International Foreign Exchange Master Agreement (IFEMA) was published in 1997. It was originally developed by the British Bankers` Association and the Foreign Exchange Committee (an advisory committee sponsored by the Federal Reserve Bank of New York, but independently). IFEMA was published in 1997 by these two groups in collaboration with the Canadian Research Exchange Committee and the Tokyo Information Exchange Market Practices Committee. An international currency exchange agreement (IFEMA) is a key agreement between two parties for cash and forward currency exchange (Forex) transactions.

A framework agreement is a standard agreement between two parties, which sets standard conditions for all these transactions between the parties. The IFEMA agreement covers all facets of these foreign exchange transactions and provides detailed practices for the establishment and settlement of a Forex contract.