Joi

nCAI
IBWI
THASHOKonYouTube
BFM MODULE-A
Chapt
er1:ExchangeRatesandFor
ex
Business
Whatwewi
llst
udy:
*
Whati
sfor
eignexchange
*
Whati
sexchanger
ate
*Whati
sforeignexchangemar
ketandi
t'
s
char
act
eri
stics

For
eignExchange:
*Thewor l
dt r
ade,exportandimpor tof
commodi t
ies,cr
ossbor dermovementofman
powerandcapi t
al,
travelandtour
ism andexportof
serv
ices,
allnecessi
tatetheneedf orexchangeof
curr
encyofonecount rytothecurrencyofanother
countr
y.
Expor
t:Goodsmanuf
act
uredinI
ndi
aandsendto
USAwillbepai
dinUSDol
lar
s.TheI
ndi
anexpor
ter
needtovisi
tBankt
ogett
hisUSDpr
oceeds
conver
tedintoI
ndi
anr
upees.
Import:Importofcapit
algoodsfr
om Ger
manyinto
Indi
awillbebil
ledinEuroandneedtopai
dinEuro
soimpor t
erneedtov i
sitt
hebanktoconv
ertt
he
rupeesintoEuro.
Thusconv er sionofcurr
enciesfr
om currencyof
i
nvoicetot hehomecur rencyofexport
erwi l
lbe
general
lyrequi redforal
lcrossbordert
rades.This
i
scalledfor eignexchange.
ForIndi
ani mport
erorexport
ertheUSDoll
aror
Euroisforei
gnexchange(FX)andforAmeri
canor
Germani mporter
/Expor
terRupeesi
sfor
eign
exchange(FX).

For
eignExchangeDef
ini
ti
onasper
FEMA1999:
FEMA:For
eignExchangeManagementAct1999
AsperFEMA1999(
Sect
ion2):
*
Forei
gnexchangemeansf
orei
gncur
rencyand
i
ncl
udes:
A)Al ldeposits,cr
edit
sandbal ancespay ablein
foreigncurrencyanddr af
ts,t
raveler
'scheques,
l
etterofcr editandbil
lofexchangeexpr essedor
drawni nIndiancurrencyandpay abl
einf oreign
currency.
B)Anyinstr
umentpayableatopt
ionofDr
aweeor
Holderoranyot
herpart
y,eit
heri
nIndi
ancur
rency
orinfor
eigncur
rencyorpart
lyi
noneandpart
lyin
other
.
Thusbr
oadlyspeaki
ngfor
eignexchangei
sal
lthe
cl
aimspayabl
eabroad.

ExchangeRat
e:
Wecansayf orei
gnexchangetr
ansact
ioni
sa
contractt
oexchangefundsinonecurr
encyfor
fundsinanothercur
rencyatanagr
eedand
arrangedbasi
s..

Joi
nCAI
IBWI
THASHOKonYouTube
*
Exchanger
atet
husdenot
es
t
hepr
iceor
t
her
ati
oor
t
hev
alue
atwhichonecur
rencyi
sexchangedf
oranot
her
cur
rency.
*Thenumberofunitofonecurr
encywhichare
exchangedforagi
vennumberofunitsofanot
her
curr
encyiscall
edexchanger
ateofcurr
ency.
Forexampl
e:
1USdol
lar=68.
10Rs
1Eur
o=1.
07USdol
lar

Exchanger at
esaredynamicandvar
iesf
rom dayt
o
day,minutetominut
eandsecondtosecond,
dependinguponvari
etyoff
actor
s.

Joi
nCAI
IBWI
THASHOKonYouTube
For
eignExchangeMar
ket(
For
ex
Mar
ketorFXMar
ket
):
Foreignexchangemar ketscompr isealar
ge
spectrum ofmar ketparticipantswhichi
nclude
i
ndi vi
duals,busi
nessent ities,
commer ci
albank,
Investmentbanks, Centralbanks,crossborder
i
nv estor
s, Arbi
tr
ageursandspecul at
orsacrossthe
globewhobuyorsel lcurr enciesf
orthei
rneeds.
*i
tisacommunicat
ionsyst
em basedmarketwi
th
noboundar
iesandoper
atesroundthecl
ockwit
hin
acount
ryandbetweencountr
ies.
*i
tisnotboundbyanywallsorbr
icksandmor t
ar
marketpl
acewhichisacommonf eatur
efor
commodi t
ymarketssayveget
abl
esmar ketorfi
sh
market.
*
iti
sapr ofi
tcent
erwi
thasi
mul
taneouspot
ent
ial
f
orlosses
*Theworl
dcurr
encymarketi
sav eryl
argemar
ket
withal
argenumberofpar
ti
cipant
s
Maj
orpar
ti
cipant
sofFOREXmar
ket
sar
e:-
Centr
albanks-Managingt
heirfor
exmar ketsand
usi
ngcurrencymarketsstr
ivestoreducethe
vol
ati
li
tyandsmoot henoutthevalueoftheirhome
cur
rency.
Commer cialbanks-of f
eringexchangeofcurrenci
es
totheirbigandr etailcl
ient'
sandhedgi ngand
i
nvestingthei rownasset sandl i
abil
iti
esasal
soon
behalfoftheirclientsandal sospectulat
eon
exchanger atemov ement sinthemar ket
s.
Invest
mentfunds/banks-
-Mov i
ngfundsfrom one
countryt
oanotherusingexchangemarket sasa
vehicl
efori
nvestmentsasalsohedgingtheir
i
nvestmentsinvari
ouscountri
es/cur
rencies.

Forexbroker
s--
-act
ingasmiddl
emanbet
ween
otherpart
ici
pant
sandatti
mestaki
ngposi
ti
onson
thei
rbooks.
Corporat
ion'
s--
--movingfundsbet weendif
ferent
countr
iesandcurrenciesforinvest
mentortrade
tr
ansacti
onsorev enspectulati
onincurr
ency
markets
Indi
vi
dual:Ordinaryorhighnetworthi
ndivi
dual
usi
ngmar ketf
ort hei
rinvest
ment,
trade,per
sonal
andtr
avelandtour i
sm needs.
Theparti
cipant
snotonl yusetheforexmarketfor
tr
avelandtradepurposesbutalsoforinv
estment,
hedgi
ngandspecul ati
veacti
vi
t i
es,
thusgenerat
ing
l
argevolumesf ormarket.
Itmaybesur pri
singtonot ethattheglobalfor
ex
mar kethandl esat ot
alturnov erofapproxUSdol l
ar
5.1tril
li
on( USD5100bi l
lion)perday ,whi
lethedail
y
wor l
dwor ldt radetur
nov erisappr ox2%oft hi
s
forexturnov er.Thismeanst hatar ound98%oft he
globalforext radi
ngisrelatedt oinvestmentor
speculativet r
ading.
Theforexmar ketsareveryhi
ghlydynamic.Onan
aver
aget heexchanger at
eofmaj orcurr
enci
es
(USD/GBP)f l
uctuateever
yfoursecondswhi ch
meansi tregi
stere21600(15*60*24).
Thi
smeansy oulookasi
deforamomentandwhen
youtur
nbackfortherat
ethesamecoul
dhave
movedeit
herway .
*Forexmar ketusual
lyoperat
eMondayt oFriday
global
lyexceptforthemiddleeastorot herI
slamic
countri
eswhi chfuncti
ononSat urdayandSunday
withrestr
icti
onstocaterthelocalneeds,butare
closedonFr i
day.
*ThebulkofForexmarketsar eOTC(Overthe
count
er)meaningthatthetradesareconcluded
thr
oughtelephoneorotherelect
roni
csy st
ems.
*Nowwi t
htheint
ernetaccessi
bil
ityonmobil
eand
downloadi
ngtheappofmar ketplayer
s,thef
orex
marketcanbeaccessedanyt i
meanypl ace.
*MajorBankswhichactasmar ketmakersoff
er
twowayquot es(buyandsell
)andl eav
euponthe
cal
lertoei
therbuyorsellasperhisneeds.
Thi
s
generat
egreatermarketdept
handv ol
umes.
Thusthechar
acteri
sti
csoffor
eignexchange
marketcanbeli
stedasunder:
*
A24hour
smar
ket
*Anov ert
hecount
er(
OTC)mar
ketadwel
las
exchangedri
venmarket
.
*
Aglobalmar
ketwi
thnoboundar
ies/
nospeci
fi
c
l
ocat
ion
*
Amar kett
hatsuppor
tsl
argecapi
talandt
rade
f
lows
*
Highl
yli
qui
dmar
ket
s
*
Highf
luct
uat
ionsi
ncur
rencyr
ates(
ever4seconds)
*
Set
tl
ementaf
fect
edbyt
imezonef
act
or
*Marketaf
fect
edbygov
ernment
alpol
ici
esand
cont
rol.

Joi
nCAI
IBWI
THASHOKonYouTube
 Joi
nCAI
IBWI
THASHOKonYouTube
BFM-MODULE-A
Chapt
er1:ExchangeRatesandFor
ex
Busi
ness(PART-I
I)
Whatwewi
llst
udy:
*
Exchanger
atemechani
sm
*
Whati
sReadyorCashr
ate
*
Whati
sTOM r
ate
*
Whati
sSPOTr
ate
*
Whati
sFORWARDr
ate
*
Fact
orsaf
fect
ingt
heexchanger
ate
 ExchangeRat
eMechani
sm:
Ty
pesofset
tl
ementofFXdeal
s:

Duetovastnessofmarket
,operati
ngindif
ferent
ti
mezone,mostoftheforexdealsaredoneon
SPOTbasis,meansthedeli
ver
yoft hefundtakes
pl
aceonsecondwor ki
ngday(from thedateofdeal
orcont
ract
)

Exampl
e:

Dealdat
e Funddel
iv
erydat
e
01-
01-
2020 03-
01-
2020
10-
06-
2020 12-
06-
2020
4Oct
ober2021 6Oct
ober2021

Joi
nCAI
IBWI
THASHOKonYouTube
Funddel
iv
erydat
e
or
Val
uedat
e
or
Set
tl
ementdat
e

*Rat
eatwhi
chsuchdeal
sar
edonei
sknownas
SPOTrat
e.
*
SPOTr
atesar
ebaser
atesf
orot
herFXr
ates.

FXdeal
scanbeset
tl
edi
nthef
oll
owi
ng4way
s:
1-
ReadyorCash
2-
Tom
3-
Spot
4-
Far
war
d

Joi
nCAI
IBWI
THASHOKonYouTube
1-
ReadyorCash:
I
fthesettl
ementoffundtakespl
aceonthesame
day(ondat
eofdeal)theni
tiscal
ledr
eadyorcash
rat
e.
Dealdat
e Set
tl
ementdat
e
10-
07-
2020 10-
07-
2020
8-
05-
2020 8-
05-
2029

2-
TOM :
I
fthesettl
ementoffundtakesplaceont
henext
day(
from dat
eofdeal)t
henitiscall
edTOM r
ate.
(Tommorow)

DealDat
e Set
tl
ementDat
e
04-
02-
2020 05-
02-
2020
1June 2June
1-
04-
2020 02-
04-
2020
Condi
ti
onsf
orset
tl
ement
:
1-Sett
lementdateordayshoul
dbeworki
nginbot
h
countri
es.Ifhol
idayi
nanyoneofthecount
ryt
hen
settl
ementdateshouldbenextcommonworki
ng
dayofbotht hecount
ry.
2-Al
soifSatur
dayandSundaycomesdur i
ngthe
sett
lementdatet
henitwi
llal
sopostponethe
sett
lementdatet
onextworki
ngdate.
Exampl
e1:
Deal:01-
06-
2020
Set
tl
ement:02-
06-
2020(Hol
idayi
nIndi
a)
Act
ualset
tl
ement:03-
06-
2020(
wor
kingdayi
nbot
h)
Exampl
e2:
Deal:15-
01-
2020
Set
tl
ement:16-
01-
2020(Hol
idayi
nIndi
a)
Nextdat
e:17-
01-
2020(
Hol
idayi
nUS)
Act
ualset
tl
ement:18-
01-
2020(
wor
kingdayi
nbot
h)
3-SPOT:
Set
tl
ementoff
undstakesplaceonsecondwor
king
dayaf
tert
hedateofcont
ractordeal
.

Dealdat
e Funddel
iv
erydat
e
01-
01-
2020 03-
01-
2020
10-
06-
2020 12-
06-
2020
4Oct
ober2021 6Oct
ober2021

Ready
,TOM andSPOTExampl
e:

DealDat
e Ready TOM SPOT
01-
01-
2020 01-
01-
2020 02-
02-
2020 03-
02-
2020
1Mar
ch 1Mar
ch 2Mar
ch 3Mar
ch
12Nov 12Nov 13Nov 14Nov
4-
FORWARD:
I
fdeli
veryorset
tl
ementoffundst
akesplaceonany
dayaft
ertheSpotdat
ethenwecalli
tfor
wardrat
e.

DealDat
e SPOT FORWARD
01-
01-
2020 03-
02-
2020 10-
03-
2020
1Mar
ch 3Mar
ch 4Mar
ch
12Nov 14Nov 31Dec

SPOT andFORWARDr
ates:

Quot
e:
USD/
INRquot
edas1USD=68.
10Rs
GBP/
USDquot
edas1GBP=1.
2180USD
EURO/
USDas1EURO=1.
0580USD

Joi
nCAI
IBWI
THASHOKonYouTube
*InFor
exmar ketal
lrat
esquot
edar
egener
all
y
SPOTrates.
*For
war
drat
eisgener
all
ydi
ff
erentf
rom spotr
ate.
Butwhy
?

FORWARD-Pr
emi
um andDi
scount
:
Forwardr
atesar
eder
ivedf
rom spotr
atesandi
s
equal
to
For
war
drat
e=Spotr
ate+Pr
emi
um
Or
For
war
drat
e=Spotr
ate-Di
scount
Pr
emi
um :
Ift
hef
orwar
dval
ueofacur
rencyi
s
highert
han(cost
li
er)t
hespot(
present
)val
uet
hen
thecurr
encyissai
dtobeatapremium.
Exampl
e:
i
fSpot GBP=1.
2100USD
For
war
dGBP=1.
2150USD(
1mont
hfor
war
d)
WecansayGBPisdear
erv
alueonemonthfor
war
d
andapr
emium 0.
0050i
sbeingpai
dfort
hesame.
Di
scount:
Ift
hef
orwar
dval
ueofacur
rencyi
s
cheapert
hanthespot(
present)val
uet
hent
he
curr
encyissai
dtobeataDi scount
.
Exampl
e:
i
fSpot GBP=1.
2100USD
For
war
dGBP=1.
1100USD(
3mont
hfor
war
d)
WecansayGBPi
satdi
scount
.
Note:I
fonecur
rencyi
satPremium t
henotheri
sat
Di
scountandi
foneisatDi
scountt
henotherisat
Pr
emium.

Joi
nCAI
IBWI
THASHOKonYouTube
 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
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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
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Joi
nCAI
IBWI
THASHOKonYouTube
BFM-MODULE-A
Chapt
er1:ExchangeRatesandFor
ex
Busi
ness(PART-
V)
Whatwewi
llst
udy:
*Wewil
lsol
veFor
exexampl
esf
rom MacMi
ll
an
book
Exampl e1:Infl
owofUSD1, 00,
000/-byTTfor
credi
ttoyourexport
er'
saccount,bei
ngadvance
paymentforexport
s(credi
treci
vedinNOSTRO
accountfr
om NewYor kcorr
espondent).Whatrate
youwillt
aketoquotetothecustomer,i
fmar ket
ratei
s68.09/11?
Sol
uti
on1:
Gi
venMar
ketr
ate=68.
09/
11or
USD/
INR=68.
09/
11
Sowecanwr
it
e68.
09/68.
11
Thi
sisdi
rectquot
esoBUYLOW ANDSELLHI
GH
 Buy
ing Sel
li
ng
USD/
INR 68.
09 68.
11

*
Nowdeci
dedbuy
ingorsel
li
ngr
ate?(
inf
lowofUSD)
Obv
iousl
yTTBuy
ingr
ate=68.
09
(Rememberweneed3thi
ngsi
nmaxi
mum
quest
ionsSPOTRATE,
PREMIUM,
MARGI
N)

Exampl e4:On15September
, acustomerr
equest
s
forbookingofaFar
wardcontractf
orexpor
tbil
lof
USD1,50,000.
00/-tobereal
izedinmonthof
December .
Gi
vent
hatUSD/
INRspoti
s68.
45/
50and
For
war
dpr
emi
um i
sasunder
Oct
ober:18/
19pai
se
Nov
ember:30/
32pai
se
December:41/
43pai
se
Mar
gint
obechar
ged0.
05pai
seperUSD.
Sol
uti
on4:

Buy
ing Sel
li
ng
USD/
INR 68.
45 68.
50
OctPr
emi
um 0.
18 0.
19
NovPr
emi
um 0.
30 0.
32
DecPr
emi
um 0.
41 0.
43

*
Mar
gint
obechar
gedi
son1Dol
lar=0.
05pai
sa
*
Nowdeci
dedbuy
ingorsel
li
ngr
ate?(
expor
tbi
ll
)

*
Buy
ingr
atewi
llbeappl
icabl
eso
Buy
ing
USD/
INR 68.
45
OctPr
emi
um 0.
18
NovPr
emi
um 0.
30
DecPr
emi
um 0.
41
Weneed3t
hingsspot
,pr
emi
um andmar
gin
1-
NowSPOT=68.
45
2-Pr
emi
um =0.
30
(
butwhy
,whynot0.
41asi
tsay
sDecember
)
3-Mar
gin=0.
05

Nowi
fyouar
ebuy
ingt
hen
For
war
dbuy
ingr
ate=SPOT+PREMI
UM -MARGI
N
=68.
45+0.
30+0.
05=68.
70

RuleforPremium :Whenbuyi
ngifful
lmonthorlast
dateofmont h(l
ike31Decemberetc,
30Junei s
notwrit
tenalwaystakepr
emium ofprev
iousmont h.

I
fsell
ingthent
akethesamemont
hinwhi
cht
hebi
ll
i
sreali
zedorpaymenti
sdone.

Joi
nCAI
IBWI
THASHOKonYouTube
Example3:Reti
rementofimportbi
llf
orGBP
1,
00,000/
-byTTmargin0.20%,
ignor
ecash
di
scount/pr
emi
um.
GBP/
USD=1.
2175/
85
USD/
INR=68.
14/
15
Comput
ether
atef
orcust
omer
.

Sol
uti
on3:
WeneedGBP/
INR

Buy
ing Sel
li
ng
GBP/
USD 1.
2175 1.
2185
USD/
INR 68.
14 68.
15

*
Nowdeci
dedbuy
ingorsel
li
ngr
ate?
(
ret
ir
ementofi
mpor
tbi
ll
)
Sobi
llsel
li
ngr
ate
 Sel
li
ng
GBP/
USD 1.
2185
USD/
INR 68.
15

*
NowGBP/ INRisnotgi
vendi
rect
lysoweusecr
oss
r
atemechanism.

GBP/
INR=GBP/USD*
USD/
INR
=1.
2185*
68.
15=83.
0408
GBP/
INR=83.
0408

*
Cal
cul
atemar
gin:
0.20%of83.
0408
Mar
gin=0.
1660

*
Nowt
hisi
ssel
li
ngsoMar
ginshoul
dbe?
Bi
llsel
li
ngr
ate=SPOT+Mar
gin
=83.
0408+0.
1660=83.
2068
Example6:Yourforei
gncorrespondent
maintai
ningaNOSTROr upeeaccountwanttofund
hi
saccountbypurchaseofRs30mi ll
ionagai
nstUS
doll
ars.
AssumingthatUSD/I
NRi nt
erbankmar
keti
sat
68.
2550/2650whatratewouldbequotedt
othe
corr
espondent,
ignor
ingexchangemar
gin.

Cal
cul
ateamountofUSDy ouwil
lrecei
vei
nur
NOSTROaccount
,ifdeali
sstr
uck.
Sol
uti
on6:

Buy
ing Sel
li
ng
USD/
INR 68.
2550 68.
2650

*
Nowdeci
dedbuy
ingorsel
li
ngr
ate?
(
cust
omerwantt
opur
chaseof30mi
ll
ionRs)
Sobuy
ingr
ate.
Buy
ing
USD/
INR 68.
2550

Sor
atequot
edbyy
oui
sUSD/
INR=68.
2550
SO1USD=68.
2550Rs

And1Rs=1/
68.
2550USD
so30mi
ll
ionRs=30*
1000000*
1/68.
2550USD
30mi
l
lionRs=4,
39,
528.
24/
-USD

t
hatUSD/
INRspoti
s68.
45/
50and
For
war
dpr
emi
um i
sasunder

Joi
nCAI
IBWI
THASHOKonYouTube
Example5:On1June2016, acustomerr
equest
s
tobookforwardcont
ract,
forret
ir
ementofimpor
t
bil
lforUSD1,00,
000/
-,dueforpaymenton
15Sept
ember2016.

Gi
venr
ates:
*
SpotUSD/
INR68.
27/
29

*
For
war
dPr
emi
um :
SpotJune10/
12
SpotJul
y21/
23
SpotAugust32/
34
SpotSept
ember43/
45&
Augustt
o15t
hSept
ember6/
7

*
Char
geMar
ginof0.
20%onspotr
ate.

Sol
uti
on5:
 Buy
ing Sel
li
ng
USD/
INR 68.
27 68.
29
JunePr
emi
um 0.
10 0.
12
Jul
yPr
emi
um 0.
21 0.
23
AugPr
emi
um 0.
32 0.
34
SepPr
emi
um 0.
43 0.
45
Augt
o15Sep 0.
06 0.
07

*
Nowdecidedbuyi
ngorsel
li
ngrat
e?(
impor
tbi
ll
r
eti
rement
)Soit'
ssel
li
ngrat
e:
Sel
li
ng
USD/
INR 68.
29
JunePr
emi
um 0.
12
Jul
yPr
emi
um 0.
23
AugPr
emi
um 0.
34
SepPr
emi
um 0.
45
Augt
o15Sep 0.
07
Weneed3t
hing
1-
Spot
2-For
war
dpr
emi
um
3-
Mar
gin
*
Spot=68.
29
*Premium (15Sept embernor
mal l
yweneedt ot ake
premium ofSept embermonthincaseofsel l
ing
ratebutsinceAugustt o15Septemberr at
eis
avail
ablesowewi l
lnotuseSeptember (
ful
lmont h)
premium sot akeAugustpremium fi
rstandthen
add15day spremium ofSeptember)
Pr
emi
um =0.
34+0.
7=0.
41
Sel
li
ngr
ate=SPOT+PREMI
UM =68.
29+0.
41=68.
70

Nowcal
cul
ateMar
gin=0.
20%of68.
70=0.
14
SoFi
nalsel
li
ngr
ate=68.
70+0.
14=68.
84

Joi
nCAI
IBWI
THASHOKonYouTube