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    I need to know as much as possible about India's policies towards exchange rates, foreign trade, domestic monetary systems and foreign policy. Also expand into how the political situation in India has effected the country economically.

    Please have them broken down into the four separate categories so I can easily decipher and interpret for my paper I'm writing. Location of sources is also helpful.

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    India's policies towards exchange rates:

    The regime shift in the conduct of exchange rate management in India that occurred in the early 1990s had a significant impact on the monetary policy framework. Coincidentally, the 1990s were characterised by bouts of currency turmoil and contagious financial crises in many parts of the world, developing, transitional and developed alike. Monetary policy became increasingly complex. For the majority of developing countries, including those in the Asian region, which continue to depend on export performance, appropriate exchange rate determination is of great importance as volatility imposes significant real effects in terms of fluctuations in employment and output and the distribution of activity between tradeables and non-tradeables, fluctuations that are difficult to absorb in such economies. In the fiercely competitive trading environment where countries seek to expand market shares aggressively by fiercely compressing margins, volatility in the exchange rate can easily translate ex ante profits into ex post losses along with the deleterious collateral impact on employment and economic welfare. The determinants of exchange rate behaviour however, seem to have altered dramatically. Earlier, factors related to changes in merchandise trade flows and the behaviour of commodity price inflation were well understood and provided guidance for operating monetary policy. In this environment, monetary policy principally targeting low inflation was consistent with exchange rate changes under purchasing power parity. These traditional anchors of understanding have been swept away by the vicissitudes of capital movements, with currencies often moving far out of alignment of the traditional fundamentals. Moreover, it now appears that expectations and even momentary reactions to the day's news are often more important in determining fluctuations in capital flows and hence it serves to amplify exchange rates volatility.

    Furthermore, the liquidity impact of capital flows has become an even more important problem for monetary management than it was the case hitherto. The globalisation of financial markets, even if imperfect, has now magnified the impact of monetary policy actions taken in one country on others. The policy accommodation pursued until recently by the US had a global impact, affecting the rest of the world with an abundance of liquidity. Low interest rates in the US have encouraged capital to flow into emerging market economies. This has resulted in a large build-up of foreign exchange reserves and excessive domestic liquidity in many countries in Asia, amplifying the Fed's policy stance. Complicating the environment of monetary and exchange rate management further, there is now increasing evidence that exchange rate pass-through to domestic inflation has tended to decline from the 1990s across a number of countries. Inflation has turned out to be much less sensitive to exchange rates but has tended to equilibrate around the globe (Mohan, 2005).

    In India, the exchange rate regime up to 1990 is best described as an adjustable nominal peg to a basket of currencies of major trading partners with a band. After the balance of payment crisis of 1991 a two-step downward adjustment in the exchange rate was undertaken in July 1991 and then followed by a transitional 11-month period of dual exchange rates before a market-determined exchange rate system was set in place in March, 1993. Since then, the exchange rate is largely determined by demand and supply conditions in the market. The exchange rate policy in recent years has been guided by the broad principles of careful monitoring and management of exchange rates with flexibility, without a fixed target or a pre-announced target or a band, while allowing the underlying demand and supply conditions to determine the exchange rate movements over a period in an orderly way. Subject to this predominant objective, the exchange rate policy is guided by the need to reduce excess volatility, prevent the emergence of destabilising speculative activities, help maintain adequate level of reserves, and develop an orderly foreign exchange market. The Indian market, like other developing countries markets, is not yet very deep and broad, and can sometimes be characterised by uneven flow of demand and supply over different periods. In this situation, the Reserve Bank of India has been prepared to make sales and purchases of foreign currency in order to even out lumpy demand and supply in the relatively thin forex market and to smoothen jerky movements. However, such intervention is not governed by a predetermined target or band around the exchange rate. As the foreign exchange exposure of the Indian economy expands, the role of such uneven demands can be seen to reduce. While it is not possible for any country to remain completely unaffected by developments in the international exchange markets, fortunately we were able to keep the spillover effects of the Asian crisis to a minimum through constant monitoring and timely action, including recourse to strong monetary measures, when necessary, to prevent the emergence of self-fulfilling speculative activities (Mohan, 2005).

    Source: http://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=288

    (RBI is the Central bank of India, known as Reserve Bank of India)

    Domestic monetary systems:

    Indian economic reforms that have been in process now for a decade and a half seem to have propelled the country to a higher growth path of 8 per cent plus GDP growth. The key challenge in monetary policy making now is to ensure that such a growth path can be preserved, or further accelerated, while the country provide a macro-economic environment that is characterised by monetary, price and financial stability.

    The operating framework of monetary policy underwent a transformation during the 1990s. A variety of administered interventions in interest rates and bank credit flow characteristic of the 1970s and 1980s gave way in the early 1990s to a brief period of broad monetary policy rules or 'monetary targeting with feedback'. From the second half of the 1990s, the Reserve Bank of India (RBI) switched to a multiple indicator approach in which high frequency and low frequency indicators are tracked and the information used to ...

    Solution Summary

    I need to know as much as possible about India's policies towards exchange rates, foreign trade, domestic monetary systems and foreign policy. Also expand into how the political situation in India has effected the country economically.