Joi

nCAI
IBWI
THASHOKonYouTube
BFM-MODULE-A
Chapt
er1:ExchangeRat
esandFor
ex
Busi
ness(
PART-I
II
)
Whatwewi
llst
udy:
*
Howt
oreadquot
erat
e
*
Howt
oroundof
findeci
mal
*
Whati
sval
uedat
e
*
Whati
sar
bit
ragei
nFor
ex
*
Whati
sDi
rectquot
e
*
Whati
sIndi
rectquot
e
*
Whati
sbi
drat
e&of
ferr
ate
*
Whati
sfi
xrat
eandf
loat
ingr
ate

Joi
nCAI
IBWI
THASHOKonYouTube
Af
ewConcept
s:
*
TT:Tel
egr
aphi
cTr
ansf
er
*
MT:
MoneyTr
ansf
er
*
For
war
drat
e=spotr
ate+pr
emi
um or
*
For
war
drat
e=spotr
ate-di
scount

NOSTROACCOUNT:(
ouraccountwi
thy
ou)
A/Cofbanki nI
ndi
awithanybankabr
oadi
n
for
eigncur
rencyi
scal
ledNOSTROaccount
.
Ex:PNB'
saccounti
nBANKOFAMERI
CA(
indol
lar
)

VOSTROA/
C:(
Youraccountwi
thus)
AccountofFor
eignbanki
nIndi
anbank(
inr
upee)
.
Ex:BANKOFENGLANDaccounti
nPNB(
inr
upee)

LOROAccount
:(t
hei
raccountwi
tht
hem)
BankofAmer
ica'
saccountwi
thBankofEngl
and.
Per
centandPerMi
ll
e:

Per
cent(
%)i
sonepar
toutof100par
ts.
PerMi
ll
eisonepar
toutof1000Par
ts

Howt
oreadt
hequot
edr
ate:
Youwenttoabranchandaskthem t
oinfor
myou
thecur
rentr
ateofdol
larsot
heyshowy ou
fol
lowi
ngquote:
Exampl
e1:
USD/
INR=Rs68.
10/
11perUSD
i
.e1USD=Rs68.
10or
1USD=Rs68.
11
Exampl
e2:
USD/
JPY=JPY116.
50/
60
i
.e1USD=116.
50or
1USD=116.
60
Roundi
ngOf
fofdeci
mali
nFor
ex:
Exampl
e1:If1USD=68.
9315(
roundof
fto
near
est0.
25pai
sa)
Sowewi
llr
oundof
fthi
s:
68.
9315
Last2di
git
sindeci
malshoul
dbe
ei
ther00or25or50or75
Nowcheck15i
sneart
o00or25
Fr
om 00i
t'
s15awaywhi
lef
rom 25i
tis10away
Sowewi
llt
ake25asr
oundof
fval
ue.
Sof
inalr
ateaf
terr
oundof
fitwi
llbe68.
9325

Example2:50.
2339so39-
25=14&50-
39=11Fi
nal
=50.2350

Example3:1.
5288so88-
75=13&100-
88=12so
fi
nal1.
5300
Val
ueDat
e:
Thi
stermisusedtodefi
nethedat
eonwhi cha
paymentoffundoranent
rytoanaccountbecomes
act
uall
yeff
ectiv
e.
I
ncaseofpaymentsonTelegr
aphi
ctr
ansf
ers(TT)
t
heval
uedateisusual
lyt
hesameinbothcent
ers
i
.epay
mentofrespect
ivecur
rencyineachcent
er
t
akesplaceonsamedaysonogai nandnoloss.

Butifthereisti
mel agbet
weenrecei
ptoffundsat
onecent erandpaymentoffundsatanot
hercenter
thencompensat ionshoul
dbepaidtopar
tyinthe
form ofinter
est
.

Thusthedat
eofset
tl
ementoff
undi
scal
ledv
alue
date.
Ar
bit
ragei
nExchange:

InForext
hearbitr
ageconsi stofpurchaseofone
curr
ency(
$)foranot her(
€)inonecent r
e
accompaniedbyanal mostimmediatesaleagai
nst
thesamecurrency($)inanothercenter.
Thi
str
ansact
ioni
scal
ledsi
mpl
eordi
rectar
bit
rage.

Ifthesametransact
ionisconduct
edt hroughthr
ee
ormor ecent
ersandinvolv
ingseveralcurr
encies
thenthisi
scall
edcompoundort hree(mor e)poi
nt
arbit
rage.
Suchoperat
ionshoul
dbecarr
iedoutwit
hminimum
ti
medelaytotakeadvant
ageoftempor
arypr
ice
di
ffer
ences.
Di
rectandI
ndi
rectQuot
es:

Underdir
ectquot
esthel
ocalcur
rencyi
svar
iabl
e,
forexamplei
nIndi
a
1USD=Rs68.
10
1USD=Rs70
1USD=Rs71.
20
1USD=Rs69.
80
Theratesarecall
eddi
rectdi
rectasther
upeecost
ofForeigncur
rencyi
sknowndi r
ectl
y.
Thesequotesar
ecal
ledHomecur
rencyorPr
ice
quotat
ion.
UnderIndi
rectquot
e,t
helocalcur
rencyremai
ns
fi
xed,whil
ethenumberofunitofForei
gncurr
ency
vari
es.Forexample
Rs100=1.
47USD
Rs100=1.
40USD
Rs100=1.
24USD
Rs100=1.
8647USD

Note:Globall
yapract
icei
sbei
ngfoll
owedwhere
al
lthecurrenci
es(
exceptf
ew)arequotedasdi
rect
quotes,
intermsofUSD.
1USD=somanyuni
tofanot
hercur
rency
.
*
InI
ndi
aal
soDi
rectquot
esar
eappl
ied.
*
InDi
rectquot
ewef
oll
owsi
mpl
erul
eof

BUYLOW,
SELLHI
GH.
I
ndi
rectquot
edcur
rency:
Onl
yincaseof
1-
GBP
2-
Eur
o
3-
AUD
4-
NZD
t
hecur
renci
esar
equot
edasI
ndi
rectr
ates.i
.e.

1GBP,
Eur
o,AUDorNZD=somanyuni
tsofUSD.

Someexampl
es:Thecur
rencyr
atesar
equot
edas
bel
ow:
Q1-Fi
ndi
fiti
sDi
rectquot
eorI
ndi
rectquot
e
Q2-Whi
chi
sbuy
ingr
ateandwhi
chi
ssel
li
ngr
ate
USD/
INR=Rs68.
10/
11perUSD
USD/
JPY=JPY116.
50/
60perUSD

GBP/
USD=USD1.
2100/
12perGBP
USD/
SGD=SGD1.
4375/
95

AUD/
USD=USD0.
7330/
40
EURO/
USD=USD1.
0190/
00

Joi
nCAI
IBWI
THASHOKonYouTube
FewRul
esr
elat
edt
oIndi
amar
ket
:
*
InI
ndi
aal
soDi
rectquot
esar
eappl
ied.
*
InI
ndi
aal
lthecur
renci
est
obequot
edas
Peruni
tofFor
eigncur
rency=I
NR
1USD=70.
02Rs
1EURO=110.
02Rs
1GBP=94.
9432Rs.
Cur
rencyQuot
edi
nmul
ti
pleof100uni
ts:
1-
JPY
2-I
NDONESI
ANRUPI
AH
3-
KENYANSHI
LLI
NG
ar
etobequot
edas
100uni
tofFor
eigncur
rency=I
NR.
Exampl
e:
100JPY=56.
06Rs
100Shi
ll
ing(
Keny
an)=42.
04Rs
100Rupi
ah=37.
6432Rs
Bi
dRat
e&Of
ferRat
e:
Thebuy
ingr
ate=Bi
drat
e
Thesel
li
ngr
ate=Of
ferr
ateorAskr
ate
Exampl
e1:
Abankquot
eUSD/
INRas68.
10/
11
I
tmeansthequot
ingbanki
sbi ddi
ngf
orUSDat
68.
10andisof
fer
ingtosel
ltheUSDat68.
11
Example2:AbankquoteGBP/USDr
ateas
1.2100/
10sot
hequotingbanki
swil
li
ngto
BuyGBPat1.
2100andwi
ll
ingt
osel
lGBPat1.
2110

Spread:di
ffer
encebet
weenbuyi
ngr
ateandsel
l
ing
rat
eiscall
eddealer
sspread.
Fi
xedVsFl
oat
ingr
ate:
Fi
xedexchangerateisoff
icialr
atesetbythe
monetar
yauthor
ityforcur
rency .I
tisusual
ly
peggedt
ooneormor ecurrenci
es.
Underfl
oatingexchanger
atethev
alueofexchange
rat
eisdecidedbysupplyanddemandfact
orofthat
part
icul
arcurrency
.
Insomecasesevenfi
xedint
erestrat
esareall
owed
tofl
uctuat
ebetweendefi
neupperandlowerbands
asfixedbythemonet
aryaut
horit
yofcountr
y.
Worldeconomieshasadopt
edfloat
ingexchange
rat
ein1973whi l
eIndi
aswit
chedtofloat
ing
exchangerat
ein1993.

Joi
nCAI
IBWI
THASHOKonYouTube