The agreement is seen as another important measure to improve confidence in the Indian market. In the previous month, foreign investors denied Indian capital markets a massive advance of 35,600, up from 21,000 kronor in net withdrawals in September, amid fears of a devaluation of the runoff, a global trade war and higher crude oil prices. This agreement will allow India and Japan to trade in their own currencies and ease pressure on India`s current account balance. But we also need something for Japan. Currency exchange will boost trade between India and Japan. It also has political consequences. Japan has bought India`s goodwill and will await its support in international forums. “This swap agreement reflects in particular the depth of mutual trust and understanding, personal relationship and warmth between the two leaders that have been built for many years,” the statement continued. The bilateral currency exchange agreement will also increase India`s foreign exchange reserves (FOREX).
India`s FOREX reserves have fallen since the peak of $426.08 billion in April 2018. This is because the RBI has sold reserves of U.S. dollars to limit the depreciation of rupees. With the Swea-exchange agreement, India will have an additional $75 billion in foreign capital whenever it takes. It will reduce the costs of accessing foreign capital. China and Japan also use bilateral sweatshirts as instruments to combat the hegemony of the dollar, as it encourages more countries to use their currencies to pay their bills. Currency sweatshirts between countries work in the same way, except that in a bilateral agreement, the two countries are expected to play a rich uncle to each other. India proposes such bilateral swaps to countries in the ASARC region. India and Japan signed a $75 billion bilateral currency exchange agreement in October 2018. “During Prime Minister Modi`s visit to Japan, the prime ministers of India and Japan agreed on a $75 billion bilateral sweatshirt agreement to further strengthen and expand the depth and diversity of economic cooperation,” the Indian government said in a statement. A currency swea usually involves the exchange of interest and sometimes capital in a currency for the same currency.
Interest payments are exchanged on fixed dates during the term of the contract.