In the early 1990s, the foreign exchange (forex) market in India was in the initial stages of development and suffered from several shortcomings. The spot market, as well as forward market, lacked depth and liquidity. The market was skewed with a handful of public sector banks accounting for the bulk of merchant business, with foreign banks handling most of inter-bank business. The forward rates reflected demand and supply, rather than interest rate differentials, owing to lack of integration between the money and forex markets and also due to restrictions on borrowings/lendings in the international market. India's post-reforms period (1991 onward) has been marked by wide-ranging measures to widen and deepen the foreign exchange market. In line with the liberalization measures undertaken in other areas, various reform measures have been introduced in the foreign exchange market to make it liquid, vibrant, open, and market-determined. From a managed floating system under which the excha