Forex Market – Buying & Selling of the currency

The foreign exchange market is an over-the-counter market. This means that there is no
single physical or electronic market place or an organized exchange with a central trading
clearing mechanism, where traders meet and exchange currencies. The market is actually a
worldwide network of inter-bank traders, consisting of banks, connected by telephone lines
and computers. With direct dialing telephone services anywhere in the world, foreign
exchange markets have become truly global in the sense that currency transactions now
require only single telephone calls and take place twenty-four hours a day.

Types of transactions and settlement dates

Cash Buying & Cash Selling

Cash Buying - Rate at which Foreign Currency Cash deposited by the customer is converted
into rupees.
Cash Selling - Rate applicable when a customer buys Foreign Currency Cash from the bank.

T.C Buying & T. C Selling

T. C. Buying - Rate at which Foreign Currency Travellers cheques’ deposited by the

customer is converted into rupees.
T. C. Selling - Rate applicable when a customer buys Foreign Currency Travellers’ cheques
from the bank

T. T Buying & T. T Selling

T. T. Buying - Rate at which a Foreign Inward Remittance received by Telegraphic Transfer

is converted into rupees.
T. T. Selling - Rate applicable when a customer sends an outward remittance through
Telegraphic Transfer.

Exchange Rate Calculations

Forex contracts are for “cash” or “ready” delivery which means delivery same day, “value
next day” which means delivery next business day and “spot” which is two business days
ahead. The rates quoted by banks to their non-bank customers are called “Merchant Rates”.
Banks quote a variety of exchange rates. The so-called “TT” rates are applicable for clean
inward or outward remittances. “TT buying rate” applies when an exporter asks the bank to
collect an export bill and the bank pays the exporter only when it receives payment from the
foreign buyer as well as in cancellation of forward sale contracts. “TT selling rate” is
applicable when the bank sells a foreign currency draft.

Spot TT Buying Rate

This rate is calculated as: Spot TT Buying Rate = A Base Rate – Exchange Margin The base
rate is the inter-bank rate. The purpose of exchange margin is to recover the costs involved
and provide a profit margin to the bank.
Spot Bill Buying Rate

This rate is calculated as: Spot Bill Buying Rate = Inter-bank forward rate for a forward tenor
equal to transit plus issuance period of the bill of any exchange margin For a forward bill
purchase, the bank will start from the inter-bank forward rate for a tenor, which includes
•Interval between current time and delivery date of the bill •Transit period •Issuance period of
the bill and deduct an exchange margin

Spot TT Selling Rate

This rate is calculated as: TT Selling Rate = A Base Rate + Exchange Margin The base rate is
the inter-bank spot selling rate. The exchange margin is subject to a ceiling specified by the
FEDAI (Foreign Exchange Dealers’ Association of India).

Bill Selling Rate

When an importer requests the bank to make a payment to a foreign supplier against a bill
drawn on the importer, the banker has to handle documents related to the transaction. For
this, the bank loads another margin over the TT selling rate to arrive at the Bill Selling Rate.
Thus, Spot Bill Selling Rate = TT Selling Rate + Exchange Margin