the frontline staff at the branch and corporate office levels. such a module will help them in improving the foreign exchange related customer service, reduce incidents of complaints and bring down the level of correspondence seeking clarifications both within the bank and from the reserve bank. member banks of fedai and the reserve bank have since formed a group which is working to develop an elearning module to address these concerns. another related area where fedai is expected to play an important role is in framing of a citizens ’ charter in the area of foreign exchange business. role of market participants – freedom with responsibility let me now turn to the second part of my address, perhaps more relevant to many in the audience in our current context. an efficient market not only requires proper infrastructure, knowledge, skills and enabling environment but also a great degree of market discipline reflected through responsible behaviour by all the market participants. as was experienced during the recent global financial crisis, among other reasons, the greed of insensitive financial engineers for short term gains caused huge financial and economic damages to some of the most developed nations and markets. this has, in fact, become a major focus of discussions across the jurisdictions after the financial crisis. in the past, it has been argued that market discipline can play a key role in incentivizing market participants to limit their excessive risk taking activities. the events of the last few years, however, have proved the inadequacy of market discipline. bankers have been found to be actively engaged in risktaking activities disguised as value - creation. time and again market participants have engaged in herd behaviour and put the financial system at risk, at times by encouraging speculative build - up in the name of hedging for risk management. the events of the past few years tell us that market discipline expressed via market prices cannot be expected to play a major role in constraining risk taking. therefore, the primary constraint bis central bankers ’ speeches needs to come from regulation and supervision. since the ads are the major players in the domestic foreign exchange market in india, one would expect much higher responsibility from them. reserve bank has come across instances where a few banks failed to live up to that kind of expectations and have deviated from the ethics by misselling forex derivative products which resulted in enormous problems for the banks as also for the corporates some of which were carried away by the greed of making money from activities other than their core business operations. as you may recall, the existing guidelines on otc foreign

in the changed environment of our forex market. moving over to some of the core issues relating to the forex market in india, i will briefly touch upon some of the recent measures taken by the reserve bank. finally, i will briefly discuss the issue of internationalization of indian rupee, a subject which is assuming critical importance in the context of search for alternative reserve currencies and the role for currencies of major emerging market economies ( emes ) like china and india. evolution of fedai in the changing environment of indian forex market as you may be aware, in the early post - independence years, under the foreign exchange regulation act ( fera ), 1947, a few foreign banks, designated as exchange banks were permitted to transact foreign exchange business. the terms and conditions for undertaking such business were being laid down by the then exchange banks ’ association. with the increase in india ’ s foreign trade, several scheduled commercial banks were authorized by the reserve bank to deal in foreign exchange business. this led to the formation of fedai on august 16, 1958 with a mandate to lay down the terms and conditions which were mandatory in nature for the authorized dealers ( ads ). with developments in the indian foreign exchange market and growth in external trade, the role and responsibility of fedai underwent changes. i am happy to note that fedai, through its members, continues to play a pivotal role in dissemination of the foreign exchange related banking expertise across the country which has led to significant improvement in the customer service. bis central bankers ’ speeches let me now highlight two important milestones in the evolution of indian forex market. in the year 1994, an expert group on foreign exchange market in india was set up under the chairmanship of shri. o. p. sodhani, the then executive director, reserve bank of india ( popularly known as the sodhani committee ). the committee had made wide ranging recommendations ranging from methodology for correct computation of open exchange position to introduction of rupee based options and these suggestions had laid the foundation for a modern foreign exchange market in india. fedai played an important role in supporting the reserve bank in implementing these pioneering measures and suggestions aimed at major reforms in the market. the second milestone was the replacement of restrictive fera with the foreign exchange management act ( fema ) in the year 2000. this provided further fillip to the development of the foreign exchange market which can be gauged from the rise in the average daily forex market turnover from