At present, a registered FII is permitted to enter into a forward contract with the Rupee as one of the currencies, with an authorised dealer in India to hedge its exposure upto 15 percent of the market value of the equity (as at the close of business as on 31 March 1999) plus the increase in market value/inflows thereafter. As a measure of further liberalisation and simplification of procedure, it has been decided to permit FIIs to hedge their entire exposure in India in equities as at a particular point of time without any reference to the cut off date. The condition that the forward contracts once cancelled shall not be rebooked will however continue.

In April 2002, Authorised Dealers were permitted to invest upto 25 percent of their unimpaired Tier 1 capital or US $10 million, whichever was higher, in overseas money market instruments and/ or debt instruments. To accord banks greater freedom in their funds management, it has been decided to enhance this eligibility to 50 percent of the unimpaired Tier 1 capital or US $ 25 million, whichever is higher. All other conditions would remain unchanged.