The Union Cabinet has given its ex-post facto approval for the Memorandum of Understanding (MoU) between Reserve Bank of India (RBI) and Central Bank of United Arab Emirates (UAE) on co-operation concerning currency swap agreement.
- Decision in this regard was taken at the Union Cabinet Meeting chaired by Prime Minister Narendra Modi in New Delhi.
- The Agreement was signed in February, 2016 during the official state visit of Crown Prince of Abu Dhabi Sheikh Mohammed Bin Zayed Al Nahyan to India.
About the Agreement :
- The MoU commits that RBI and Central Bank of UAE will consider signing a bilateral Currency Swap Agreement on mutually agreed terms and conditions.
- The agreement will be signed after undertaking technical deliberations, subject to the concurrence of respective Governments.
- The MoU will help to further strengthen the close economic cooperation and relationship between India and UAE.
- The swap agreement is also expected to facilitate invoicing of bilateral trade in local currencies.
What is a Currency Swap?
- A currency swap involves exchange of principal and interest in one currency for the same in another currency.
- It is considered to be a foreign exchange transaction. For example: Suppose a US based company needs to acquire Indian Rupees and India-based company needs to acquire US dollars.
- Then these two companies could arrange to swap currencies by establishing an interest rate, agreed upon amount along with a common maturity date for the exchange.
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