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Presentation On International Finance
Presentation On International Finance
Exchange Rate
US $ 1 = Rs.45.18
This rate is the conversion rate of every US $ 1 to
Rs. 45.18
Example..
History
In 1821-1914Most of the World's currencies were redeemable into
gold. (i.e. you could "cash in" your paper notes for predefined weights
of gold coin).
Britain was the first to officially adopt this system in 1821 and was
followed by other key countries during 1870s.
The result was a global economy connected by the common use of
gold as money.
Contd
By 1970, the existing exchange rate system was already under threat. The
Nixon-led US government suspended the convertibility of the national
currency into gold. The supply of the US dollar had exceeded its demand.
In 1971, the Smithsonian Agreement was signed. For the first time in
exchange rate history, the market forces of supply and demand began to
determine the exchange rate.
Buying Rate
It is also known as bid rate.
It is the rate at which banks buy a foreign currency from the
customer.
E.g.. In India a customer exchanges the USD for the rupees, the
bank will buy the USD at a buying rate of market.
The bid rate is always given first followed by the selling rate
quote.
Selling Rate
It is the rate at which banks sell foreign currency to their
customer.
E.g.. A bank in India, selling 1USD to a customer, will charge
the selling rate according to market price
For making profit, in these transaction the selling rate is higher
than the buying rate.
Forward Rate
Rate agreed for settlement on an agreed date in the future
All rates are derived from Spot rates
Forward rate is the spot rate adjusted for the premium / discount
Forward Rate = Spot Rate + / - premium or discount
Cross Rates
The rate established between the two currencies is known as cross
Sometimes the value of currency in terms of another one is not
known directly.
In such case one currency is sold for a common currency and then
the common currency is exchanged for the desired currency.
The rate of exchange between the rupee and the Canadian dollar will
be found through the common currency, the US dollar.
Market Quotation
Spot Exchange Rate: The rate today for exchanging one currency for
another at immediate delivery.
Forward Exchange Rate: The rate today for exchanging one currency
for another at a specific Future Date
Contd
Technical Reasons
- Government Control can lead to unrealistic value.
- Free flow of Capital from lower interest rate to higher
interest rates.
Market Expectations
Political Events
Tiannanmon Square
Relative Inflation
An interaction of factors