Assignment 6

What are the main components of the Sri Lankan Foreign Market & what are their main transactions?




The Foreign Exchange market in the country has two basic components.

• The Domestic market comprising the central bank of Sri Lanka and authorized foreign exchange dealers.

• The off-shore market



The central bank had been the biggest operator in the foreign exchange market, which involved several types of transactions namely;

1. Investment in gold and foreign currency.

2. Purchase and sale of foreign exchange with commercial banks and with the government.

3. Forward exchange operations.

4. Transactions relating to foreign aid received by the government.

5. multilateral currency clearing operations,

6. Imposition of foreign currency working balances on commercial banks.



A duel exchange rate system was introduced in 1968 to the market with the Foreign Exchange Entitlement certificates (FEECS) scheme. Under this scheme government encouraged non-traditional exports while discouraged non –essential imports. This scheme was abandoned in 1977 with the introduction of the liberalized economic policy.