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D eep pak H oo da De ep ak Ho od a D De epa ak Ho

D eep ak H oo da De ep ak Ho od a D e epa k Ho od
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee
ee a H oo da D e a H o a
p k e ep k H od a
o e
1£ = ₹ 82
1$ = ₹ 40
k e o d D

CHF $ CHF
ep

1 CHF = ₹ ?
e

1$ = ₹ 40.00
ee pa H oo da D e a H o a De ep ak H o a

1 $ = ₹ 40.00

1 $ =CHF1.40
₹ 1 = $ 0.0250
₹ 1 = £ 0.0122
₹ 1 = $ 0.0222

We have to find
1 $ = CHF 1.40
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

1$ = ₹ 40.30/40.50
1 CHF = $ 0.71429

₹ / CY=(₹ /$)*($/CY)
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

We have to find ₹ /ICY.


1$ = CY 5.7040/5.7090
p k ₹ 1 = £ 1/82 i.e.£ 0.0122

₹ / CY = 7.0590 / 7.1003
e

1 $ = 5.7040- 5.7090 CY
k d

1£ = ₹ 1/ 0.0122 i.e. ₹ 82
₹ 1 = $ 1/40 i.e. $ 0.0250
o D

1$ = ₹ 1 / 0.0222 i.e. ₹ 45

1 CY = ₹ 7.0590/₹ 7.1003
o od ee a H oo da D e a H
a k

1 ₹ = $(1/40.50) / (1/40.30)
D e

1 $ = 40.30 - 40.50 Rupees


k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H
o

(₹ /CHF)
p

(It is $/₹ )
(It is ₹ /$)
H od a

(it is CHF/$)

(It is $/CHF)
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o

₹ / CY(ask) =(40.50)X(1/5.7040) = 7.1003


(it is ₹ /$)

(it is $/ ₹ )
1CY = $(1/5.7090) / (1/5.7040) (it is $/CY)
(it is CY/$)
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od

₹ / CY (bid) = (40.30) X (1 /5.7090) = 7.0590


d D

++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++
++++++++++++++++++++++++++++++++++++

ee pa H oo da D e a H o a De ep ak H o a
e p k o d

₹/CHF=(₹ / $)*($/CHF)= 40 x 0.71429 = ₹ 28.5714


od a D ee pa k H oo da D e a H oo da
a De ep ak Ho od a D ee pa k o d D e e p a k H oo da D
e
D ep ak H o a e p k H od a
o e p k o d D

Deepak Hooda
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
ee a H oo da D e a H o a
k e p k d e ep k H od a
o D e e p
o
Convert the following indirect quotes (in India) into direct quotes:
Convert the following direct quotes (in India) into indirect quotes:

ee pa H oo da D e a H o a De ep ak H o a p
pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak

Given the following rates, find 'bid' and 'ask' rates for CY in terms of rupees.
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
k o od e
D e a p k o d D ee a H oo da D e a H
k
1. Exchange Rates and Forex Business

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


H od a p o

############################################################################
############################################################################
############################################################################

Ultimate Study Material is Macmillan Book Only


oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a
D ee a H oo da D ep ak H o a e ep k Ho od a
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
2

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
On 25th March 2007, a customer requested his bank to remit DG 12,50,000 to Holland in payment of import
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
of diamonds under an irrevocable LC. However due to bank strikes, the bank could affect the remittance only

d
ep k H od a
on 2nd April 2007. The interbank market rates were as follows:

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
o

o
k
The bank wishes to retain an exchange margin of 0.25%. How much does the customer stand to gain or lose
due to the delay?

p
++++++++++++++++++++++++++++++++++++

1. Determination of Rupee Value of DG 1 on 25.03.2007

e
Process: Buy US $ at Ask Rate at Bombay D
⇒ Buy Pound (using US $) at Ask Rate at London
e

e
H od a
⇒ Sell Pound at Bid Rate for DG
d

Therefore, ₹ / DG = Ask Rate at Bombay (for Purchase of Dollar) × Ask Rate for Pound at London (for

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

Purchase of Pound) × Bid Rate for DG (for conversion of Pound into DG)
ee a H oo da D e a H o a
= 100/2.2873 × 1.9135 × (1/4.1125) = ₹ 20.34 per DG
o
p

p
d

o
d
2. Determination of Rupee Value of DG 1 on 02.04.2007
D

D
a De ep ak Ho od a D ee pa k

Process: Buy US $ at Ask Rate at Bombay


o

⇒ Buy Pound (using US $) at Ask Rate at London


k

⇒ Sell Pound at Bid Rate for DG


d

Therefore, ₹ / DG = Ask Rate at Bombay (for Purchase of Dollar) × Ask Rate for Pound at London (for
k

p
k

Purchase of Pound) × Bid Rate for DG (for conversion of Pound into DG)
o

= 100/2.3063 × 1.9070 × (1/ 4.0120) = ₹ 20.61 per DG


D
p

e
p

3. Loss because of Delay


k

(a) Loss without considering Banker’s Margin (Extra Money payable by the Company)
d
e

= Amount Payable × (Exchange Rate on the date of actual payment - Exchange Rate on the date on
e
D ep ak H o a
a

which payable) = DG 12,50,000 × (₹ 20.61 - ₹ 20.34) = ₹ 3,37,500


D e a
p

(b) Banker’s Margin on Loss


o

= ₹ 3,37,500 × 0.25% = ₹ 844


D e

(c) Total Loss to the Company


e

= ₹ 3,37,500 + ₹ 844 = ₹ 3,38,34


e
k

############################################################################
p
od

od
H od a

H od a
k

k
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
3

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
You have the following quotes from Bank A and Bank B

d
ep k H od a

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
o

o
p k
Calculate —
(a) How much minimum CHF amount you have to pay for 1 Million GBP spot?
(b) Considering the quotes from Bank A only, for GBP / CHF, what are the Implied Swap Points for

e
spot over 3 months?

++++++++++++++++++++++++++++++++++++ D
e

e
1. Determination of Exchange Rates based on Cross Currency Quotes
H od a d

Note: The Cheapest Available Quote among Bank A and Bank B has been chosen wherever applicable.

D ee a H oo da D ep ak H o a
For Buying GBP using CHF, the relevant rate is the ask rate for GBP in CHF
ee a H oo da D e a H o a

ee a H oo da D e a H o a
Ask CHF / GBP = Ask Rate CHF / USD x Ask Rate USD / GBP
o
p

p
= 1 / (Bid Rate USD / CHF) x 1 /(Bid Rate GBP / USD)
d

o
d
= (1÷1.4653) x (1 ÷ 1.7645) = 0.3868
D

D
a De ep ak Ho od a D ee pa k

Therefore to buy 1 Million GBP, the required CHF = 10,00,000 X 0.3868 = CHF 386800 Similarly,
o

Bid CHF / GBP = Bid CHF / USD x Bid USD / GBP


o
k

= 1/ (Ask Rate USD / CHF) x 1 / (Ask Rate GBP / USD)


d

d
= (1 ÷1.4655) x (1 ÷ 1.7650) = 0.3866 2.
k

p
k

Determination of Swap Points based on Bank A Quotes alone


o

The Spot Rates for GBP/CHF -


D
p

e
p

Bid GBP/CHF = Bid USD/CHF x Bid GBP/USD


k

= 1.4650 x 1.7645 = 2.5850


d
e

Ask GBP/CHF = Ask USD / CHF x Ask GBP / USD


e
D ep ak H o a
a

= 1.4655 x 1.7660 = 2.5881


D e a
p

The Futures Rates for


o
D ee

GBP/CHF - Bid GBP /CHF = Bid USD / CHF x Bid GBP / USD
e

= 1.4655 x 1.7620 = 2.5822 Ask GBP / CHF


k

= Ask USD / CHF x Ask GBP / USD


= 1.4665 x 1.7640
= 2.5869
p

The implied SWAP points is the difference between the Spot and Forward rates
od

od

= 0.0028/0.0012 or 28/12.
H od a

H od a
k

k
D
o

############################################################################
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
4

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Given the following
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a

ep k H od a
Spot Rate 2-Months Forward
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
₹/ $ ₹ 46.00/ ₹ 46.25 ₹ 47.00/ ₹ 47.50

o
(a) How many US Dollars should a firm sell to get ₹ 25 Lakhs after two months?
(b) How many Rupees is the firm required to pay to obtain US $2,00,000 in the spot market?
o

o
k
++++++++++++++++++++++++++++++++++++

(a) US dollars for ₹ 25 Lakhs in the forward Market

p
Action Sell Foreign Currency in Forward Market
Relevant Rate Forward Bid Rate = ₹ 47.00
US $ Required to get ₹ 25,00,000 ₹ 25,00,000 ÷ ₹ 47.00 = US $ 53,191.49

e
D
(b) ₹ Required to obtain US dollars 2,00,000 in the Spot Market
e

e
Action Buy Foreign Currency in Spot Market
H od a
Relevant Rate Spot Ask Rate = ₹ 46.25
d
Rupees Required to obtain $2,00,000 US $ 2,00,000 x ₹ 46.25 = ₹ 92,50,000

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
############################################################################
o
p

p
A Laptop Bag is priced at $ 105.00 at New York. The same bag is priced at ₹ 4,250 in Mumbai.
d

o
d
Determine Exchange Rate in Mumbai.
D

D
a De ep ak Ho od a D ee pa k

(a) If, over the next one year, price of the bag increases by 7% in Mumbai and by 4% in New York,
o

determine the price of the bag at Mumbai and-New York? Also determine the exchange rate
k

prevailing at New York for ₹ 100.


d

(b) Determine the appreciation or depreciation in ₹ in one year from now.


k

p
k
o

++++++++++++++++++++++++++++++++++++
D
p

1. Exchange Rate in
p

Mumbai (Purchasing Power Parity Theory)


k

Exchange Rate in Mumbai per $ = Bag Price in ₹ at Mumbai / Bag Price in $ at New York
k

= ₹ 4,250 ÷ USD 105 = ₹ 40.4762


d
e

e
D ep ak H o a
a

D e a
p

2. Price in a Year’s time


p

Mumbai = Prevailing Price × (1 + Increase in Rate)


o

= ₹ 4250 × (1 + 7%) = ₹ 4,250 x 1.07 = ₹ 4,547.50


D ee

New York = Prevailing Price x (1 + Increase in Rate)


e

= USD 105 × (1 + 4%) = USD 105 × 1.04 = USD 109.20


k

3. Exchange Rate in New York (after one year)


Exchange Rate in New York per ₹ 100
= (Bag Price in $ at New York/ Bag Price in ₹ at Mumbai) x ₹ 100
p

= (USD 109.20 ÷ ₹ 4,547.50) x ₹ l00= USD 2.4013


od

od
H od a

H od a

4. Depreciation (in %) of ₹ over the year


k

Depreciation = [(1 + Indian Inflation Rate) / (1 + New York Inflation Rate)] - 1


D
o

= [(1 + 7%) / (1 + 4%) ] - 1 = (1.07 / 1.04) - 1 = 2,88%


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
5

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Alternatively = (Future Spot Rate ₹ / $ - Spot Rate of ₹ / $) ÷ Spot Rate × 100

d
ep k H od a
Future Spot = Bag Price in Mumbai / Bag Price in New York in one year

ep k H od a
= ₹ 4,547.50 / USD 109.20 = ₹ 41.6438
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Depreciation = (Future Spot ₹ 41.6438 - Spot Rate ₹ 40.4762) ÷ Spot Rate ₹ 40.4762 x 100

o
= ₹ 1.1676 ÷ ₹ 40.4762 × 100 = 2.88%

############################################################################
o

o
k
An Indian firm is interested in purchasing 5m Chinese Yuan. The following quotations have been
given by two different banks.

1 Pound = ₹ 79.89 / 80.00

p
Bank A :
1 Pound = CY 12.50 / 12.60

Bank B: 1CY =$0.1598/0.1600

e
1 $ = ₹ 40.00 / 40.05

++++++++++++++++++++++++++++++++++++
D
e

e
H od a
Two Alternatives
d
(i) 5 Million CY can be purchased for 50,00,000 / 12.50 i.e. £ 4,00,000.

D ee a H oo da D ep ak H o a
This amount of £ can be purchased for 4,00,000x80 i.e. ₹ 3,20,00,000
ee a H oo da D e a H o a

ee a H oo da D e a H o a
(ii) 5 Million CY can be purchased for 50,00,000 x0.1600 i.e. $ 8,00,000.
o
p

This amount of $ can be purchased for 8,00,000 x 40.05 i.e. ₹ 3,20,40,000.

p
d

First alternative is recommended.


o
d
D

D
############################################################################
a De ep ak Ho od a D ee pa k
o

An exporter customer requests a bank to sell 25,00,000 Singapore Dollar (SGD) . The interbank
k

market rates are as follows:


d

Mumbai $1 = ₹ 45.85/45.90
k

p
k

London Pound 1 = $ 1.7840/1.7850


o

Pound 1 = SGD 3.1575/3.1590


D
p

e
p

The bank wishes to retain an exchange margin of 0.125%. (Calculate rate in multiples of .0001 ). How
many Rupees the exporter will receive?
k

k
d
e

++++++++++++++++++++++++++++++++++++
e
D ep ak H o a
a

D e a

1$ = ₹ 45.85/45.90 (It is ₹ /$)


p

1 ₹ = $(1/45.90) / ( 1/45.85) (It is $/₹ )


o

1 £ = $1. 7840/1.7850 (It is $/£)


D e

1 $ = £ ( 1/1.7850) / (1/1.7840) ( It is £/$)


e

1 £ = SGD 3.1575/ 3.1590 (It is SGD/£)


1SGD = £ (1/3.1590) / ( 1/3.1575) (It is £/SGD)
k

Computation of SGD rate i.e. ₹/SGD. ( The bank will be purchasing SGD, hence we have to calculate 'bid'
rate.)
p

₹/SGD =(₹/$)x($/£)
od

₹ (bid)/ SDG= 45.85 X 1.7840 X (1/3.1590) = ₹ 25.8931307375


od
H od a

H od a
k

Taking bank margin into consideration bid rate per SGD: ₹ 25.8931307375(1 -0.00125)
k
D
o

i.e. ₹ 25.860764324. Total receipt= 6,46,51,911


o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
6

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
############################################################################
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
If the spot price for $ /EUR = 0.7395, then this means that 1 $ = .7395 EUR. The interest rate in Europe is
ep k H od a

ep k H od a
currently 3.75%, and the current interest rate in the United States is 5.25%. Calculate the 1 year forward
ee pa H oo da D e a H o a De ep ak H o a
rate.

ee pa H oo da D e a H o a De ep ak H o a
o
++++++++++++++++++++++++++++++++++++
o

o
D
e p k
e

e
H od a d

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o
p

Spot*(1.0375/1.0525)

p
d

o
d
Thus, the forward exchange rate is 1 USD = 0. 7290 (rounded) Euro, or simply, the forward rate.
D

$=0.7290
D
a De ep ak Ho od a D ee pa k
o

############################################################################
k
d

$= ₹ 54.480/.900 and Margin is 0.08%


d

The Bid rate after margin will be:


k

p
k
o

++++++++++++++++++++++++++++++++++++
o
D

$ = ₹ 54.480 - 0.0435 (54.480 * 0.08%) OR ₹ 54.480* (1- 0.0008)= ₹ 54.436


p

e
p

############################################################################
k

$ = ₹ 54.480/.900 and Margin is 0.08%


d
e

e
D ep ak H o a
a

The Ask rate after margin will be:


D e a
p

++++++++++++++++++++++++++++++++++++
o
D e

$ = ₹54.900 + 0.0439 ( 54.900 *0.08%) OR ₹ 54.900 *(1 + 0.0008)


e

= ₹ 54.9439
k

############################################################################

Calculate how many British pounds a London based firm will receive or pay for its following four
foreign currency transactions:
p
od

od

(i) The firm receives dividend amounting to Euro 1,20,000 from its French Associate Company.
H od a

H od a

(ii) The firm pays interest amounting to 2,00,000 Yens for its borrowings from a Japanese Bank.
k

(iii) The firm exported goods to USA and has just received $ 3,00,000.
D
o

(iv) The firm has imported goods from Singapore amounting to Singapore Dollars (SGD) 4,00,000.
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
7

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Given:

d
ep k H od a
1$ = £0.50/0.51

ep k H od a
1 Euro = £0.60/0.61
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
1 SGD = £0.39 /0.40

o
1 Yen £0.0049 / 0.0050

++++++++++++++++++++++++++++++++++++
o

o
k
(i) Foreign Exchange Rate: 1 Euro = £0.60/0.61
The firm shall be selling Euros; the bank shall be buying the Euro @ £0.60.
The firm will receive

p
1,20,000 x 0.60 i.e. £72,000.

(ii) Foreign Exchange Rate: 100 Yens= £0.0049 / 0.0050


The firm shall be buying the Yens; the bank shall be selling the Yens@ £0.0050.

e
D
The firm will pay
2,00,000 x 0.0050 i.e. £ 1,000.
e

e
H od a
(iii) Foreign Exchange Rate : 1 $ = £0.50/0.51
d
The firm shall be selling $; the bank shall be buying the$ @ £0.50.

D ee a H oo da D ep ak H o a
The firm will receive
ee a H oo da D e a H o a

3,00,000 x 0.50 i.e. £ 1,50,000.


ee a H oo da D e a H o a
o
p

p
(iv) Foreign Exchange Rate : 1 SGD = £0.39 /0.40
d

o
d
The firm shall be buying the SGD; the bank shall be selling the SGD @ 0.40.
D

D
The firm will pay
a De ep ak Ho od a D ee pa k

4,00,000 x 0.4000 i.e. £ 1,60,000


o

o
k

############################################################################
d

d
th
On 26 August, M/s ABC Exporter tenders for purchase a Bill payable 60 Days from Sight and Drawn
k

on New York for USD 25,650. The Dollar / Rupee rates in the interbank exchange market were as
k

under:
o

Spot USD 1 = ₹ 48.6525 / 6850


D
p

Spot / September 1500/1400


e
p

Spot / October 2800/2700


k

Spot / November 4200/4100


k

Spot / December 5600/5500


d
e

e
D ep ak H o a
a

D e a
p

Exchange Margin of 0.10% is to be loaded.


p

Rate of Interest is 10% p.a.


o

Out-of-pocket expenses ₹ 500 to be recovered.


D ee

What will be the Exchange Rate to be quoted to the customer and Rupee Amount payable to him?
k

++++++++++++++++++++++++++++++++++++
th th
The notional due date is (60 + 25) days from 26 August, i.e., 19 November. (Note that transit period of 25
p

days is to be taken even if the question is silent). Since the dollar is at discount (forward margin is in
od

descending order), this period will be rounded off to higher month, i.e., end November, and the rate quoted
od
H od a

will be based on Spot / November rate for US dollar in the interbank market.
H od a
k

k
D

Dollar / Rupee market spot buying rate = ₹ 48.65250


o

Less: Discount for Spot / November – ₹ 0.42000


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
8

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
= ₹ 48.23250
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Less: Exchange margin at 0.10% on ₹ 48.2325 = ₹ 0.04823

d
ep k H od a
= ₹ 48.18427

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Rounded off to the nearest multiple of 0.0025, the rate quoted would be ₹ 48.1850 per dollar.

o
Rupee amount payable on the bill for USD 25,650

At ₹ 48.1850 per dollar = ₹ 12,35,935


o

o
Less: Interest for 85 days at 10% on ₹ 12,35,945 -₹ 28,782

k
Out-of-pocket expenses ₹ 500 -₹ 500
₹ 12,06,663

p
############################################################################

From the following information you are required to calculate

e
D
(a) Ready Bill Buying Rate
(b) 2 Months Forward Buying Rate for Demand Bill
(c) Ready Rate for 60 Days Usance Bill and
e

e
H od a
(d) 2 Months Forward Buying Rate for 60 Days Usance Bill Interbank rate US Dollar
d

USD 1 = ₹ 48.6000/6075

D ee a H oo da D ep ak H o a
Spot
ee a H oo da D e a H o a

1 Month 3500/3600
ee a H oo da D e a H o a
o

2 Months 5500/5600
p

p
3 Months 8500/8600
d

o
d
4 Months 1.1500/1.1600
D

D
5 Months 1.3500/1.3600
a De ep ak Ho od a D ee pa k

6 Months 1.5500/1.6600
o

o
k

Transit period is 25 Days. All forward Rates are for Fixed Delivery Exchange Margin is 0.10%.
d

++++++++++++++++++++++++++++++++++++
k

p
k

(a) Ready Bill buying Rate Dollar / Rupee market spot buying rate = ₹ 48.60000
o

Less: Exchange margin at 0.10% On ₹ 48.6000 -₹ 0.04860


D

= ₹ 48.55140
p

e
p

Rounded off to nearest multiple of 0.0025, the rate quoted for ready bill buying is ₹ 48.5525.
k

(b) 2 Months Forward Buying Rate


d
e

Dollar / Rupee (market) spot buying rate = ₹ 48.60000


D ep ak H o a
a

D e a
p

Add: Forward premium for 2 months


p

(Transit period 25 days and


o

Forward period 2 months,


D e

Rounded off to lower month) + ₹ 0.55000


e

= ₹ 49.15000
Less: Exchange margin at 0.10% On ₹ 49.1500 -₹ 0.04915
k

= ₹ 49.10085

Rounded off, the rate quoted for 2 months forward purchase of dollar bill is ₹ 49.1000.
p
od

od

(c) Ready Rate for 60 Days Usance Bill


H od a

H od a

Dollar / Rupee (market) spot buying rate = ₹ 48.60000


k

Add: Forward premium for


D
o

2 months (Transit period 25 days


o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
9

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
And forward period 2 months,
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Rounded off to lower month) + ₹ 0.55000

d
ep k H od a
= ₹ 49.15000

ep k H od a
Less: Exchange margin at 0.10% on ₹ 49.1500 – ₹ 0.04915
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
= ₹ 49.10085

o
Rounded off, the rate quoted for ready purchase of 60 days' usance dollar bill is ₹ 40.1000.
o

o
(d) 2 Months forward rate for 60 days bill

k
Dollar / Rupee (market) spot buying rate = ₹ 48.60000
Add: Forward premium for 4 months
(Transit period 25 days and

p
Forward period 2 months, rounded
Off to lower month) + ₹ 1.15000
= ₹ 49.75000

e
Less: Exchange margin at 0.10%
On ₹ 49.75000
D =₹ 0.04975
= ₹ 49.700025
e

e
H od a
Rounded off, the rate quoted for 2 months’ forward purchase of 60 days’ usance dollar bill is ₹ 49.7000.
d

D ee a H oo da D ep ak H o a
Note: Compare (b), (c) and (d) to understand clearly the difference between ready and forward rates.
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o
p

############################################################################

p
d

o
d
th
M/s ABC Export Customer requests the Bank on 15 July to book a Foreign Exchange Contract
D

D
Delivery September covering 30 Days’ Sight Bill on New York under an irrevocable Letter of Credit
a De ep ak Ho od a D ee pa k

for USD 65,000.


o

o
k

Assuming US Dollars are quoted in the Local Interbank market as under:


d

Spot USD 1 = ₹ 49.5675 / 5750


k

p
k

Spot / July 800/900


o

Spot / August 1700/1800


D

Spot / September 2250/2325


p

e
p

Spot / October 3200/3300


Spot / November 4100/4200
k

Spot / December 5150/5250


d
e

e
D ep ak H o a
a

What rates will the Bank quote to its customer bearing in mind the following factors?
D e a
p

Exchange Margin: 0.10%,


o

Transit Period? 25 Days?


D ee

++++++++++++++++++++++++++++++++++++
e

Dollar is at premium. The rule is to take the earliest delivery. The option to the customer is over September.
k

st
Taking earliest delivery, the date of delivery will be taken as 1 September. The usance of the bill will be 30
th
days and transit period of 25 days will work out to 24
October as the probable date of the bank acquiring foreign exchange. This will be rounded off to the lower
p

month, and the rate to the customer will be based on Spot / September buying rate in the interbank market.
od

od
H od a

H od a

Dollar / Rupee spot interbank buying rate = ₹ 49.56750


k

Add: Premium for September + ₹ 0.22500


D
o

= ₹ 49.79250
o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
10

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Less: Exchange margin at 0.10% on ₹ 49.7925 – ₹ 0.04979
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
= ₹ 49.74271

d
ep k H od a
Rounded off, the rate quoted to the customer would be ₹ 49.7425

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
############################################################################

o
Your Import Customer of M/s XYZ has requested you to book a forward exchange contract for
th
Swedish Kroners 35,000 for Fixed Delivery 6 Month.
o

o
k
Assuming Swedish Kroners are quoted in Singapore Foreign Exchange Market against US Dollars as
under:
Spot USD 1 = SEK 6.0700 / 0750

p
3 Months Forward 950/1050
6 Months Forward 2300/2500

And the US Dollars are quoted in the Local Interbank Exchange Market as under:

e
Spot USD 1 = D
₹ 48.7000 / 8500
3 Months Forward 1.8000/1.6000
e

e
H od a
6 Months Forward 3.7000/3.5000
d

D ee a H oo da D ep ak H o a
What Rate will you quote to your customer bearing in mind that your exchange margin is 0.15% for
ee a H oo da D e a H o a

TT Selling and 0.20% for Bill Selling?


ee a H oo da D e a H o a
o
p

p
++++++++++++++++++++++++++++++++++++
d

o
d
= ₹ 48.8500
D

Dollar / Rupee spot selling rate


Less: Discount for 6 months
D – ₹ 3.5000
a De ep ak Ho od a D ee pa k

= ₹ 45.3500
o

o
k

Add:
d

Exchange margin at 0.15% for


d
TT selling on ₹ 45.3500 + ₹ 0.0680
k

= ₹ 45.4180
p
k
o

Add: Exchange margin at 0.20% for


D

Bill Selling on ₹ 45.4180 + ₹ 0.0908


p

e
p

Forward bill selling rate for dollar = ₹ 45.5088


k

Dollar / Kroner spot buying rate = SEK 6.0700


k

Add: Premium for six months – SEK 0.2300


d
e

= SEK 6.3000
D ep ak H o a
a

D e a
p

Forward bills selling rate for Kroner (45.5008 / 6.300) = ₹ 7.2236


o

Rounded off, the rate quoted is ₹ 7.2225 per Kroner.


D ee

############################################################################
k

th
M/s ABC Customer requests on 8 May to book a forward Contract to cover an Export Bill for
Singapore Dollars 1,00,000 drawn on Singapore and payable 30 Days after sight with option to him
over the month of July.
p
od

The following Rates prevail in the interbank market for US Dollars:


od
H od a

H od a

USD 1 = ₹ 49.4875/4925
k

Spot
e

k
D

Spot / May 1600/1700


o

June 3100/3200
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
11

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
July 4600/4700
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
August 6100/6200

d
ep k H od a
September 7600/7700

ep k H od a
October 9100/9200
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
At Singapore Market, Singapore Dollar is quoted at:

Spot USD 1 = SGD 1.4004/4078


o

o
1 Month Forward 70/75

k
2 Months Forward 110/115
3 Months Forward 150/155
4 Months Forward 190/195

p
5 Months Forward 230/235
6 Months Forward 270/275

e
Transit period is 25 Days. Exchange Margin required is 0.10%.
What Rate will you quote to your Customer?
D
e

e
++++++++++++++++++++++++++++++++++++
H od a d
st
US Dollar is at premium against rupee. Earliest delivery under the forward contract is on 1 July. Usance
th

D ee a H oo da D ep ak H o a
period of 30 days and transit period of 25 days, add up to 55 days making 25 August the due date of the
ee a H oo da D e a H o a

bill. This will be rounded off to the lower month and the exchange rate to the customer will be based on Spot
ee a H oo da D e a H o a
o

/ July rate for US dollar in the interbank market.


p

p
d

o
d
US Dollar / Rupee spot buying rate = ₹ 49.4875
D

D
Add: Premium for July + ₹ 0.4600
a De ep ak Ho od a D ee pa k

Less: = ₹ 49.9475
o

Exchange margin at 0.10% on ₹ 49.9475 – ₹ 0.0499


k

Forward buying rate for US Dollar = ₹ 49.8976


d

US dollar is at premium against Singapore dollar. Since selling rate is to be considered, taking latest delivery
k

p
k

st th th
of 31 July, the bill is expected to realize on 20 September, which falls in the fifth month from 5 May. The
o

forward rate to the customer will be calculated based on 5 months’ forward US dollar / Singapore dollar rate.
D
p

e
p

US Dollar / Singapore dollar spot selling rate = SGD 1.4078


Add: Premium for 5 months + SGD 0.0235
k

= SGD 1.4313
d
e

Forward buying rate for Sing. Dollar (49.8976 / 1.4313) = ₹ 34.8617


e
D ep ak H o a
a

The rate quoted to the customer is ₹ 34.8625 per Singapore dollar.


D e a
p

p
o

############################################################################
D e

M/s Reddy & Company, Export customer has booked with you a Swiss Francs 1,00,000 forward Sale
e

st th
(i.e. your purchase) exchange contract delivery 31 August at ₹ 32.5200. However, on 30 August he
informed you that it has not been possible to deliver the Swiss Francs as anticipated payment had
k

th
not come from Zurich. You were therefore requested to extend the Contract for delivery to 30
September.
p

Assuming that Swiss Francs were quoted in Singapore market as under:


od

od

Spot USD 1 = Sw. Fcs. 1.5315/5330


H od a

H od a

One Month Forward 140/130


k

Two Months Forward 287/270


D
o

Three Months Forward 415/405


o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
12

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
And US Dollars were Quoted in the Local Interbank Market as under:

d
ep k H od a

ep k H od a
Spot USD 1 = ₹ 49.4225/4375
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
One Month 1200/1100

o
Two Months 2700/2500
Three Months 4500/4300
o

o
What will the extension Charges, if any, payable by the customer?

k
Exchange Margin 0.10% on buying as well as Selling.

++++++++++++++++++++++++++++++++++++

p
First, the contract will be cancelled at the TT selling rate.
Dollar / Rupee spot = ₹ 49.4375
Add: Exchange margin at 0.010% = ₹ 0.0494

e
T.T. Selling rate for dollar D = ₹ 49.4869
e

e
H od a
Dollar / Franc spot buying rate = CHF 1.5315
d
Franc / Rupee Cross Rate (49.4869/1.5315) = ₹ 32.3127
Rounded off, the rate is ₹ 32.3125.

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o

Bank buys Franc under original contract at ₹ 32.5200


p

p
It sells Franc under cancellation contract at ₹ 32.3125
d

o
d
Exchange difference per
D

D
France payable by customer ₹ 0.2075
a De ep ak Ho od a D ee pa k
o

Exchange difference for CHF 1,00,000 is ₹ 20,750 payable by customer as cancellation


k

charges.
d

d
Rebooking:
k

p
k

th
Fresh purchase contract will be booked for delivery 30 September.
o

Dollar / Rupee spot buying rate = ₹ 49.4225


D

Less: Discount for one month – ₹ 0.1200


p

e
p

= ₹ 49.3025
Less: Exchange margin at 0.10% -₹ 0.0493
k

= ₹ 49.2532
d
e

Dollar / Franc spot selling rate = ₹ 1.5330


e
D ep ak H o a
a

Less: Discount for one month – ₹ 0.0130


D e a
p

= ₹ 1.5200
o

Franc / Rupee Cross rate (₹ 49.2532 / 1.5200) = ₹ 32.4034


D ee

The rate quoted would be ₹ 32.4025


e

The forward contract would be extended at ₹ 32.4025 per Franc, after recovering cancellation
k

charges of ₹ 20,750.

############################################################################
p

th
M/s XYZ & Company, import customer booked a forward Contract with the bank on 10 April for USD
od

od

th
20,000 due 10 June at ₹ 49.4000. The bank covered its position in the market at ₹ 49.2800.
H od a

H od a
k

th th
k

The exchange rates for dollar in the interbank market on 10 June and 20 June were:
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
13

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
th th
10 June 20 June
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Spot USD 1 = ₹ 48.8000/8200 48.6800/7200

d
ep k H od a
Spot / June 48.9200/9500 48.8000/8500

ep k H od a
July 49.0500/0900 48.9300/9900
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
August 49.3000/3500 49.1800/2500

o
September 49.6000/6600 49.4800/5600

Exchange Margin 0.10% Interest on outlay of funds 12%


o

o
th
How will the Bank react if the Customer requests on 20 June:

k
(i) To cancel the Contract
(ii) To Execute the Contract, or
th
(iii) To Extend the Contract with due date to fall on 10 August.

p
++++++++++++++++++++++++++++++++++++

(a) Exchange Difference: The forward sale contracts will be cancelled at the spot TT purchase rate of the

e
D
bank for dollar prevailing on the date of cancellation.

Dollar / Rupee market spot buying rate = ₹ 48,6800


e

e
H od a
Less: Exchange margin at 0.10% = ₹ 0.0487
d
₹ 48.6313
Rounded off, the rate applicable is ₹ 48.6325

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o

Bank sells dollar under the original contract at ₹ 49.4000


p

p
It buys dollar under the cancellation contract at ₹ 48.6325
d

o
d
D

D
Exchange difference per dollar payable by customer ₹ 0.7675
a De ep ak Ho od a D ee pa k
o

Exchange difference for USD 20,000 is ₹ 15,300.


k
d

d
th
(b) Swap Loss: On 10 June, the bank does a swap of spot sale of dollar at the market buying rate of ₹
48.8000 and forward purchase for June at the market selling rate of ₹ 48.9500.
k

p
k
o

Bank buys at ₹ 48.9500


D

It sells at ₹ 48.8000
p

e
p

₹ 0.1500
k

th
(c) Interest on Outlay of Funds: On 10 April, the bank receives delivery under the cover
d
e

contract at ₹ 49.2800 and sells spot at ₹ 48.8000.


e
D ep ak H o a
a

D e a
p

Bank buys at ₹ 49.2800


o

It sells at ₹ 48.8000
D ee

Outlay per dollar ₹ 0.4800


e
k

Outlay for USD 20,000 is ₹ 9,600 Interest on ₹ 9,600 at 12% for 10 days is ₹ 32.

(d) Charges for Cancellation:


p

Exchange difference ₹ 15,300


₹ 3,000
od

Swap loss
od
H od a

Interest on outlay of funds ₹ 32


H od a

Total Charges ₹18,332


k

k
D
o

(e) Execution of Contract: Cancellation charges of ₹ 18,332 as computed above will be


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
14

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
recovered. The contract will be executed at the spot TT selling rate calculated as follows:
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Dollar / Rupee interbank spot selling rate = ₹ 48.7200

d
ep k H od a
Add: Exchange margin at 0.10% +₹ 0.0487

ep k H od a
= ₹ 48.7687
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
Rounding off, the rate applicable is ₹ 48.7675.

(f) Extension of Contract: Cancellation charges of ₹ 18.332 as computed above will be recovered.
o

o
k
The contract will be extended at the current rate.
Dollar / Rupee market forward selling rate for August =₹ 49.2500
Add: Exchange margin at 0.10% +₹ 0.0492

p
=₹ 49.2992

The exchange rate applied for the extended contract is ₹ 49.3000.

e
D
############################################################################

Your bank’s London Office has surplus funds to the extent of USD 5,00,000 for a period of 3 Months.
e

e
H od a
The cost of the funds to the Bank is 4% p.a. It proposes to invest these funds in London, New York or
d
Frankfurt and obtain the best Yield, without any exchange risk to the bank. The following rates of

D ee a H oo da D ep ak H o a
interest are available at the three centres for investment of domestic funds thereat for a period of 3
ee a H oo da D e a H o a

months:
ee a H oo da D e a H o a
o
p

p
London 5% p.a.
d

o
d
New York 8% p.a.
D

D
Frankfurt 3% p.a.
a De ep ak Ho od a D ee pa k
o

The market rates in London for US Dollars and Euro are as under:
k

London on New York


d

d
Spot 1.5350/90
1 Month 15/18
k

p
k

2 Months 30/35
o

3 Months 80/85
D

London on Frankfurt
p

e
p

Spot 1.8260/90
1 Month 60/55
k

2 Months 95/90
d
e

3 Months 145/140
e
D ep ak H o a
a

D e a
p

At which Centre will the investment be made and what will be the net gain (to the nearest pound) to
o

the bank on the funds?


D ee

++++++++++++++++++++++++++++++++++++
e

Cost of funds at 4% p.a. for 3 months (on GBP 5,00,000) GBP 5,000
k

Amount invested GBP 5,00,000


GBP 5,05,000
(a)Investment in London
p

Interest earned on GBP 5,00,000 at 5% p.a. for 3 months GBP 6,250


od

od

Less: Cost of funds GBP 5,000


H od a

H od a

Net Yield on investment GBP 1,250


k

k
D

(b)Investment in New York


o

The bank buys US dollars at the spot rate and invests the funds in New York. It
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
15

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
also enters into a three months forward contract selling this amount together with
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Interest thereon.

d
ep k H od a

ep k H od a
The bank buys US dollars for GBP 5,00,000 at the market selling rate of USD
1.5350.
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Amount realized in US Dollars USD 7,67,500

o
Interest earned on USD 7,67,500 at 8% for 3 months USD 15,350
Total amount available at the end of three months USD 7,82,850
This amount the bank sells to the market at the market three months forward
o

o
k
buying rate of USD 1.5475 (USD 1.5390 + 0.0085)
Amount realized in pound sterling (7,82,850 / 1.5475) GBP 5,05,880
Less: Amount to be repaid GBP 5,05,000

p
Net Yield GBP 880
(c)Investment in Frankfurt
The bank buys Euro for GBP 5,00,000 at the market spot selling rate of EUR
1.8260.

e
D
Amount realized in Euro EUR 9,13,000
Interest at 3% p.a. for 3 months on EUR 9,13,000 6,847
e

Total Amount available at the end of 3 months EUR 9,19,847

e
H od a
This amount the bank sells to the market at the market 3 months forward buying
d
rate of EUR 1.8150 (1.8290 – 0.0140)

D ee a H oo da D ep ak H o a
Amount realized in pound sterling (9,19,847 / 1.8150) GBP 5,06,803
ee a H oo da D e a H o a

Amount to be repaid GBP 5,05,000


ee a H oo da D e a H o a
o
p

Net Yield GBP 1,803

p
d

o
d
############################################################################
D

D
a De ep ak Ho od a D ee pa k

You, as a Foreign Exchange Dealer of your bank, are informed that your Bank has sold a T.T. on
o

Copenhagen for Danish Kroner 10,00,000 at the Rate of Danish Kroner 1 = ₹ 6.5150. You are required
o
k

to cover the transaction through London or New York, whichever course offers you a more profitable
d

d
rate. The rates on that date are as under:
k

₹ 74.3000
k

Mumbai-London 74.3200
o

Mumbai-New York ₹ 49.2500 49.2625


o

London-Copenhagen DKK 11.4200 11.4350


D
p

New York-Copenhagen DKK 7.5670 7.5840


p
k

Will you cover the transaction through London or New York and what will be the Exchange Profit on
d
e

the transaction? Ignore brokerage at all Centres.


e
D ep ak H o a
a

D e a
p

++++++++++++++++++++++++++++++++++++
p
o

Amount realized on selling Danish Kroner 10,00,000 at ₹ 6.5150 per Kroner = ₹ 65,15,000.
D ee

Cover at London:
k

Bank buys Danish Kroner at London at the market selling rate. Pound sterling required for the purchase
(10,00,000 / 11.42000) = GBP 87,565.67.
p

Bank buys locally GBP 87,565.67 for the above purchase at the market selling rate of ₹ 74.3200. The rupee
od

cost = ₹ 65,07,881.
od
H od a

H od a
k

Profit (₹ 65,15,000 – ₹ 65,07,881) = ₹ 7,119.


k
D
o

Cover at New York:


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
16

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Bank buys Kroners at New York at the market selling rate. Dollars required for the purchase

d
ep k H od a
(10,00,000 / 7.5670) = USD 1,32,152.77.

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Bank buys locally USD 1,32,152.77 for the above purchase at the market selling rate of ₹ 49.2625. The

o
rupee cost = ₹ 65,10,176.

Profit (₹ 65,15,000 – ₹ 65,10,176) = ₹ 4,824.


o

o
k
The transaction would be covered through London which gets the maximum profit of ₹ 7,119.

############################################################################

p
th
You are a dealer for your bank and find that when you open your books on the 20 November, your
combined position in US Dollars is overbought USD 70,000 while your dollar account in New York, as
th
at 19 November is overdrawn USD 1,30,000. During the day, you receive advices from your

e
D
branches in respect of the following transactions undertaken by them:

Documentary DDs purchased on 19th November USD 25,000


e

e
H od a
TTs issued on 20th November (of which USD 20,000 is a Delivery
USD 50,000
d
under a forward contract booked on 1st Sept.)

D ee a H oo da D ep ak H o a
TT dated 15th November from New York paid on 19th November USD 10,000
ee a H oo da D e a H o a

Forward Contracts booked on 19th November


ee a H oo da D e a H o a
o

Bills selling for delivery – 6 months (Import Bills under LC) USD 37,000
p

p
TT Purchase – Delivery 1 month USD 12,000
d

o
d
Purchase of 30 days sight bill – Delivery 3 month USD 10,000
D

D
Forward Contracts Cancelled on 20th November
a De ep ak Ho od a D ee pa k

TT purchase due on that day USD 15,000


o

In addition you have to effect deliveries under the following


k

Interbank contracts due on 20th November


d

d
TT Sale USD 50,000
TT Purchase USD 20,000
k

p
k
o

(a) What would be your combined dollar position after talking the above transactions into account?
D

And,
p

e
p

(b) What steps would you take to square your position while, at the same time, ensuring that your
k

dollar account in New York is kept in sufficient funds to meet your immediate cash commitments and
d
e

leave a credit balance of USD 10,000 ? (It is not, otherwise, necessary to match your cover purchase /
e
D ep ak H o a
a

sales with the actual delivery period of any of the transactions give above).
D e a
p

p
o

++++++++++++++++++++++++++++++++++++
D e

(A) Exchange Position (combined dollar position)


e

Particulars Purchases(USD) Sales (USD)


k

Balance b/d (Overbought) 70,000


Documentary DDs purchased 25,000
TTs issued (excluding USD 20,000 under 30,000
p

forward contract)
od

od

TT paid 10,000
H od a

H od a

Forward sale-delivery 6 months 37,000


k

k
D

Forward Purchase-delivery 1 month 12,000


o

Forward Purchase-delivery 3 months 10,000


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
17

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Forward Purchases contract cancelled 15,000
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
1,27,000 82,000

d
ep k H od a

ep k H od a
Balance c/d (Overbought) 45,000
1,27,000
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
(B) Cash Position

Cr. USD Dr. USD


o

o
k
Balance b/d (Overdrawn) 1,30,000
TT Issued 50,000
TT Sale 50,000

p
TT Purchase 20,000
20,000 2,30,000
Balance c/d (Overdrawn) 2,10,000

e
2,30,000

D
Thus, to meet the immediate requirements at New York and leave a balance of USD 10,000 the bank will
e

buy TT on New York for USD 2,20,000. This will increase the already overbought position of USD 45,000 to

e
H od a
USD 2,65,000. This amount will be sold forward by the bank to square its position.
d

D ee a H oo da D ep ak H o a
############################################################################
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o

For a futures contract in Canadian dollar, the initial margin and maintenance margin prescribed by
p

p
the Exchange are USD 4,000 and USD 3,000 respectively. A Contract is concluded at a price of USD
d

o
d
0.75. The settlement prices in the exchange at the end of four subsequent days are as follows:
D

Day 1 USD 0.745


D
a De ep ak Ho od a D ee pa k
o

Day 2 USD 0.730


o
k

Day 3 USD 0.740


d

Day 4 USD 0.755


d
k

At the end of each day, the margin accounts of both the buyer and the seller will be adjusted based
k
o

on the settlement price for the day. Where the margin goes below the maintenance level, the buyer /
o

seller will be required to reimburse to bring the balance to the initial level. If the margin is more than
D
p

the initial level, the member concerned is free to withdraw the excess.
e
p
k

++++++++++++++++++++++++++++++++++++
k
d
e

The adjustments to be made in the margin money of buyer and seller are tabulated below: Opening Price:
D ep ak H o a
a

D e a

USD 0.750 Contract Value: USD 75,000


p

p
o

Day1 USD Day2 USD Day3 USD Day4 USD


D e

Settlement Price 0.745 0.730 0.740 0.755


e

Contact Value 74,500 73,000 74,000 75,500


Margin Money Account of Buyer:
k

1.Opening Balance 4,000 3,500 4,000 4,000


2.Amount adjusted for change in -500 -1,500 1,000 1,500
value of Contract
p

3.Adjusted balance 3,500 2,000 5,000 5,500


od

4.Amount deposited / withdrawn - 2,000 -1,000 -1,500


od
H od a

H od a

Closing Balance 3,500 4,000 4,000 4,000


k

Margin Money Account of Seller:


D
o

1.Opening Balance 4,000 4,000 4,000 3,000


o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
18

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
2.Amount adjusted for change in 500 1,500 -1,000 -1,500
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
value of contract

d
ep k H od a

ep k H od a
3.Adjusted balance 4,500 5,500 3,000 1,500
4.Amount deposited / withdrawn -500 -1,500 - 2,500
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Closing Balance 4,000 4,000 3,000 4,000

o
The buyer of futures contracts gains by an increase in the value of the contract. His margin account is
increased by this value. Correspondingly, the seller loses and his margin account is reduced by the value.
o

o
This is only a notional gain/loss because the contract has to be settled at the ruling price for the contract.

k
############################################################################

p
If the sport exchange rate between $/₹ is ₹ 66.7905
3 months forward rate available at ₹ 67.6450.
Interest rate in India 6.75% and interest rate in USA is 0.25% (annualized)

e
D
1) Interest rate differentials between India and US is
a) 6.5%
e

b) 6.0%

e
H od a
c) 6.95%
d
d) 6.25%

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

2) Forward rate differentials between spot and forward market is


ee a H oo da D e a H o a
o

a) 5.11%
p

p
b) 5.51%
d

o
d
c) 5.71%
D

d) 5.91%
D
a De ep ak Ho od a D ee pa k
o

3) Arbitrage opportunity exist where Interest rate is


k

a) Higher
d

d
b) Lower
c) Equal
k

p
k

d) None
o

o
D

4) Arbitrage opportunity exist in


p

e
p

a) India
b) US
k

c) NA
d
e

d) None
D ep ak H o a
a

D e a
p

5) If you invest in $ 1000, what could be the gain/Loss from arbitrage


o

a) Profit of $3.4047
D e

b) Loss of $3.4047
e

c) No Profit or loss
d) Cannot Say
k

++++++++++++++++++++++++++++++++++++
p

Interest rate differentials between India and US is (6.75-0.25) = 6.5%


Forward rate differentials between spot and forward market is
od

od
H od a

((67.6450-66.7905)/66.7905 *100*12/3) = 5.11%


H od a

IRD 6.5% > FRD 5.11%,


k

k
D

hence arbitrage opportunity exist in the India where interest rate is higher.
o

Arbitrager can borrow amount in US dollar and invest in India.


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
19

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Assume arbitragers borrow money of $ 1000 at the prevailing interest rate of 0.25% for 3 months.
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Convert $1000 into Indian rupee at the prevailing spot price 66.7905 = ₹. 66,790.50

d
ep k H od a
Invest the amount of ₹. 66,790.50 in India at the interest rate of 6.75%, at the end of the period the amount

ep k H od a
becomes (66,790.50+ 66,790.50*6.75%*3/12) = ₹. 67,917.59
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Convert the above amount in dollar at the forward rate ₹. 67,917.59/67.6450 is $ 1004.03

o
Repay the borrowed amount with interest ( 1000+1000*.25%*3/12) = $ 1000.625
The differences between the arbitrage amount and repayment amount is the gain from arbitrage.
(1004.03-1000.625) = $3.4047
o

o
k
############################################################################

1. A correspondent in Japan wants to fund his Vostro Ale with ₹ 10 Mn., how much ¥ the

p
correspondent should credit to your Nostro Ale assuming the rates $ = ₹ 43.56/57 & ¥ at 109.60/70,
no margins to be loaded
a) 25,160.698
b) 25,183.655

e
D
c) 25,154.923
d) 25.177.875
e

e
2. Calculate TT Selling for £/₹ , if $/₹ is 43.85187 & £/$ is 1.934/49, a margin of 0.15% to be loaded
H od a d
a) 84.8665

D ee a H oo da D ep ak H o a
b) 84.8841
ee a H oo da D e a H o a

c) 84.9938
ee a H oo da D e a H o a
o

d) 85.0114
p

p
d

o
d
3. What rate will be quoted to a foreign correspondent who intends to fund his Vostro Account
D

D
maintained with Mumbai Br. of Lakshay Bank Ltd., if $ is quoted at 44.23/27 and a margin of 0.08% is
a De ep ak Ho od a D ee pa k

to be loaded
o

a) 44.1946
k

b) 44.2653
d

d
c) 44.2346
d) 44.3054
k

p
k
o

4. If Swiss Franc is quoted as $ = CHF 1.2550/54 and $ = ₹ 43.50/52, how much ₹ an exporter will get
D

for his export bill of CHF50000.


p

e
p

a) 1.733068
b) 1.732515
k

c) 1.733865
d
e

d) 1.733312
e
D ep ak H o a
a

D e a
p

5. If Swiss Franc is quoted as $= CHF 1.2550/54 & $ = ₹ 43.50/52, how much ₹ an importer will pay for
o

his Import bill of CHF 50000.


D e

a) 1.733068
e

b) 1.732515
e

c) 1.733865
k

d) 1.733312

6. Suppose $ is quoted in India at ₹ 41.25/30 & EURO is quoted in New York at $ 1.47 I 51, how much
p

would be the quote for EURO in India against ₹


a) 1 EUR= ₹ 60.64/62.36
od

od
H od a

b) 1 EUR= ₹ 60.71/62.29
H od a

c) 1 EUR= ₹ 27.32/28.09
k

k
D

d) 1 EUR= ₹ 27.35/28.06
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
20

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
7. Spot rate for EUR/$ is 1.4329, Interest rate for 182 days EUR Deposit is 3.45% while 182 day $
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Deposit is 2.15%. How much is 6 months forward EUR/$ rate

d
ep k H od a
a) 1.4319

ep k H od a
b) 1.4484
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
c) 1.4236

o
d) 1.4921

++++++++++++++++++++++++++++++++++++
o

o
k
1. Japanese Bank wants you to credit ₹ 10 Mn. in their Vostro A/C, they will credit your Nostro A/C in Japan
with Japanese Yen. Since there is no direct rate of exchange between ¥ & ₹ , we have to calculate through
Cross Rate Mechanism.

p
Japanese Bank will pay ¥ 109.70 to acquire 1 $
Japanese Bank will pay 1 $ to acquire ₹ 43.56
When we interpolate 'a' & 'b' above, Japanese Bank will pay ¥ 109.70 to acquire ₹ 43.56

e
D
To get a credit of ₹ 10 Mn. In their Vostro A/C Japanese Bank need to pay
¥ = (109.70/43.56) x 10000000 = 25183654.72 ¥
e

e
H od a
2. Selling Rate means - Bank will part with £ & acquire ₹
d
To give 1 £ bank needs $ = 1.9349 (£ Selling Rate against ₹ ),
For the customer to acquire $ from the bank, the customer needs to give ₹ 43.87 to acquire 1 $

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

When we interpolate 'a' & 'b' above, for the customer to acquire 1 £ from the bank,
ee a H oo da D e a H o a
o

the customer needs to give ₹ = 1.9349 x 43.87 = 84.884063


p

p
Final Selling Rate to be quoted to the customer is after
d

o
d
Adding Margin of 0.15% = 84.884063 + 0.127326 = 85.0114
D

D
a De ep ak Ho od a D ee pa k

3.The Foreign Correspondent will credit your Nostro A/C with $ and wants you to credit their Vostro A/C with
o

₹ . You will quote them $ Buying Rate against ₹ .


k

$ Buying Rate : 44.23


d

d
Less Margin 0.08% : 0.0354
Rate to be Quoted : 44.1946
k

p
k
o

4. The Exporter will tender CHF to the bank, Bank needs to buy CHF against ₹ .
D

The Customer will get 1 $ against 1.2554 CHF


p

e
p

The Customer will now get 43.50 ₹ against 1 $


From 'a' & 'b' CHF Buying rate 43.50/1.2554 = 34.6503 ₹
k

Exporter will get ₹ = 34.6503x5000 = 1732515


d
e

e
D ep ak H o a
a

5. The Importer needs to buy CHF from the bank. Bank needs to sell CHF against ₹ .
D e a
p

The Customer will get $ against 43.52 ₹


o

The Customer will now get 1.2550 CHF against 1 $


From 'a' & ‘b' CHF Selling Rate = 43.52/l.2550 = 34.6773 ₹
D ee

Importer will have to pay ₹ = 34.6773 x 50000 = 1733865


e
k

6. $ = ₹ 41.25/30 EUR = $ 1.47/51


Buying Rate for EUR= 1.47 x 41.25 = 60.6375 i.e., 60.64
Selling Rate for EUR= 1.51 x 41.30 = 62.363 i.e., 62.36
p

Therefore, EUR= ₹ 60.64 I 62.36


od

Option 'a'
od
H od a

H od a

7. EUR after 182 days at 360 days to a year at 3.45% will become l.017441666
k

k
D

1.4329 $ after 182 days at 360 days to a year at 2.15% will become 1.448474$26
o

Therefore, EUR after 182 days will be = 1.448474826/1.017441666


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
D eep pak H oo da De ep ak Ho od a D De epa ak Ho
D eep ak H oo da De ep ak Ho od a D e epa k Ho od
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee
ee a H oo da D e a H o a
k e p k o d e ep k H od a
o D e

9 m = 26/38
6 m = 18/28
3 m = 12/20
2 m = 08/14
1 m = 05/09
e ep

12 m = 36/50
ee pa H oo da D e a H o a De ep ak H o a

a) 44.10
c) 44.30

d) 44.32
c) 44.28
b) 44.12
a) 44.08
d) 44.50
c) 44.42
b) 44.50
a) 44.18
d) 44.42
c) 44.32
b) 44.18
a) 44.08
b) 44.25
a) 44.20
£=$ l.9350/54

d) 59.4993
c) 59.3650
b) 59.4816
a) 59.3473
d) 85.7382
c) 85.7205
b) 85.5447
a) 85.5270
$=₹ 44.20/44.30

EUR=$ 1.3427/31
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
k o od
D ee p a k o d D ee a H oo da D e a H
k
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H
p o
Forward Swap Points for $ Vs ₹ :

H od a
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o

d) Any rate between 44.20 - 44.30


oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
d D ee pa H oo da D e a H o a De ep ak H o a
od a e p k o d D ee pa k H oo da D e a H oo da
o d D e e p a k H oo da D
Suppose the rates of exchange quoted are as under

a De ep ak Ho od a D ee pa k
D ep ak H o a e p k H od a
o e p k o d D e

Deepak Hooda
1. What rate in ₹ will be quoted to an exporter for $ 200000

2. What rate in ₹ will be quoted to an exporter for £ 200000.


D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
p

4. What 3month forward $/₹ rate will be quoted to an exporter.


e

3. What rate in ₹ will be quoted to an importer for EUR 200000.


ee a H oo da D e a H o a e ep k H od a
k e p k o d o D e

5. What 3 months forward $/₹ rate will be quoted to an importer .


ee pa H oo da D e a H o a De ep ak H o a p
pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
k e p k d
= 1.423644101 i.e., 1.4236

o od
D e a o D ee a H oo da D e a H
k
1. Exchange Rates and Forex Business

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


H od a p o
############################################################################

Ultimate Study Material is Macmillan Book Only


oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od

6. What option forward $/₹ rate, delivery during 3rd month, will be quoted to an exporter customer

7. What option forward $/₹ rate, delivery during 3rd month, will be quoted to an importer customer.
da D ee pa H oo da De ep ak H od a De ep ak Ho od a
21

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a
D ee a H oo da D ep ak H o a e ep k Ho od a
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
22

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
b) 44.44
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
c) 44.16

d
ep k H od a
d) 44.50

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
++++++++++++++++++++++++++++++++++++

o
1 Rate to be quoted is $ Spot Buying Rate Which on the principle of 'Buy Low Sell
High' is= ₹ 44.20
o

o
k
2 Rate to be quoted has to be Buying Rate for £ which can be derived through Cross Ra as under
Spot £ Buying Rate against $ = 1.9350
Spot $ Buying Rate against ₹ = 44.20

p
Hence Spot £ Buying Rate against ₹ = 1.9350 x 44.20
= 85.5270
3 Rate to be quoted has to be Selling Rate for EUR which can be derived through cross
rate as under.

e
D
Spot EUR Selling Rate against $ = 1.3431
Spot $ Selling Rate against ₹ = 44.30
Hence Spot EUR Selling Rate against ₹ = 1.3431 x 44.30 = 59.4993
e

e
H od a d
4 To an exporter Buying Rate will be quoted. Forward Buying Rate is to be calculated as under

D ee a H oo da D ep ak H o a
Spot Buying Rate = 44.20
ee a H oo da D e a H o a

Add 3rd Month Premium = 0.12


ee a H oo da D e a H o a
o

Forward Buying Rate for the Customer =.44.32


p

p
d

o
d
5 To an importer Selling Rate will be quoted toward Selling Rate is to be calculated as
D

D
under
a De ep ak Ho od a D ee pa k

Spot Selling Rate = 44.30


o

Add 3rd Month Premium = 0.20


k

Forward Selling Rate for the Customer = 44.50


d

To calculate Option Forward rules are as under


k

p
k
o

For Buying Rate


D

Add lower of the premium for the two months during which option is to be exercised.
p

e
p

Reduce higher of the discount for the two months during which option is to be exercised.
k

For Selling Rates


d
e

Add higher of the premium for the two months during which option is to be exercised.
e
D ep ak H o a
a

Reduce lower of the discount for the two months during which option is to be exercised.
D e a
p

p
o

Q. No;6 Spot Buying Rate =44.20


nd
D e

Add 2 Month Premium =0.08


e

Forward Buying Rate for the Customer =44.28


e
k

7: Spot Selling Rate =44.30


Add 3rd Month Premium =0.20
Forward Selling Rate for the Customer =44.50
p

############################################################################
od

od
H od a

H od a

On July 5, a saving bank customer in India, requests for issue a Draft of $ 10000. The inter-bank
k

currency rates are as under:


D
o

Spot rate : $ = ₹ 65.0000/5000


o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
23

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
July forward margin = 0.3500/0.4000
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Bank requires an exchange margin of 0.15%.

d
ep k H od a

ep k H od a
What rate will be quoted and how much amount will be debited to customer's account.
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
++++++++++++++++++++++++++++++++++++

In this case, no handling of documents is required. Hence TT selling rate shall be used.
o

Exchange margin will be added, since for the bank, it is a sale transaction.

o
k
Spot rate selling rate = 65.5000
Add margin@ 0.15% = 65.5000 + 0.098775
= 65.598775

p
Final rate = 65.6000 (rounded)
Gross amount due from customer = 65.6000 x 10000 = 656000

############################################################################

e
D
An importer customer receives documents relating to import of goods valuing $ 30000. He requests
for payment of these documents.
e

e
H od a
The inter-bank currency rates are as under:
d
Spot rate : 1$ = ₹ 65.0000/5000

D ee a H oo da D ep ak H o a
July forward margin = 0.3500/0.4000
ee a H oo da D e a H o a

ee a H oo da D e a H o a
August forward margin = 0.6000/0.7000
o
p

p
d

Bank requires an exchange margin of 0.20% for TT selling rate and 0.20% for bills selling rate.
o
d
What rate will be quoted and how much amount will be debited to customer's account.
D

D
a De ep ak Ho od a D ee pa k

++++++++++++++++++++++++++++++++++++
o

o
k

In this case, handling of import documents is required. Hence bills selling rate shall be used. Exchange
d

d
margin for TT and bills selling rate will be added, since for the bank, it is a sale transaction.
Spot rate selling rate = 65.5000
k

p
k

Add TT selling margin@ 0.20% = 65.5000 + 0.1310 = 65.6310


o

TT selling rate = 65.6310


D

Add bills selling margin@ 0.20% = 65.6310 + 0.131260 = 65.76226


p

e
p

Final rate = 65.7625 (rounded)


Gross amount from customer = 65.7625 x 10000 = ₹ 657625
k

k
d
e

############################################################################
e
D ep ak H o a
a

D e a

An export bill of $ 10000 was purchased from an exporter at the then bills buying rate of ₹ 65.80. But
p

on due date it was not paid. Now the bank has to recover the amount from the exporter. The inter-
o

bank currency rates are as under:


D e

Spot rate : $ = ₹ 65.0000/5000


e

July forward margin = 0.3500/0.4000


August forward margin = 0.6000/0.7000
k

Bank requires an exchange margin of 0.20% for TT selling rate and 0.15% for bills selling rate.
What rate will be quoted and how much amount will be debited to customer's account.
p

What gain has been made by the customer in the transaction.


od

od
H od a

H od a

++++++++++++++++++++++++++++++++++++
k

k
D

In this case, handling of import documents is not required.


o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
24

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
For recovering the amount from export customer, the TT selling rate shall be used. Exchange margin for TT
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
selling will be added, since for the bank, it is a sale transaction.

d
ep k H od a
Inter-bank spot selling rate = 65.5000

ep k H od a
Add 1T selling margin @ 0.20% = 65.5000 + 0.1310 = 65.6310
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
1T selling rate = 65.6310

o
Amount to be debited = 65.6310 x 10000 = ₹ 656310
Profit to the exporter = 658000 - 656310 = ₹ 1690
(amount credited when purchased less amount recovered)
o

o
k
############################################################################

An export bill of $ 10000 was sent for collection which was submitted by an exporter. On July 10, the

p
correspondent bank credited $ 9860, the proceeds of the bills, to NOSTRO account of the collecting
bank, after recovering its own charges.
The inter-bank currency rates on July 10, are as under:
Spot rate : $ = ₹ 65.0000/5000

e
D
July forward margin = 0.3500 /0.4000
August forward margin = 0.6000/0.7000
e

e
H od a
Bank requires an exchange margin of 0.10% for 1T buying rate and 0.15% for bills buying rate.
d
What rate will be quoted and how much amount will be credited to customer's account.

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

++++++++++++++++++++++++++++++++++++
ee a H oo da D e a H o a
o
p

p
In this case, the bill was sent for collection. On the amount realized, the TT buying rate shall be used since
d

the amount has already been credited to NOSTRO account of the bank. There is no need to take any
d
D

forward margin in to account. Exchange margin for 1T buying will be deducted, since for the bank, it is a
purchase transaction.
D
a De ep ak Ho od a D ee pa k
o

Inter-bank spot selling rate = 65.0000


o
k

Less TT buying margin @ 0.10% = 65.0000 + 0.0650 = 65.0650


d

TI buying rate = 65.0650


d
Amount to be credited = 65.0650 x 9860 = ₹ 641541
k

p
k

############################################################################
o

o
D

Bank issued a Canadian Dollar 10000 demand draft at CAD 1 = 50.5055


p

e
p

After few days, the purchased requested for cancellation of DD. At that time:
Inter-bank USD rate was ₹ 65.5045/6070
k

$/CAD rate was $ = 1.3205/3225.


d
e

Exchange margin is 0.10%.


e
D ep ak H o a
a

On cancellation of this DD, what will be gain or loss to the customer?


D e a
p

p
o

++++++++++++++++++++++++++++++++++++
D e

This involves calculation of cross rate since at the time of cancellation, the Canadian dollar/rupee rate is not
e

available. It is a purchase transaction. For $/CAD, the selling rate shall be used since bank shall dispose off
this amount to inter-bank market.
k

Inter-bank $ rate = ₹ 65.5045


Less exchange margin@ 0.1% = ₹ 00.0655
Rate after exchange margin = ₹ 65.4390
p

$/CAD selling rate = 1.3225.


od

od

CAD/Rupee rate = 65.4390/1.3225 = 49.4813


H od a

H od a

Rounded (to 0.0025) = 49.4825


k

Amount paid by customer at the time of issue of DD = 50.5055 x 10000= ₹ 505055


D
o

Amount returned to customer at the time of cancellation = 49 .4825 x 10000= ₹ 494825


o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
25

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Loss to the customer= 505055 - 494825 = ₹ 10230
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a
############################################################################

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a
An exporter received an advance of Australian Dollar (AUD) 50000 for exporting goods to Australia.

ee pa H oo da D e a H o a De ep ak H o a
o
At that time:
Inter-bank $ rate was ₹ 65.5045/6070
One month forward was 0.1500/2500
o

$/AUD rate was $ = 1.3205/3225.

o
k
One month forward = 0.0200/0300
Exchange margin is 0.10%.
Customer intends to retain 20% of the amount in EEFC account.

p
What rate will be quoted by the bank and how much amount in Indian currency, shall be credited to
exporter's current account?

++++++++++++++++++++++++++++++++++++

e
D
This involves calculation of cross rate since at the time of cancellation, the Australian dollar/ rupee rate is not
available. It is a purchase transaction. Further, there is no need to take into account forward premium, since
e

e
it is a spot transaction. For $/AUD, the selling rate shall be used since bank shall dispose off this amount to
H od a
inter-bank market.
d
Inter-bank $ rate = ₹ 65.5045

D ee a H oo da D ep ak H o a
Less exchange margin@ 0.1% = ₹ 00.0655. Rate after exchange margin = ₹ 65.4390
ee a H oo da D e a H o a

ee a H oo da D e a H o a
$/AUD selling rate = 1.3225
o
p

p
AUD/Rupee rate = 65.4390/1.3225 = 49.4813
d

Rounded (to 0.0025) = 49.4825


d
D

Amount to be credited to customer account = 49.4825 x 40000= 1979300


D
a De ep ak Ho od a D ee pa k

############################################################################
o

o
k

An exporter tenders an export bill of Singapore Dollars 20000. At that time:


d

d
Inter-bank $ rate was ₹ 65.5045/6070
Forward rate : One month 0.2000/1500,
k

p
k

2 months 0.4500/3500,
o

3 month 0.7000/6000
D

$/SGD rate was $ = 1.3205/3225.


p

e
p

Forward rate : One month 0.0200/0300,


k

2 months 0.0400/0500,
d
e

3 month 0.0600/0700
e
D ep ak H o a
a

D e a
p

Exchange margin is 0.10%.


o

Transit period is 25 days.


D e

Interest rate is 10%


e

What rate will be quoted by the bank and how much amount in Indian currency, shall be credited to
k

exporter's current account?

++++++++++++++++++++++++++++++++++++
p

This involves calculation of cross rate since at the time of cancellation, the Singapore dollar I rupee rate is
od

od

not available. Since it is a purchase transaction and $ forward is at a discount, one month forward discount
H od a

H od a

will be taken into account.


k

As regards, $/SGD, the USD is at a premium, one month forward will be taken into account, as it is a sale
D
o

transaction for the bank.


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
26

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Inter-bank USD rate = ₹ 65.5045
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Less one month forward discount = ₹ 00.2000

d
ep k H od a
Rate after forward discount = ₹ 65.3045

ep k H od a
Less exchange margin @ 0.1 % = ₹ 00.0653
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Rate after exchange margin = ₹ 65.2392

o
Rounded (to 0.0025) = ₹ 65.2400
$/SGD selling rate = 1.3225
Add one month premium = 0.0300
o

o
$/SGD one month = 1.3525

k
SGD/Rupee rate = 65.2400/1.3525 = 48.20
Amount to be credited to customer account = 48.20 x 20000= ₹ 964000
Less interest for 25 days @10% = 6602.74

p
Net amount = ₹ 957397.26

############################################################################

e
D
A bank is approached by two customer
XYZ Limited which need to remit Australian Dollar (AUD) for payment of salaries to their employees
in Australia.
e

e
H od a
ABC Limited, which want to retire an import bill in AUD.
d
The other information is as under:
Inter-bank $ rate was ₹ 65.5045/6070

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

$/AUD rate was $ 1 = 1.3205/3225.


ee a H oo da D e a H o a
o

Exchange margin is 0.10% on TI rate and 0.20% on bills rate. What rate will be quoted by the bank to
p

p
these customer
d

o
d
D

D
++++++++++++++++++++++++++++++++++++
a De ep ak Ho od a D ee pa k
o

This involves calculation of cross rate since at the time of cancellation, the Australian dollar/ rupee rate is not
o
k

available. These are sale transactions, one involving TT selling rate and other involving Bills selling rate. In
d

the sale transaction, the exchange margin will be added.


d
Calculation of TT selling Rate
k

= ₹ 65.6070
p

Inter-bank $ rate
k

= ₹ 00.0656
o

Add TT exchange margin@ 0.1%


o

Rate after TT exchange margin = ₹ 65.6726


D

= ₹ 65.6725
p

TT Selling rate (Rounded)


e
p

TT selling rate for AUD = 65.6725/1.3225 = ₹ 49.6578


k

Rounded (to 0.0025) = ₹ 49.6575


k

Calculation of Bills selling Rate


d
e

Rate after TT exchange margin = ₹ 65.6726


D ep ak H o a
a

D e a

= ₹ 00.1312
p

Add Bills exchange margin @ 0.2%


p

Rate after Bills exchange margin = ₹ 65.8038


o

Rounded = ₹ 65.8050
D e

$/AUD selling rate = 1.3225


e

Bills selling rate for AUD = 65.8050/1.3225 = ₹ 49.7580


Rounded (to 0.0025) = ₹ 49.7575
k

############################################################################
p

A bank in Delhi makes a swap deal of $ 50000 by selling spot and buying one month forward. The
od

other information is as under:


od
H od a

Inter-bank $ rate was ₹ 65.5045/6070


H od a

One month forward rate is quoted ₹ 0.25 above the spot rate.
k

k
D

Interest rate in Delhi is 10% and in New York 5% p.a.


o

Commission on the deal is 0.5 parse per ₹ 100 on sale and 0.5 paise on purchase.
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
27

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Calculate the gain or loss made by the bank in this deal.
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a
++++++++++++++++++++++++++++++++++++

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a
The bank has sold spot at the market buying rate of ₹ 65.5045. Accordingly, the one month forward buying

ee pa H oo da D e a H o a De ep ak H o a
o
will be at ₹ 65.7545 (65.5045 + 0.2500).
1. Amount received on sale of $ 50000:
$ 50000 x 65.5045 = ₹ 3275225.00
o

Less commission @ 0.5 paise = ₹ 163.76

o
k
Amount received = ₹ 3275061.24
Interest earned at 10% for one month = ₹ 27292.18
Net amount received = ₹ 3302353.42

p
2. Principal amount + interest payable in $
Principal amount = $ 50000
Interest @ 5% on $ 50000 for one month = $ 208.33

e
D
Total amount = $ 50208.33
Amount payable in Indian currency = ₹ 3301423.63
(50208.33 x 65.7545)
e

e
H od a
Add commission @ 0.5 paise = ₹ 165.07
d
Total amount payable = ₹ 3301588.70

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

3. Gain (1-2) = ₹ 764.72


ee a H oo da D e a H o a
o
p

p
############################################################################
d

o
d
D

A bank in Delhi entered into a forward purchase contract for $ 10000 on Aug 16, with its customer,
D
which is due on Nov 15, at ₹ 65.8050. Bank covered itself in the inter-bank market at ₹ 65.9050.
a De ep ak Ho od a D ee pa k
o

On October 10, the customer requested the bank that the date be extended to December 15.
o
k

The rates are as under:


d

Spot Rate Inter-bank $ rate was ₹ 65.5050/6050


d
Spot Sep = ₹ 65.6050/7050
k

Spot Oct= ₹ 65.7050/8050


p
k

Spot Nov = ₹ 65.8050/9050


o

Spot Dec= ₹ 65.9050/9950


D
p

e
p

Exchange margin shall be 0.20% on buying and selling transactions.


k

Calculate the charges that would be recovered from the customer for extension of the date.
k
d
e

++++++++++++++++++++++++++++++++++++
D ep ak H o a
a

D e a
p

The bank will cancel the contract and then re-book the same.
o

1. Cancellation of the original contract The cancellation will be at forward sale rate for delivery November at
= ₹ 65.9050
D e

inter-bank forward selling rate.


e

Add exchange margin@ 0.20% = ₹ 00.1318


e

Total = ₹ 66.0368
k

Rounded to 0.0025 = ₹ 66.0375

Purchase of $ at original contracted rate = ₹ 66.0375


p

It sells by cancellation of contract = ₹ 65.8050


= ₹ 0.2325
od

Loss per $ in sale


od
H od a

Loss on total $ 10000 = ₹ 2325


H od a
k

k
D

2. Re-booking of the contract


o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
28

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
The re-booking of forward contract will be with delivery for December 15. The forward rate for November
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
shall be taken as December is not a complete month.

d
ep k H od a
Forward rate to be taken for contract = ₹ 65.8050

ep k H od a
less exchange margin @ 0.20@ = ₹ 00.1316
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Total = ₹ 65.9366

o
Rounded to 0.0025 = ₹ 65.9375

Hence, bank shall book a new contract at ₹ 659375 and will recover ₹ 2325 for cancellation of the previous
o

o
contract

k
############################################################################

p
If EURO is quoted at $ = 1.28/30 and $ is quoted at ₹ 62.96/04

1. How much you will debit to the current account of the customer for an import bill of EUR 60000
a) ₹ 4917000

e
D
b) ₹ 4839120
c) ₹ 4835400
d) ₹ 4841500
e

e
H od a d
2. How much you will debit to the current account of the customer for an import bill of $ 140000 if

D ee a H oo da D ep ak H o a
margin is 0.08%
ee a H oo da D e a H o a

a) ₹ 8821400
ee a H oo da D e a H o a
o

b) ₹ 8814400
p

p
c) ₹ 8832600
d

o
d
d) ₹ 8818600
D

D
a De ep ak Ho od a D ee pa k

3. How much credit will be given to the current account of the customer for his export bill of $ 150000
o

a) ₹ 9456000
k

b) ₹ 93.06000
d

d
c) ₹ 9444000
d) None of these
k

p
k
o

4. How much credit will be given to the current account of the customer for his export bill of $ 80000
D

if margin is 0.08
p

e
p

a) ₹ 5030400
b) ₹ 5043200
k

c) ₹ 5032800
d
e

d) ₹ 5040800
e
D ep ak H o a
a

D e a
p

5. How much credit will be given to the current account of the customer for his export bill of EUR
o

70000 if margin is 7 paisa


a) ₹ 5731600
D ee

b) ₹ 5741400
e

c) ₹ 5646200
k

d) ₹ 5636400

++++++++++++++++++++++++++++++++++++
p

1. Selling rate of EUR= 1.30 x 63.04 = 81.95


od

od

Debit to the current account of the customer at Selling Rate= 60000 x 81.95 = ₹ 4917000
H od a

H od a
k

2. Selling rate of $ = 63.04; Add margin of 0.08% = 63.04 + 0.05 = 63.09 (final selling rate). Debit to
D
o

the current account of the customer at Selling Rate


o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
29

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
= 140000 x 63.09 = ₹ 8832600
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a
3. Buying rate of $ = 62.96

ep k H od a
Credit to the current account of the customer at Buying Rate.
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
= 150000 x 62.96 = ₹ 9444000

o
4. Buying rate of $ = 62.96; Less margin of 0.08 = 62.96 - 0.08 = 62.88 (final buying rate). Credit to
the current account of the customer at Buying Rate
o

o
= 80000 x 62.88 = ₹ 5030400

k
5. Buying rate of EUR= 1.28 x 62.96 = 80.59; Less margin of 0.07 = 80.59 - 0.07 = 80.52 (final
buying rate). Credit to the current account of the customer at Buying Rate

p
= 70000 x 80.52 = ₹ 5636400

############################################################################

e
D
Inflow of USD 100,000.00 by TT for credit to your exporter's account, being advance payment for
exports (credit received in NOSTRO statement received from New York correspondent). What rate
you will take to quote to the customer, if the market is 68.09/11?
e

e
H od a d
++++++++++++++++++++++++++++++++++++

D ee a H oo da D ep ak H o a
It will be purchase of USD from customer for which USD will have to be sold in the market. Say when
ee a H oo da D e a H o a

USD/INR is being quoted as 68.09/11, meaning that market buys USD at INR 68.09 and sells at INR 68.11.
ee a H oo da D e a H o a
o

We shall have to quote rate to the customer on the basis of market buying rate, i.e. 68.09 less our margin, as
p

p
applicable, to arrive at the TT Buying Rate applicable for the customer transaction.
d

o
d
D

D
############################################################################
a De ep ak Ho od a D ee pa k
o

On 03-10-2016, your exporter customer tenders an export bill for USD 500,000.00, drawn 120 days
o
k

from the date of shipment, (shipment date 03-10-2016) due date 01-02-2017. Compute applicable rate,
d

presuming
d
(a) exchange margin of 0.15%,
k

(b) Spot Rupee 68.14/15 and premium Spot-Jan. 45/46 paise,


k

(c) Rate to be quoted to nearest 0.25 paise, and rupee amount to be rounded off, and
o

(d) Applicable interest at 8.50% for Post shipment export finance up to 180 days and Commission on
D
p

bills purchased 0.0625 % to be charged upfront.


e
p
k

++++++++++++++++++++++++++++++++++++
k
d
e

e
D ep ak H o a
a

(i) Calculation of bill buying rate


D e a
p

p
o

Spot rate ₹ 68.1400


D e

Less: 0.15% margin 0.1022


e

68.0378
Say 68.0375
k

Add: Premium 0.4500


Rate for the transaction (Bill Buying Rate) 68.4875
p

(ii) Calculation of amount payable to the customer:


od

od
H od a

₹ 34243750.00
H od a

USD 500,000.00 at 68.4875 =


k

Interest 120 days @8.50 % = 956949.00


k
D
o

Commission@0.0625% = 21402
o

Amount payable to exporter customer = 33265399.00


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
30

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
############################################################################
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
Retirement of import bill for GBP 100,000.00 by TT Margin 0.20%, ignore cash discount/premium,
ep k H od a

ep k H od a
GBP/ USD 1.2175//85, USD/INR 68.14/15. Compute Rate for Customer
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
++++++++++++++++++++++++++++++++++++

For retirement of import bill in GBP, we need to buy GBP, to buy GBP we need to give USD and to get USD,
we need to buy USD against Rupee, i.e. sell Rupee.
o

o
k
At the given rates, GBP can be bought at 1.2185 USD, while USD can be bought at 68.15. The GBP/INR
rate would be 83.0408 (1.2185X68.15), at which we can get GBP at market rates. Thus the interbank rate for
the transaction can be taken as 83.0408.

p
Add Margin 0.20% 0.1660.

e
Rate would be 83.0408 + 0.1660 = 83.2068 or say 83.2070 for effecting import payment. (Bill Selling Rate).
D
############################################################################
e

e
H od a
On 15 September, a customer requests for booking of a forward contract for export bill of USD
d
150,000.00, to be realized in the month of December.

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

Given that USD/INR spot is 68.45/50 and forward premium is as under:


ee a H oo da D e a H o a
o

October: 18/19 paise


p

p
November: 30/32 paise
d

o
d
December: 41/43 paise
D

D
Margin to be charged 0.05 paise per USD.
a De ep ak Ho od a D ee pa k
o

++++++++++++++++++++++++++++++++++++
k
d

For calculating rate for forward purchase contract, we need to take forward premium for November, the one
d
that the market would pay, i.e. 30 paise. Spot rate as 68.45, getting forward interbank rate as 68.75 and
k

deduct 0.05 paise as margin to arrive at 68.70 the customer forward rate for delivery of export proceeds
k
o

during December, full month at the option of the customer (Forward TT Buying Rate). Forward margin for the
o

period prior to the start of the delivery period would be passed on, as the customer has an option to deliver
D
p

currency on the first day itself, i.e. 1st December.


e
p
k

############################################################################
k
d
e

On 1 June 2016, a customer requests to book forward contract, for retirement of import bill for USD
D ep ak H o a
a

D e a

100,000.00, due for payment on 15 September 2016.


p

Given rates:
o

Spot USD/INR 68.27/29,


D e

forward premium –
e

Spot June: 10/12,


Spot July 21/23,
k

Spot August 32/34,


Spot Sept. 43/45
and August to 15th Sept. 6/7
p
od

Charge Margin of 0.20% on the spot rate.


od
H od a

H od a
k

++++++++++++++++++++++++++++++++++++
k
D
o

Being a merchant sale forward booking transaction, rate would be calculated as under:
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
31

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
USD/INR spot to be taken as Premium payable:
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a

ep k H od a
Spot August 34 Paise
August -15th Sept. 7 Paise
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Add: Total premium 41 Paise 0.41

o
Thus IB forward rate would be: 68.70
Add: Margin 0.20% 0.14
Rate for customer 68.84
o

o
k
############################################################################

Your foreign correspondent maintaining a NOSTRO Rupee account with your bank, wants to fund his

p
account by purchase of ₹ 30.00 million, against US dollars. Assuming that the USD/INR interbank
market is at 68.2550/2650, what rate would be quoted to the correspondent, ignoring exchange
margin. Calculate amount of USD you would receive in your USD NOSTRO account, if the deal is

e
struck.

++++++++++++++++++++++++++++++++++++ D
e

e
The transaction is to sell ₹ 30.00 million, against US dollars, and the transaction is equivalent to an Inward
H od a d
Remittance for the bank/country. Hence, we would quote the lower of the two rates, i.e. 68.2550 (Sell low
maxim).

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
If the deal is struck, the foreign bank would pay USD 439528.24 to our USD NOSTRO account.
o
p

p
d

o
d
############################################################################
D

D
M/s BCD wants to remit JPY 100.00 million by TT value spot, as payment of an import invoice. Given
a De ep ak Ho od a D ee pa k

that USD/INR is at 68.2500/2600 and USD/JPY is 116.50/60, and a margin of 0.15% is to be loaded to
o

the exchange rate, calculate rate to be quoted and the Rupee amount to be debited to the account of
k

M/s BCD.
d

++++++++++++++++++++++++++++++++++++
k

p
k
o

Since JPY is to be sold against Rupee, and the rate is not directly given, we would use cross rate
o
D

mechanism to calculate the same.


p

e
p

We need to buy JPY against USD and USD against INR for the deal. Thus, USD/INR rate would be 68.2600
k

(market USD selling rate- high) and USD/JPY at 116.50 (market JPY selling rate - low). The JPY/INR rate
d
e

would be 68.2600/116.50 = .58592 per JPY


e
D ep ak H o a
a

D e a
p

₹ 58.5923
p

i.e. per 100 JPY


o

Add: Margin of 0.15 0.0879


D e

58.6802
e

Rounded off to 58.68


e
k

Total Rupee amount to be debited to the account of M/s BCD would thus be ₹ 586,80,000.00 [Note: JPY is
quoted as per 100 Yen, as per FEDAI guidelines]
p

############################################################################
od

od

A forward purchase contract for USD 500,000.00 booked 2 months back at 69.2500 is due for delivery
H od a

H od a

2 days later (spot date). The customer is informed by the drawee of the bill that the payment will be
k

delayed by one month.


D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
32

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Given that the interbank spot is 67.5675/5775 and one month forward premium is 09/10 paise, and
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
margin on TT buying and TT selling would be 0.15%, calculate rate for cancellation of the existing

d
ep k H od a
contract and also give indicative rate for re-booking of one month fixed date or option contract

ep k H od a
beginning one month from spot date.
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
Also, calculate the amount to be debited/credited to the customer's account on spot date, upon
cancellation of the contract. Rate to be quoted to nearest 0.25 paise.
o

o
++++++++++++++++++++++++++++++++++++

k
(a) The existing forward contract would have been booked at TT buying rate, and hence it has to be
cancelled at opposite TT selling rate, computed as under:

p
Interbank USD/INR spot (higher of the two) 67.5775
Add: Margin 0.15% 0.1014

e
67.6789
The contract would be cancelled at
D 67.6800
e

Rupee amount at contracted rate USD 500,000 @ 69 .2500 = ₹ 34625000

e
H od a
Less amount at cancellation rate USD 500,000@ 67.6800 = ₹ 33840000
d
Amount due to the customer (to be paid to his account on spot date) ₹ 7,85,000

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

(b) Indicative rate for contract proposed to be re-booked:


ee a H oo da D e a H o a
o
p

If the contract is booked with option of one month beginning spot date:

p
d

o
d
Interbank rate 67.5675
D

Less: Margin 0.15%


D
0.1014
a De ep ak Ho od a D ee pa k

67.4661
o

or say 67.4650
k
d

d
This is the rate (₹ 67.4650) that would be given ·by the Bank in case the contract is booked option contract
k

beginning one month from spot date.


p
k
o

If the contract is booked for delivery fixed date one month forward, premium for 1 month would be passed to
D

the customer as under:


p

e
p
k

Interbank rate 67.5675


k

Less Margin (0.15%) 0.1014


d
e

67.4661
D ep ak H o a
a

D e a
p

Add: Premium for one 0.0900


p

month
o

67.5561 or
D e

67.5550
e

############################################################################
k

TT Buying rate for inward payment of $ 250,000, if interbank rate is 69.00/02, and margin to be
charges is 0.08%
p
od

++++++++++++++++++++++++++++++++++++
od
H od a

H od a

Inward Payment (Currency is coming in our country or pocket since we cannot keep the foreign currency in
k

our pocket we have to sell it out to get it converted into ₹ )


D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
33

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
we have to visit the bank to sell the currency and bank will buy it at the rate of TT buying rate
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a
Banks will always Subtract margin while buying and Add margin while selling which simply means buy low

ep k H od a
and sell high to make profit.
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
rate

o
69.0000
Less Margin 0.08% - 0.0552
=68.9448
o

o
k
Bill selling rate for import bill of $ 100,000, if interbank market is 68.5600/5700, and margin to be
charged at 0.20%.

p
++++++++++++++++++++++++++++++++++++

outward Payment (Currency is going out from our country or pocket since we don’t have the foreign currency
in our pocket we have to buy it from the bank in the form of $ )

e
D
we have to visit the bank to buy the currency and bank will sell it at the rate of TT Selling rate
e

e
H od a
Since TT Selling rate is applied margin will always be added to the rate
d
68.5600

D ee a H oo da D ep ak H o a
Add Margin 0.20%. +0.013712
ee a H oo da D e a H o a

=68.5737
ee a H oo da D e a H o a
o
p

p
TT buying rates for GBP 50,000 inward payment, if USD/INR is 68.50/52 and GBP/USD is 1.6050/60.
d

o
d
Ignore margins.
D

D
a De ep ak Ho od a D ee pa k

++++++++++++++++++++++++++++++++++++
o

o
k

Here the TT buying rate will be applied because Inward Payment (Currency is coming in our country or
d

pocket since we cannot keep the foreign currency in our pocket we have to sell it out to get it converted into
d
₹)
k

p
k
o

No direct rate is available for JPY so we have to go for cross rate mechanism
o
D
p

USD/INR is 68.50/52 (Direct Quote)


e
p

GBP/USD is 1.6050/60 (Indirect Quote)


k

Here the rates are in direct and Indirect quote respectively.


d
e

DIM {Direct, Indirect, Multiply (Buying /Buying or Selling /Selling)} formula is to be applied
D ep ak H o a
a

D e a
p

68.50 x 1.6050 = 109.9425


o
D e

TT selling rate for issue of the draft for JPY 100000, if USD/INR is 67.9400/9450 and USD/JPY
e

116.50/55. No margin. Give rupee amount to be charged?


k

++++++++++++++++++++++++++++++++++++

Here the TT selling rate will be applied because for making a draft we have to provide the currency to the
p

bank and to provide currency we have to buy the currency from the bank which we will get at TT selling rate
od

No direct rate is available for JPY so we have to go for cross rate mechanism
od
H od a

USD/INR is 67.9400/9450 (Direct Quote)


H od a
k

USD/JPY 116.50/55 (Direct Quote)


e

k
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
34

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
If both the rates are in direct quote. DDD {Direct, Direct, Divide (Selling/Buying or Buying/Selling)} formula is
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
to be applied

d
ep k H od a

ep k H od a
67.9450/116.50 = 0.58321
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
= 0.58321 x 100 = ₹ 58.321

o
(Yen is Expressed in 100 Units)

Rate for forward purchase booking of USD 100,000 delivery 3rd month (full month) if USD/INR spot is
o

o
68.7850/7950 and premium is l M-0.0800/0.0900, 2 M-0.1600/01700 and 3 M-2500/2550. Ignore Margins.

k
++++++++++++++++++++++++++++++++++++

p
Spot Rate 68.7850
Premium (add) 00.2500
69.0350

e
D
Forward sale contract USD 500,000 delivery 2nd month (full month). If spot and forward rates are
same as given in above margin 0.15% to be charged.
e

e
H od a
What rate would a forward purchase contract of USD 100,000 due on spot date be cancelled if
d
interbank spot is 68.5125/5175 and exchange margin on TT purchase is 0.08% and TT selling is

D ee a H oo da D ep ak H o a
0.15%.
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o

++++++++++++++++++++++++++++++++++++
p

p
d

Spot Rate 68.5175


d
D

Premium (add) 00.1027 (0.15%.)


D
68.6202
a De ep ak Ho od a D ee pa k
o

o
k

Calculate difference to be charged/paid to the customer, in the above question, if the original
d

contract was booked at ₹ 69.7500 per USD.


d
k

p
k

++++++++++++++++++++++++++++++++++++
o

o
D

Booking Rate 69.7500


p

e
p

cancelled Rate 68.6202


k

############################################################################
d
e

e
D ep ak H o a

Following are the quotes given by Banker at Mumbai.


a

D e a
p

Direct/Indirect Quote the Opposite Rate


o

1) 1$ = ₹ 43.18
D e

2) 1£ = ₹ 78.68
e

3) ₹ = Euro 0.0184
4) 100 Indo Rupiah = 0.53
k

Identify the quote as Direct or Indirect quote. Also compute the Direct for Indirect Quote and Vice –
Versa
p
od

od

++++++++++++++++++++++++++++++++++++
H od a

H od a
k

k
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
35

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
o

############################################################################

o
k
A US Co. exports a Radiotherapy machine to the Health Department of Government of Switzerland.
The price is 1,00,000 CHF with terms of 30 days. The present spot rate is 1.72 CHF per dollar. The 30
days forward rate is 1.71. The US Co. enters into forward contract. How many dollars the US Co.

p
receives after 30 days? Is the CHF at premium or at a discount?.

++++++++++++++++++++++++++++++++++++

e
The applicable rate: 1$ = 1.71 CHF
D
To receive after 30 days = 1,00,000/1.71 i.e. 58,479.53$
e

Today 1$ = 1.72 CHF

e
H od a
Forward 1$ = 1.71 CHF
d

D ee a H oo da D ep ak H o a
(It means purchasing power of dollar, in terms of CHF, is decreasing. It means dollar is at discount), So, CHF
ee a H oo da D e a H o a

ee a H oo da D e a H o a
is at premium
o
p

p
############################################################################
d

o
d
D

A customer with whom the Bank had entered into 2 months’ forward purchase contract for Euro
D
5,000 @ ₹ 54.50 comes to bank after 1 months and requests for cancellation of the contract. On this
a De ep ak Ho od a D ee pa k
o

date, the prevailing rates are:


o
k
d

Spot 1 Euro : ₹ 54.60/54.70


d

One month forward 1 Euro : ₹ 54.90/55.04


k

p
k
o

What is the loss or gain to customer on cancellation?


o
D
p

++++++++++++++++++++++++++++++++++++
e
p

On the day the customer comes to the bank for cancellation, the bank will enter into a forward contract
k

(same maturity date as that of the original) under which bank will sell 5,000 Euro @ ₹ 55.04.
d
e

e
D ep ak H o a
a

D e a

On maturity, bank will sell 5,000 Euro to customer (@ ₹ 55.04) for ₹ 2,75,200 (under the new contract) and
p

purchase 5,000 Euro from the customer (@ ₹ 54.50) for ₹ 2,72,500 ( under the original contract ). Loss to
o

the customer ₹ 2,700. (This loss will be recovered from the customer)
D ee

############################################################################
k

The rate of inflation in USA is likely to be 3% p.a. and in India it is likely to be 6.50%. The current spot
rate of US $ in India is 53.40. Find the expected rate of US $ in India after 1 year and 3 years from now
using purchasing power parity theory
p

++++++++++++++++++++++++++++++++++++
od

od
H od a

Spot rate: 1 $ = ₹ 53.40


H od a
k

1 year forward rate: 1$(1.03) = ₹ 53.40 (1.0650)


k
D

1 $ = ₹ 55.21456
o

3 year forward rate: 1$(1.03)3 = ₹ 53.40 (1.0650) 3


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
36

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
1 $ = ₹ 59.03076
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a
############################################################################

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a
On April 1, 3 months interest rate in UK Pound and USD are 7.50% and 3.50% p.a. respectively. The

ee pa H oo da D e a H o a De ep ak H o a
o
UK Pound/ USD spot rate is .7570. What would be the forward rate of USD for delivery 30th June?

++++++++++++++++++++++++++++++++++++
o

o
Three months interest rate (UK): 7.50/4 = 1.875% = 0.01875

k
Three months interest rate (US): 3.50/4 = 0.875% = 0.00875
Spot rate: 1$ = £0.7570 3 months forward rate : 1$(1.00875) = £0.7570(1.01875)
1 $ = £0.7645

p
############################################################################

The U.S. Dollar and the Ethiopian Birr with a spot exchange rate of USDETB=9.8600 and one-year

e
D
interest rates of 3.23% and 6.50% respectively for the U.S. and Ethiopia, Calculate the one year
forward rate as follows:
e

e
H od a
++++++++++++++++++++++++++++++++++++
d

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o
p

p
d

o
d
D

D
a De ep ak Ho od a D ee pa k
o

o
k
d

d
############################################################################
k

p
k

Inflow of USD 100,000.00 by TT for credit to your exporter's account, being advance payment for
o

exports (credit received in NOSTRO statement received from New York correspondent). What rate
D

you will take to quote to the customer, if the market is 68.09/11?


p

e
p

++++++++++++++++++++++++++++++++++++
k

It will be purchase of USD from customer for which USD will have to be sold in the market. Say when
d
e

USD/INR is being quoted as 68.09/11, meaning that market buys USD at INR 68.09 and sells at INR 68.11.
D ep ak H o a
a

D e a

We shall have to quote rate to the customer on the basis of market buying rate, i.e. 68.09 less our margin, as
p

applicable, to arrive at the TT Buying Rate applicable for the customer transaction.
o
D e

############################################################################
e

On 03-10-2016, your exporter customer tenders an export bill for USD 500,000.00, drawn 120 days
k

from the date of shipment, (shipment date 03-10-2016) due date 01-02-2017. Compute applicable rate,
presuming
p

(a) exchange margin of0.15%,


(b) Spot Rupee 68.14/15 and premium Spot-Jan. 45/46 paise,
od

od
H od a

(c) Rate to be quoted to nearest 0.25 paise, and rupee amount to be rounded off, and
H od a

(d) Applicable interest at 8.50% for Post shipment export finance up to 180 days and Commission on
k

k
D

bills purchased 0.0625 % to be charged upfront.


o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
37

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
++++++++++++++++++++++++++++++++++++
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
(i) Calculation of bill buying rate
ep k H od a

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a
Spot rate ₹ 68.1400

ee pa H oo da D e a H o a De ep ak H o a
o
Less: 0.15% margin 0.1022
68.0378
Say 68.0375
o

o
Add: Premium 0.4500

k
Rate for the transaction (Bill Buying Rate) 68.4875

(ii) Calculation of amount payable to the customer:

p
USD 500,000.00 at 68.4875 = ₹ 34243750.00
Interest 120 days @8.50 % = 956949.00

e
Commission@0.0625% = 21402
Amount payable to exporter customer:
D 33265399.00
e

e
H od a
############################################################################
d

D ee a H oo da D ep ak H o a
Retirement of import bill for GBP 100,000.00 by TT Margin 0.20%, ignore cash discount/premium,
ee a H oo da D e a H o a

GBP/ USD 1.2175//85, USD/INR 68.14/15. Compute Rate for Customer


ee a H oo da D e a H o a
o
p

p
++++++++++++++++++++++++++++++++++++
d

o
d
D

For retirement of import bill in GBP, we need to buy GBP, to buy GBP we need to give USD and to get USD,
D
we need to buy USD against Rupee, i.e. sell Rupee.
a De ep ak Ho od a D ee pa k
o

o
k

At the given rates, GBP can be bought at 1.2185 USD, while USD can be bought at 68.15. The GBP/INR
d

rate would be 83.0408 (1.2185X68.15), at which we can get GBP at market rates. Thus the interbank rate for
d
the transaction can be taken as 83.0408.
k

p
k
o

Add Margin 0.20% 0.1660.


o
D
p

Rate would be 83.0408 + 0.1660 = 83.2068 or say 83.2070 for effecting import payment.
e
p

(Bill Selling Rate).


k

############################################################################
d
e

e
D ep ak H o a
a

D e a

On 15 September, a customer requests for booking of a forward contract for export bill of USD
p

150,000.00, to be realized in the month of December.


o
D e

Given that USD/INR spot is 68.45/50 and forward premium is as under:


e

October: 18/19 paise


November: 30/32 paise
k

December: 41/43 paise


Margin to be charged 0.05 paise per USD.
p

++++++++++++++++++++++++++++++++++++
od

od

For calculating rate for forward purchase contract, we need to take forward premium for November, the one
H od a

H od a

that the market would pay, i.e. 30 paise. Spot rate as 68.45, getting forward interbank rate as 68.75 and
k

deduct 0.05 paise as margin to arrive at 68.70 the customer forward rate for delivery of export proceeds
D
o

during December, full month at the option of the customer (Forward TT Buying Rate). Forward margin for the
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
38

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
period prior to the start of the delivery period would be passed on, as the customer has an option to deliver
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
currency on the first day itself, i.e. 1st December.

d
ep k H od a

ep k H od a
############################################################################
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
On 1 June 2016, a customer requests to book forward contract, for retirement of import bill for USD
100,000.00, due for payment on 15 September 2016.
Given rates:
o

Spot USD/INR 68.27/29,

o
k
forward premium
Spot June 10/12,
Spot July 21/23,

p
Spot August 32/34,
Spot Sept. 43/45
and August to 15th Sept. 6/7

e
D
Charge Margin of 0.20% on the spot rate.

++++++++++++++++++++++++++++++++++++
e

e
H od a
Being a merchant sale forward booking transaction, rate would be calculated as under:
d
USD/INR spot to be taken as

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
Premium payable: 68.29
o
p

p
Spot August 34 Paise
d

August -15th Sept. 7 Paise


d
D

Add: Total premium 41 Paise 0.41


D
a De ep ak Ho od a D ee pa k

Thus IB forward rate would be: 68.70


o

Add: Margin 0.20% 0.14


o
k

Rate for customer 68.84


d

############################################################################
k

p
k

Your foreign correspondent maintaining a NOSTRO Rupee account with your bank, wants to fund his
o

account by purchase of ₹ 30.00 million, against US dollars. Assuming that the USD/INR interbank
D

market is at 68.2550/2650, what rate would be quoted to the correspondent, ignoring exchange
p

e
p

margin. Calculate amount of USD you would receive in your USD NOSTRO account, if the deal is
struck.
k

k
d
e

++++++++++++++++++++++++++++++++++++
D ep ak H o a
a

D e a
p

The transaction is to sell ₹ 30.00 million, against US dollars, and the transaction is equivalent to an Inward
p

Remittance for the bank/country. Hence, we would quote the lower of the two rates, i.e. 68.2550 (Sell low
o

maxim).
D ee

If the deal is struck, the foreign bank would pay USD 439528.24 to our USD NOSTRO account.
k

############################################################################

M/s BCD wants to remit JPY 100.00 million by TT value spot, as payment of an import invoice.
p
od

od

Given that USD/INR is at 68.2500/2600 and USD/JPY is 116.50/60, and a margin of 0.15% is to be
H od a

H od a

loaded to the exchange rate, calculate rate to be quoted and the Rupee amount to be debited to the
k

account of M/S BCD.


k
D
o

++++++++++++++++++++++++++++++++++++
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
39

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Since JPY is to be sold against Rupee, and the rate is not directly given, we would use cross rate
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
mechanism to calculate the same.

d
ep k H od a

ep k H od a
We need to buy JPY against USD and USD against INR for the deal. Thus, USD/INR rate would be 68.2600
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
(market USD selling rate- high) and USD/JPY at 116.50 (market JPY selling rate - low). The JPY/INR rate

o
would be 68.2600/116.50 = .58592 per JPY

i.e. per 100 JPY ₹. 58.5923


o

o
Add: Margin of 0.15 0.0879

k
58.6802
Rounded off to 58.68

p
Total Rupee amount to be debited to the account of M/s BCD would thus be ₹ 586,80,000.00

[Note: JPY is quoted as per 100 Yen, as per FEDAI guidelines]

e
D
############################################################################
e

You are required to book forward sale contract for USD 1.00 million delivery 3rd month and another

e
H od a
forward purchase contract for USD 2.00 Million for delivery 2nd month. Given that USD/INR spot is
d
68.9100/9200, premium quoted as under, calculate rates for merchant transactions, if the exchange

D ee a H oo da D ep ak H o a
margin of 0.15% is to be loaded for the purchase transaction and 0.20% for the sale transaction. Rate
ee a H oo da D e a H o a

to be quoted to nearest 0.25 paise.


ee a H oo da D e a H o a
o
p

p
Premium (in paise) 1: m 0750/0850
d

o
d
2m 1800/1900
D

3m
D 2750/2850
a De ep ak Ho od a D ee pa k
o

++++++++++++++++++++++++++++++++++++
k
d

d
(a) Calculation of rate for forward sale of USD 1.00 million:
k

p
k

Spot rate to be taken (higher rate of the market) 68.9200


o

3 m premium to be charged 0.2850


o
D

69.2050
p

e
p

Add: Margin 0.20% (on spot rate) 0.1378


Rounded off to 69.3428 or 69.33425
k

k
d
e

(b) Calculation of rate for forward purchase of USD 2.00 million:


e
D ep ak H o a
a

D e a
p

Spot rate to be taken (lower rate of the market) 68.9100


o

1 m premium to be paid/passed on 0.0750


D e

68.9850
e

Margin 0.15% (Less) 0.1035


Rounded off to 68.8815 or 68.8825
k

Note: For a sale contract premium for the full period, up to end date of the contract shall be charged,
i.e. full 3 months, whereas, for purchase contract, premium would be passed on only up to the beginning of
p

the contract period, i.e. only up to the start date, or for 1 month only.
od

od
H od a

############################################################################
H od a
k

k
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
40

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
A forward purchase contract for USD 500,000.00 booked 2 months back at 69.2500 is due for delivery
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
2 days later (spot date). The customer is informed by the drawee of the bill that the payment will be

d
ep k H od a
delayed by one month.

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Given that the interbank spot is 67.5675/5775 and one month forward premium is 09/10 paise, and

o
margin on TT buying and TT selling would be 0.15%, calculate rate for cancellation of the existing
contract and also give indicative rate for re-booking of one month fixed date or option contract
beginning one month from spot date.
o

o
k
Also, calculate the amount to be debited/credited to the customer's account on spot date, upon
cancellation of the contract. Rate to be quoted to nearest 0.25 paise.

p
++++++++++++++++++++++++++++++++++++

(a) The existing forward contract would have been booked at TT buying rate, and hence it has to be
cancelled at opposite TT selling rate, computed as under:

e
Interbank USD/INR spot (higher of the two) D 67.5775
e

Add: Margin 0.15% 0.1014

e
H od a
67.6789
d
The contract would be cancelled at 67.6800

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

The contract would be cancelled at 67.6800


ee a H oo da D e a H o a
o

₹ 34625000
p

Rupee amount at contracted rate USD 500,000 @ 69 .2500 =

p
Less amount at cancellation rate USD 500,000@ 67.6800 = ₹ 33840000
d

o
d
Amount due to the customer ₹ 7,85,000
D

D
(to be paid to his account on spot date)
a De ep ak Ho od a D ee pa k
o

(b) Indicative rate for contract proposed to be re-booked:


k
d

d
If the contract is booked with option of one month beginning spot date:
k

p
k

Interbank rate 67.5675


o

Less: Margin 0.15% 0.1014


D

67.4661
p

e
p

or say 67.4650
k

This is the rate (₹ 67.4650) that would be given ·by the Bank in case the contract is booked option contract
d
e

beginning one month from spot date.


D ep ak H o a
a

D e a
p

If the contract is booked for delivery fixed date one month forward, premium for 1 month would be passed to
o

the customer as under:


D ee

Interbank rate 67.5675


Less Margin (0.15%) 0.1014
k

67.4661
Add: Premium for one month 0.0900
67.5561 or 67.5550
p
od

od

############################################################################
H od a

H od a
k

M/s Ramsaran Pratap requests you to book a Fixed Forward Sale Contract for $ 200000 delivery 2nd
k
D

month & a Fixed Forward Purchase Contract for $ 100000 delivery 3rd month.
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
D eep pak H oo da De ep ak Ho od a D De epa ak Ho
D eep ak H oo da De ep ak Ho od a D e epa k Ho od
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

4
3
2
1
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee
ee a H oo da D e a H o a
k e p k o d e ep k H od a
o D e ep
ee pa H oo da D e a H o a De ep ak H o a e

d) 40.0850
c) 39.8950
b) 40.0450
a) 39.8150
d) 40.1650
c) 40.1450
b) 40.0650
a) 40.0450

d) 40,20,110
c) 40,02,490
b) 40,08,500
a) 40,14,510
d) 80,37,295
b) 80,30,000
a) 80,20,960

c) 80,45,040
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak
Rates quoted are as

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
k e p k o d D

Spot Selling Rate

Spot Buying Rate


o od ee a H oo da D e a H
D e a k

to calculate Forward Rates.

Forward Selling Rate

Forward Buying Rate

Rate for the customer


Rate for the customer
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

the Exchange Margin is 0.15%.


p o
Spot $/₹

3 Month.
2 Month.
1 Month.

2 Month forward sale rate


Add Premium for 2 Month

Add Premium for 3 Months


if the Exchange Margin is 0.15% -
H od a

Rupee equivalent to be paid


2 Month forward Buying rate
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o

Add Exchange Margin at 0.15%

Less Exchange Margin at 0.15%


Rupee equivalent to be recovered
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
d D

++++++++++++++++++++++++++++++++++++
ee pa H oo da D e a H o a De ep ak H o a
od a e p k o d D ee pa k H oo da D e a H oo da
1350/1550
0950/1150
0500/0600

o d D
39.9500/0500

e e p a k H oo da D

=39.95
=40.05
a De ep ak Ho od a D ee pa k
k e

=0.0601
=0.0602
=0.1350
=0.1150
p k e p o d

=40.0249
=40.0850
=40.2252
=40.1650
=40.0850
=40.1650
D ep ak H o a e H od a
o D

= 80.45.040

Deepak Hooda
1. What Forward Sale Rate will be quoted to the customer.

D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
e p
2. What Forward Purchase Rate will be quoted to the customer

ee a H oo da D e a H o a e ep k H od a
p k o

=100000 x 40.0249
k e d D e

= 200000 x 40.2252
ee pa H oo da D e a H o a De ep ak H o a o p
pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
k o od e
D e a p k o d D ee a H oo da D e a H
k
1. Exchange Rates and Forex Business

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


H od a p o

Ultimate Study Material is Macmillan Book Only


oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
da D ee pa H oo da De ep ak H od a De ep ak Ho od a
41

4. How much Rupee equivalent will be paid to the customer m case of Forward Purchase Contract, if

Since $ in Forward is at Premium, the premium for the relative maturity period will be added to the Spot rate
3. How much Rupee equivalent will be charged from the cu1tofoer in case of Forward Sale Contract,

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a
D ee a H oo da D ep ak H o a e ep k Ho od a
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
42

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
=40.02.490
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a
############################################################################

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a
An exporter has booked a 3 month forward contract at ₹ 46.8000 for $ 100000, which is due for

ee pa H oo da D e a H o a De ep ak H o a
o
delivery with 3 days. Exporter now wants to cancel the contract and book a new one, as the payment
is delayed by one month .. The spot rate is 46.20/25 and the one month premium 10/11 paise. The
margin on TT buying and TT selling is assumed at 0.15%. Calculate the rate at which contract is to be
o

cancelled and also the rate at which the new contract will be booked. Further, for what amount the

o
k
exporter's account will be debited or credited for cancellation.

++++++++++++++++++++++++++++++++++++

p
The existing contract will be cancelled at TT selling rate (it would have been booked at buying rate).
Spot rate = 46.2500
Add margin 0.15% = 00.0694

e
Total = 46.3194 (say 46.3200)
Amount payable to customer
at contract rate of ₹ 46.80
D = 4680000
e

e
Amount recoverable from customer at 46.3200 = 4632000
H od a
Net amount to be credited to customer account = 48000
d

D ee a H oo da D ep ak H o a
Rate for re-booking of contract:
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o
p

p
Spot rate = 46.2000
d

Less margin 0.15% Rate = 00.0693


d
D

Rate =46.1307 (say 46.1300)


Add 1 month premium
D
=00.10 (10 paise)
a De ep ak Ho od a D ee pa k
o

Rate to be quoted = 46.23


o
k
d

############################################################################
d

In inter-bank forex market, the USD is being quoted as under on January 25th:
k

p
k

Spot rate = 66.40 / 50


o

Forward margin February = 3000 / 4500


D

Forward margin March = 5500 / 6500


p

e
p

Calculate the forward rate for February and March.


k

++++++++++++++++++++++++++++++++++++
d
e

e
D ep ak H o a

The forward points (margin) are given in ascending order, which means that the forward is at a premium.
a

D e a
p

Premium is added in the buying and selling rate, while the discount is deducted.
p

Buying Rate Selling rate


o

February March February March


D e

Spot rate 66.4000 66.4000 66.5000 66.5000


e

Add premium 00.3000 00.5500 00.4500 00.6500


Forward rate 66.7000 66.9500 66.9500 67.1500
k

February forward = 66.7000 / 9500


March forward = 66.9500 / 67.1500
p
od

od

############################################################################
H od a

H od a
k

In inter-bank forex market, the USD is being quoted as under on January 27th:
k
D

Spot rate = 66.40 / 50


o

Forward margin February = 3500 / 3000


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
43

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Forward margin March = 5500 / 5000
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Calculate the forward rate for February and March.

d
ep k H od a

ep k H od a
++++++++++++++++++++++++++++++++++++
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
The forward points (margin) are given in descending order, which means that the forward is at a discount.
Discount is deducted from the buying and selling rate, while the premium is added.
Buying Rate Selling rate
o

February March February March

o
k
Spot rate 66.4000 66.4000 66.5000 66.5000
Deduct discount 00.3500 00.5500 00.3000 00.5500
Forward rate 66.0500 65.8500 66.2000 65.9500

p
February forward = 66.0500 / 65.8500
March forward = 66.2000 / 65.9500

e
D
############################################################################

The spot rate for $ is ₹ 60 and rate of interest in India is 10 % and 4% in US. The bank has been asked
e

e
to quote 3 months selling rate to the customer for an amount of $ 20000. It is assumed that the entire
H od a
loss or gain is passed on to the customer.
d

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
++++++++++++++++++++++++++++++++++++
o
p

p
Bank will buy $ and deposit in US for 3 months so that it could deliver the amount to the customer on due
d

o
d
date.
D

D
a De ep ak Ho od a D ee pa k

Cost of borrowing in India :


o

Amount = 20000 x 60 = 1200000. ROI = 10%. Period = 3 months


k

Interest= 1200000 x 2.5% (interest for 3 months 10/4 = 2.5%) = 30000


d

d
Hence total amount payable = 1200000 + 30000 = 1230000
k

p
k

Earning on investment in US:


o

Amount = 20000. ROI = 4%. Period = 3 months


D

Interest = 20000 x 1 % (interest for 3 months 4/4 = 1 % ) = 200


p

e
p

Hence total amount receivable = 20000 + 200 = 20200


k

Rate to be quoted : 1230000 / 20200 = 60.89


d
e

Hence the forward premium = 6.89 - 60.00 = 0.89


e
D ep ak H o a
a

D e a
p

Alternative formula to calculate forward margin on approximate basis:


o
D ee

e
k

############################################################################
p

International Bank has come out with a policy for its branches for acceptance of deposits and
od

od

granting of advances. It branches have allowed taken deposits and allowed loans as under:
H od a

H od a
k

k
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
44

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
01 One of its branches accepted a deposit of ₹ 10 lac which is to double in 10 year These funds have
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
been invested by the bank in a 3 year bond carrying interest rate of 13%. Which of the following kind

d
ep k H od a
of risk the bank is facing:

ep k H od a
a) yield curve risk
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
b) embedded option risk

o
c) basis risk
d) reinvestment risk
o

o
02 The deposits as well as advance are linked by the bank to floating rate. The bank has been facing:

k
a) real interest rate risk
b) basis risk
c) reinvestment risk

p
d) volatility risk

03 A branch has given a loan out of deposits at floating rate. The rate of interest on deposit has been

e
linked by the bank with 91 days treasury bill rate and for the loan it is linked to 364 days treasury bill
rate. The risk from such situation is called:
a) gap or mismatch risk
D
e

e
b) interest risk
H od a
c) yield curve risk
d
d) basis risk

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
04 The bank has advised its branches that while sanctioning a term loans, they must put a condition
o
p

that premature payment will not be accepted in any circumstances. By putting this condition, the

p
d

bank has avoided which type of interest rate risk?


o
d
D

a) Yield curve risk


b) Embedded option risk
D
a De ep ak Ho od a D ee pa k

c) Mismatch risk
o

o
k

d) Basis risk
d

d
05 The depositors at times, have the tendency to withdraw the deposits before maturity, which leads
k

to:
p
k

a) yield curve risk


o

b) embedded option risk


D
p

c) basis risk
e
p

d) reinvestment risk
k

++++++++++++++++++++++++++++++++++++
d
e

e
D ep ak H o a
a

1. The bank has accepted a deposit with a maturity of 10 years, but the investment has to be rolled over after
D e a
p

3 year and will pose the reinvestment risk.


o
D e

2. Where the interest rate of different assets and liabilities may change in different magnitudes, such interest
e

rate risk, is called basis risk.


e

·
k

3. Where the interest rates on deposit and advance can vary and not necessarily identically, the yield curve
risk arises.
p

4. Embedded option risk is the risk associated with the right given to the borrower to pre-pay their loans or
od

right given to their depositors, to withdraw the deposit before maturity.


od
H od a

H od a

5. Embedded option risk is the risk associated with the right given to the borrower to pre-pay their loans or
k

k
D

right given to their depositors, to withdraw the deposit before maturity.


o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
45

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
############################################################################
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
An exporter approaches the Champak Bank for pre-shipment and post• shipment loan with estimated
ep k H od a

ep k H od a
sales of ₹ 100 lakh. The bank sanctions a limit of ₹ 50 lakh, with 25 % margin for pre-shipment loan
ee pa H oo da D e a H o a De ep ak H o a
on FOB value and margins on bills of 10 % on foreign demand bills and 20 % on foreign usance bills.

ee pa H oo da D e a H o a De ep ak H o a
o
The firm gets an order for $ 50,000 (CIF) to Australia. On 1.1.2011 when the $/₹ rate was ₹ 43.50 per $,
the firm approached the Bank for releasing pre-shipment loan (PCL), which is released.
o

On 31.3.2011, the firm submitted export documents, drawn on sight basis for $ 45,000 as full and

o
k
final shipment. The bank purchased the documents at ₹ 43.85, adjusted the PCL outstanding and
credited the balance amount to the firm's account, after recovering interest for Normal Transit Period
(NTP).

p
The documents were realized on 30.4.2011 after deduction of foreign bank charges of $ 450. The
bank adjusted the outstanding post shipment advance against the bill.

e
D
Bank charged interest for pre-shipment loan @ 7 % up to 90 days and, @ 8% over 90 days up to 180
days. For Post shipment credit the Bank charged interest@ 7 % for demand bills and @ 7.5 % for
e

usance (D/A) documents up to 90 days and @ 8.50 % thereafter and on all overdue, interest @ 10%.

e
H od a d
01. What is the amount that the Bank can allow as PCL to the exporter against the given export order,

D ee a H oo da D ep ak H o a
considering the profit margin of 10% and insurance and freight cost of 12% ?
ee a H oo da D e a H o a

a) ₹ 2200000
ee a H oo da D e a H o a
o

b) ₹ 1650000
p

p
c) ₹ 1485000
d

o
d
d) ₹ 1291950
D

D
a De ep ak Ho od a D ee pa k

02. What is the amount of post shipment advance that can be allowed by the Bank under foreign bills
o

purchased, for the bill submitted by the exporter?


k

a) ₹ 19,80,000
d

d
b) ₹ 17,75,925
c) ₹ 19,73,250
k

p
k

d) ₹ 21,92,500
o

o
D

03. What will be the period for which the Bank charges concessional interest on DP bills, from date
p

e
p

of purchase of the bill?


a) 90 days
k

b) 25 days
d
e

c) 31 days
D ep ak H o a
a

D e a

d) Up to date of realisation
p

p
o

04. In the above case, when should the bill be crystallized (latest date), if the bill remains unrealised
D e

for over two months, from the date of purchase (ignore holidays)?
e

a) On 30.4.2011
b) On 24.4.2011
k

c) On 24.5.2011
d) On 31.5.2011
p

05. What rate of interest will be applicable for charging interest on the export bill at the time of
od

realisation, for the days beyond Normal Due Date (NDD)?


od
H od a

a) 8 %
H od a
k

b) 7%
k
D

c) 7.5 %
o

d) 10%
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
46

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
++++++++++++++++++++++++++++++++++++
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
1. FOB value = CIF - IF = 50000 x 43.50 = 2175000 - 261000 (12% of 2175000)
ep k H od a

ep k H od a
= 1914000 - 191400 (10% profit margin)
ee pa H oo da D e a H o a De ep ak H o a
= 1722600 - 430650 (25% margin)

ee pa H oo da D e a H o a De ep ak H o a
o
= 1291950

2. 45000 x 43.85 = 1973250


o

o
k
3. Concessional rate will be charged for normal transit period of 25 days and there after overdue interest will
be charged.

p
4. Crystallisation will be done when the bill becomes overdue after 25 days of normal transit period.
Date of overdue will be 25.4.2011. If bill remains overdue, it will be crystallised within 30 days i.e. up to
24.5.2011. (30 days is the standard practice followed by banks)

e
D
5. Rate of interest will be 10% as the overdue interest is stated as 10% in the question.

############################################################################
e

e
H od a
Following are the Interbank quotes on a certain date: Spot $ ₹ 44.60/65
d
1 month 8/10

D ee a H oo da D ep ak H o a
2 month 18/20
ee a H oo da D e a H o a

ee a H oo da D e a H o a
3 month 28/30
o
p

p
d

Spot £ USD 1.7500/7510


d
D

1 month 30/20
2 month 50/40
D
a De ep ak Ho od a D ee pa k
o

3 month 70/60
o
k
d

All the above differences are for the month and fixed dates and the bank margin is 3 Paise.
d
k

01. An exporter has presented an export demand bill (sight document) for $ 300000 under irrevocable
k
o

letter of credit. What will be the rate at which the documents will be negotiated?
o

a) 44.5700
D
p

b) 44.6000
e
p

c) 44.6500
k

d) 44.6800
k
d
e

e
D ep ak H o a

02. An Exporter has submitted 60 days usance bill for USD 25000 for purchase. At what rate the
a

D e a
p

document will be purchased?


p

a) 44.7500
o

b) 44.7800
D e

c) 44.8400
e

d) 44.8700
k

03. Your bank has opened a letter of credit for import at the end of 2 months for £ 30000. At what
rate, the forward exchange will be booked?
a) 78.4700
p

b) 78.3830
od

od

c) 78.6300
H od a

H od a

d) 78.6325
k

k
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
47

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
4. If the exchange margin is 3 Paise for buying as well as selling, what is the bank's spread in% on
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
customer transaction?

d
ep k H od a
a) 0.2465

ep k H od a
b) 0.3000 .
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
c) 0.6000

o
d) 0.6275

5. A customer tenders export bill for £ 10,00,000 payable 45 days from sight. The transit period is 15
o

o
days He wants to retain 10% of bill value in the foreign currency. Bank's margin is 10 Paise. What

k
amount will be credited to customer's account?
a) 71310030
b) 70236990

p
c) 70110270
d) 70018510

e
++++++++++++++++++++++++++++++++++++

D
1. It is a demand bill which means the payment is immediate upon negotiation. So, spot rate will be applied,
which is $/₹ SPOT 44.60/44.65
e

e
H od a d
Being an export bill, from bank's point of view, it is a buying transaction.

D ee a H oo da D ep ak H o a
Hence Buying (Bid) Rate of 44.60 (and an inter-bank rate) will be applied. To arrive at the customer rate, the
ee a H oo da D e a H o a

margin will be deducted.


ee a H oo da D e a H o a
o

Inter Bank Rate 44.6000


p

p
Less : Margin 00.0300
d

o
d
Customer Rate 44.5700
D

D
a De ep ak Ho od a D ee pa k

2. The payment terms in this case are 60 days usance. Hence, 2 months forward rate will be applied, which
o

will be calculated as under:


k

Spot $/₹ 44.6000/44.6500


d

d
Forward 2 Months 00.1800/00.2000
Total 2 Months 44.7800/44.8500
k

p
k
o

Being an export bill, from bank's point of view, it is buying of FC. Hence Buying. (Bid) Rate will be applied,
D

which is 44.78. To arrive at the customer rate, exchange margin will be deducted.
p

e
p

Inter Bank Rate 44 7800


Less: Margin 00.0300
k

Customer Rate 44.7500


d
e

e
D ep ak H o a
a

3. The letter of credit is for 2 months. Hence, 2 months forward rate will be a applied which will be calculated
D e a
p

on the basis of 2 Months £/₹ rate through a cross rate (£/$ and $/₹ rates).
o

$/₹ SPOT 44.6000/44.6500


D e

Forward 2 Months 00.1800/00.2000


e

Total 2 Months 44.7800/44.8500


e

£/$ SPOT 1.7500/1.7510


k

Forward 2 Months 0.0050/0.0040


Total 2 Months 1.7450/1.7470
p

It is an import transaction and from bank's point of view, it is selling. Hence Selling (Offer) Rate will be
od

applied.
od
H od a

£/₹ = £/$ x $/₹


H od a

= 44.8500 X 1.7470= 78.35295


k

k
D

This is an inter-bank rate. To arrive at the customer rate, exchange margin will be added.
o

Inter Bank Rate 78.3530


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
48

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Add: Margin 0.0300
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Customer Rate 78.3830

d
ep k H od a

ep k H od a
4. $/₹ Spot 44.6000/44.6500
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Inter Bank Buying Rate 44.6000

o
Less: Exchange Margin 00.0300
Merchant Buying Rate 44.5700
o

o
Inter Bank Selling Rate 44.6500

k
Add: Exchange Margin 00.0300
Merchant Selling Rate 44.6800

p
% Spread = (Selling Rate-Buying Rate X 100) / { (Selling Rate + Buying Rate)/ 2}
= {44.68- 44.57 x 100)} / { 44.68+44.57) / 2}
= 00.11 x 100 I 44.625

e
= 0.2465%
D
5. The Bill period is 45 Days. The transit period is 15 Days. Total period is 2 months.
e

e
Hence, 2 months forward rate will be applied.
H od a
2 Months £/₹ rate is required for which cross rate will be calculated.
d
$/₹ SPOT 44.6000/44.6500

D ee a H oo da D ep ak H o a
Forward Points 2 Months 00.1800/00.2000
ee a H oo da D e a H o a

ee a H oo da D e a H o a
Spot 2 Months 44.7800/44.8500
o
p

p
£/$ SPOT 1.7500/1.7510
d

Swap Points 2 Months 0.0050/0.0040


o
d
D

Outright 2 Months 1.7450/1.7470


D
a De ep ak Ho od a D ee pa k

Being an export, from bank's point of view, it is Buying.


o

o
k

Hence Buying (Bid) Rate will be applied.


d

£/INRBID = £/USDBID X $/INRBID


d
= 44.7800 X 1.7450
k

= 78.1411
k
o

This is an inter-bank rate. To arrive at the Customer Rate, Exchange margin will be Added.
D
p

e
p

Inter Bank Rate 78.1411


k

Less: Margin 00.1000


k

Customer Rate 78.0411


d
e

e
D ep ak H o a
a

D e a
p

The bill is for 10,00,000 £. Of this, the customer wants to retain 10% in EEFC account.
p

Hence he would be converting 9,00,000 £.


o

For 9,00,000 £, his account would be credited with = 78.0411 x 900000 = ₹ 70236990
D ee

############################################################################
k

On Jan 10, 2011, the Mumbai branch of Champak Bank entered into following foreign currency sale
and purchase transactions:
p

(i) With Mr. A for sale of $ 2000to be delivered on the Jan 10.
od

(ii) With Mr. B for purchase of $ 2000 to be delivered on Jan 11


od
H od a

(iii) With Mr. C for purchase cif $ 2000 to be delivered on Jan 14 (Jan 12 and 13 being bank holidays)
H od a

(iv) With Mr. D for sale of $ 2000 to be delivered on Feb 11.


k

k
D
o

The inter-bank foreign currency rates on Jan 10, 2011 are as under :
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
49

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Cash rate or ready rate $ = ₹ 45.50/60,
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Tom rate ₹ 45.55/65,

d
ep k H od a
Spot rate ₹ 45.60/70

ep k H od a
one month forward rate ₹ 45.80/85.
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
On the basis of above, answer the following questions:

01. What rate will be used for the transaction with A and what amount in Rupees will be involved:
o

o
a) ₹ 45.50, ₹ 91000

k
b) ₹ 45.55, ₹ 91100
c) ₹ 45.60, ₹ 91200
d) ₹ 45.65, ₹ 91300

p
02. What rate will be used for the transaction with B and what amount in Rupees will be involved:
a) ₹ 45.50, ₹ 91000

e
b) ₹ 45.55, ₹ 91100
c) ₹ 45.60, ₹ 91200
d) ₹ 45 65, ₹ 91300
D
e

e
H od a
03. What rate will be used for the transaction with C and what amount in Rupees will be involved:
d
a) ₹ 45.50, ₹ 91000

D ee a H oo da D ep ak H o a
b) ₹ 45.55, ₹ 91100
ee a H oo da D e a H o a

ee a H oo da D e a H o a
c) ₹ 45.60, ₹ 91200
o
p

d) ₹ 45.65, ₹ 91300

p
d

o
d
D

04. What rate will be used for the transaction with D and what amount in Rupees will be involved:
a) ₹ 45.50, ₹ 91000
D
a De ep ak Ho od a D ee pa k

b) ₹ 45.55, ₹ 91100
o

o
k

c) ₹ 45.80, ₹ 91600
d

d) ₹ 45.85, ₹ 91700
d
k

++++++++++++++++++++++++++++++++++++
p
k
o

1. It is a sale transaction.
D

Hence, same day rate i.e. cash rate of ₹ 45.60 will be used.
p

e
p

The amount= 45.60 x 2000 = ₹ 91200


k

2. It is a purchase transaction.
d
e

Hence, next day rate (TOM Rate) of ₹ 45.55 will be used.


e
D ep ak H o a
a

The amount = 45.55 x 2000 = ₹ 91100


D e a
p

p
o

3. It is a purchase transaction.
Hence, 3rd day rate (TT Rate) of ₹ 45.60 will be used.
D ee

The holidays period will be excluded from counting.


e

The amount = 45.60 x 2000 = ₹ 91200


k

4. It is a forward sale transaction. Hence forward sale rate of ₹ 45.85 will be used. The amount= 45.85 x
2000 = ₹ 91700
p

############################################################################
od

od
H od a

H od a

Your export customer has received an advance of US 10000 against export to UK, which the importer
k

in UK has got credited to NOSTRO account of the bank in London. The current inter-bank market rate
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
50

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
$ = 45.10/15. Bank retains a margin of 0.15% on purchase and 0.16% on sale. What amount will be
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
credited to customer's account:

d
ep k H od a
a) ₹ 451676.50·

ep k H od a
b) ₹ 450323.50
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
c) ₹ 451721.60

o
d) ₹ 450278.40

++++++++++++++++++++++++++++++++++++
o

o
k
1. It is a purchase transaction for the bank.
Hence inter-bank purchase rate of ₹ 45.10 will be used.
Bank will deduct the purchase margin of 0.15%.

p
Gross amount= 45.10 x 10000 = 451000.
Net amount which will be credited to customer's account
= 451000 - 676.50 (0.15% margin) = 450323.50

e
D
############################################################################

An exporter submitted an export bill of $ 100000 drawn on 120 days usance basis from date of
e

e
shipment, which took place on Aug 03, 2011. The following further information is provided:
H od a
(i) The due date is Dec 01, 2011.
d
(ii) The exchange margin is 0.20%.

D ee a H oo da D ep ak H o a
(iii) Spot inter-bank $ rate is ₹ 45.00 I 05.
ee a H oo da D e a H o a

ee a H oo da D e a H o a
(iv) Premium spot Nov 0.40/45
o
p

p
(v) Rate is to quoted to nearest 0.25 paise and rupee amount to be rounded off
d

(vi) Interest rate is 8% for period up to 180 days.


o
d
D

(vii) Commission on bill purchase is 0.05%


D
a De ep ak Ho od a D ee pa k
o

01. What is the rate at which the bill will be purchased if it is a demand bill after adjustment of bank
o
k

margin, without taking into account, the premium?


d

a) ₹ 44.91
d
b) ₹ 45.09
k

c) ₹ 45.31
p
k

d) ₹ 44.51
o

o
D
p

2. What is the rate at which the bill will be purchased if it is a demand bill after adjustment of bank
e
p

margin and the premium.


k

a) ₹ 44.91
k

b) ₹ 45.09
d
e

c) ₹ 45.31
D ep ak H o a
a

D e a

d) ₹ 44.51
p

p
o

3. What is the gross amount before application of interest and commission:


D e

a) ₹ 4531000
e

b) ₹ 4410174
c) ₹ 4407908.50
k

d) ₹ 4407909

4. What is the amount of the bill without deduction of bank commission


p

a) ₹ 4531000
od

od

b) ₹ 4410174
H od a

H od a

c) ₹ 4407908.50
k

d) ₹ 4407909
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
51

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
5. What amount will be credited to exporter's account:
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
a) ₹ 4531000

d
ep k H od a
b) ₹ 4410174

ep k H od a
c) ₹ 4407922.50
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
d) ₹ 4407909

o
++++++++++++++++++++++++++++++++++++
o

1. Calculation of buying rate will be as under:

o
k
Spot rate ₹ 45.00 (buying rate will be applied as it is purchase)
Less 0.20% margin ₹ 00.09
Rate ₹ 44.91

p
2. calculation of rate will be as under:
Spot rate ₹ 45.00 (buying rate will be applied as it is purchase)
Less 0.20% margin ₹ 00.09

e
D
Rate ₹ 44.91
Add premium ₹ 00.40 (premium will be added as that benefit will be of the cust)
Rate ₹ 45.31
e

e
H od a d
3. calculation of rate will be as under:
₹ 45.00 (buying rate will be applied as it is purchase)

D ee a H oo da D ep ak H o a
Spot rate
ee a H oo da D e a H o a

Less 0.20% margin ₹ 00.09


ee a H oo da D e a H o a
o

Rate ₹ 44.91
p

p
Add premium ₹ 00.40 (premium will be added as that benefit will be of the cust)
d

o
d
Rate ₹ 45.31
D

D
Amount in ₹ 45.31 x 100000 = 4531000
a De ep ak Ho od a D ee pa k
o

4. calculation of rate will be as under:


k

Spot rate ₹ 45.00


d

d
Less 0.20% margin ₹ 00.09
Rate ₹ 44.91
k

p
k

Add premium ₹ 00.40


o

Rate ₹ 45.31
D

Gross Amount in ₹ 45.31 x 100000 = 4531000


p

e
p

Interest 120 days @8% ₹ 120826 (based on 360 days in a year)


Amount 4531000 - 120826 = 4410174
k

k
d
e

5. calculation-of rate will be as under:


e
D ep ak H o a
a

Spot rate ₹ 45.00


D e a
p

Less 0.20% margin ₹ 00.09


o

Rate ₹ 44.91
₹ 00.40
D e

Add premium
e

Rate ₹ 45.31
e

Amount in ₹ 45.31 x 100000 = 4531000


k

Interest 120 days @8% ₹ 120826


Commission at 0.05% ₹ 2265.50
Amount to be credited 4531000 - 120826 - 2265.50 = 4407908.50 (rounded to ₹ 4407909).
p

############################################################################
od

od
H od a

H od a

An importer customer, wants to retire an import bill drawn under letter of credit opened by you,
k

which is falling due on Oct 12, 2011, of Pound Sterling 100000. The 1T margin is 0.10%. The inter-
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
52

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
bank rates are £/$ = 1.5975/1.6000 and $/₹ = ₹ 44.90/45.00. On the basis of given information, answer
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
the following questions.

d
ep k H od a

ep k H od a
1. What rate will be quoted by the bank for this transaction in terms of £ / ₹ without taking into
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
account the TT margin:

o
a) ₹ 71.7276
b) ₹ 71. 9085
c) ₹ 72.0000
o

o
d) ₹ 72.0720

k
2. What rate will be quoted by the bank for this transaction in terms of £ / ₹, after taking into account
the TT margin:

p
a) ₹ 71.7276
b) ₹ 71.9085
c) ₹ 72.0000

e
d) ₹ 72.0720
D
3. What amount will be debited to cash credit or overdraft or current account of the customer for
e

e
retirement of this bill:
H od a
a) ₹ 7000000
d
b) ₹ 7207200

D ee a H oo da D ep ak H o a
c) ₹ 7218300
ee a H oo da D e a H o a

ee a H oo da D e a H o a
d) ₹ 7222070
o
p

p
d

4. If this bill is not retired by the importer customer, the crystallisation of this import bill will be on
o
d
D

which of the following dates:


a) Oct 12, 2011
D
a De ep ak Ho od a D ee pa k

b) Oct 21, 2011


o

o
k

c) Oct 22, 2011


d

d) Nov 12, 2011


d
k

++++++++++++++++++++++++++++++++++++
p
k
o

1. This is a sale transaction for the bank. Bank will purchase pounds (£) at market selling rate and will sell
D

the $ to the customer to purchase pounds. The rates taken will be 1.6000 and 45.00.
p

e
p

Hence the £/₹ = 1.6000 x 45.00 = 72.00.


Further bank will add margin of 0.10% which will be 0.0720.
k

The total rate = 72.00 + 0.0720 = 72.072.


d
e

The customer would pay = 72.072 x 100000 = ₹ 7207200


e
D ep ak H o a
a

D e a
p

2. This is a sale transaction for the bank. Bank will purchase pounds (£) at market selling rate and will sell
o

the $ to the customer to purchase pounds. The rates taken will be 1.6000 and 45.00. Hence the
£/₹ = 1.6000 x 45.00 = 72.00. Further bank will add margin of
D ee

0.10% which will be 0.0720. The total rate = 72.00 + 0.720 = 72.072.
e
k

3. This is a sale transaction for the bank. Bank will purchase pounds (£) at market selling rate and will sell
the $ to the customer to purchase pounds. The rates taken will be 1.6000 and 45.00. Hence the
£/₹ = 1.6000 x 45.00 = 72.00. Further bank will add margin of
p

0.10% which will be 0.0720. The total rate = 72.00 + 0.720 = 72.072.
The customer would pay= 72.072 x 100000 = ₹ 7207200
od

od
H od a

H od a

4. The bill is due on Oct 12, 2011. As per FEDAI rule, where the import bills drawn under LC are not retired
k

k
D

on due date, these are required to be crystallised within 10 days from their becoming overdue. Hence the
o

latest date by which it should be crystallised is Oct 22, 2011.


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
53

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
############################################################################
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
On Apr 15, 2011, XYZ Ltd expects to receive $ 20000 within July 2011. The company wants to book a
ep k H od a

ep k H od a
forward contract for July 2011. The $/₹ inter-bank spot rate is ₹ 45.10 / 20. The forward premium is
ee pa H oo da D e a H o a De ep ak H o a
18/20 paise for May, 31 / 33 for June and 45/47 for July. The margin to be retained by the bank is 0.10

ee pa H oo da D e a H o a De ep ak H o a
o
paise per $.

1. What is the FC rate at which the forward contract will be booked if the margin is not taken into
o

account:

o
k
a) ₹ 45.31
b) ₹ 45.41
c) ₹ 45.55

p
d) ₹ 45.57

2. What is the FC rate at which the forward contract will be booked if the margin is taken into

e
account:
a) ₹ 45.31
b) ₹ 45.41 D
c) ₹ 45.55
e

e
H od a
d) ₹ 45.57
d

D ee a H oo da D ep ak H o a
++++++++++++++++++++++++++++++++++++
ee a H oo da D e a H o a

ee a H oo da D e a H o a
1 For calculating the forward, the bank will take into account the forward premium for June which on this
o
p

p
purchase transaction is 45 paise. This would provide an option to the customer to deliver the FC on any day
d

during July. The rate would be:


d
D

Spot rate = 45.10


Forward premium for Jun
D
= 00.31 (premium for July will not be paid as delivery is during July)
a De ep ak Ho od a D ee pa k
o

Total = 45.41
o
k

Margin = 00.10
d

Rate to be quoted = 45.31


d
k

2. For calculating the forward, the bank will take into account the forward premium for June which on this
k
o

purchase transaction is 45 paise. This would provide an option to the customer to deliver-the FC on any day
o

during July. The rate would be:


D
p

Spot rate = 45.10


e
p

Forward premium for Jun = 00.31


k

Total = 45.41
k

Margin = 00.10
d
e

e
D ep ak H o a

Rate to be quoted = 45.31


a

D e a
p

############################################################################
o
D e

Your correspondent bank in UK wants to credit ₹ 50 million in its NOSTRO account maintained by
e

you in New Delhi. The bank is ready to credit the equivalent $ in your NOSTRO account in London.
The interbank rate is $ rate is ₹ 45.10/15. If exchange margin is ignored, how much amount, the
k

correspondent bank will credit to the NOSTRO account in London and at what rate.
a) 1108647.45
b) 1107419.71
p

c) 1107022.13
od

d) inadequate information to make the calculation


od
H od a

H od a
k

++++++++++++++++++++++++++++++++++++
e

k
D
o

For the bank, it is a purchase transaction.


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
54

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Hence the rate that will be applicable is ₹ 45.10.
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
The FC value of ₹ 50 million = 50000000 / 45.10 = 1108647.45.

d
ep k H od a

ep k H od a
############################################################################
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
Bank. had booked a forward purchase contract 3 months back at ₹ 45.60, due for delivery 3 days
later for $ 10000. Due to delay in realisation of export bill, the customer has requested for
cancellation of the contract and re-book it for one month fixed date or option contract beginning one
o

month from spot date.

o
k
The inter-bank spot rate is 45.2000/2200.
One month forward premium is 0800/1000 paise. The TT selling and buying margin 0.20%.

p
1. What will be the rate at which the contract will be cancelled:
a) 45.2200
b) 45.2000
c) 45.3104

e
D
d) 45.3908

2. What amount will be debited or credited to customer account being difference:


e

e
H od a
a) ₹ 3202 debited
d
b) ₹ 3202 credited
c) ₹ 2996 credited

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

d) ₹ 2996 debited
ee a H oo da D e a H o a
o
p

p
3. At what rate, the contract would be re-booked:
d

o
d
a) 45.2200
D

D
b) 45.2000
a De ep ak Ho od a D ee pa k

c) 45.1895
o

d) 45.0965
k
d

d
++++++++++++++++++++++++++++++++++++
k

1. The contract will be cancelled at TT selling rate i.e. 45.2200 + 20% = 0.0904 = 45.3104
k
o

The amount at contracted rate of 45.60 = 45.60 x 10000 = 456000


o

The amount at cancelled rate of 45.3104 = 453104


D

Difference = ₹ 2996, which would be credited to customer account.


p

e
p
k

2. The contract will be cancelled at 1T selling rate i.e.


k

45.2200 + 0.20% margin = 0.0904 = 45.3104


d
e

The amount at contracted rate of 45.60 = 45.60 x 10000 = 456000


D ep ak H o a
a

D e a
p

The amount at cancelled rate of 45.3104 = 453104


p

Difference = ₹ 2996, which would be credited to customer account.


o
D e

3. For booking of contract, the spot rate = 45.2000


e

Add one month premium = 00.0800


Total = 45.2800
k

Less inter-bank margin at 0.20% = 00.0905


Rate = 45.1895
p

############################################################################
od

od
H od a

An exporter customer has received an advance of $ 100000, which has been credited to NOSTRO
H od a
k

account of the Champak Bank in New York. What rate would be quoted to the customer if prevailing
e

k
D

rate is 1USD = 46.50/55.


o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
55

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
++++++++++++++++++++++++++++++++++++
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
In this case, the bank has received forex. Hence it is a purchase transaction.
ep k H od a

ep k H od a
For purchase, the bank would apply the bid rate i.e. 46.50.
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
############################################################################

An exporter has tendered an export bill of $ 100000 on 3.5.2010 (shipment date 3.5.2010),
drawn 120 days from date of shipment. The due date is 1.9.2010. On the basis of following
o

o
information, calculate the amount payable to the exporter:

k
(i) exchange margin 0.15%. Rate to be quoted to nearest 0.25 paise and rupee to be rounded off.
(ii) Spot rupee rate 46.20/25 and forward premium August 30/35 paise.
(iii) Rate of interest is 7% for period up .to 180 days. Commission to be charged upfront at 0.0625%

p
++++++++++++++++++++++++++++++++++++

e
It is a buying transaction, due to which buying rate shall be used.

Calculation of Rate D
e

e
H od a
Spot buying rate =46.2000 (take to rate up to 4 decimal points for proper calculation)
d
Less 0.15% margin =00.0693 (margin is to deducted being a· purchase transaction)

D ee a H oo da D ep ak H o a
Total =46.1307
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o

Add premium 00.3000 (premium is payable to customer. Hence lower premium taken)
p

p
Rate to be quoted 46.4300
d

o
d
Calculation of amount to be credited to customer's account:
D

Amount of Bill = 46.43 x 100000


D = 4643000
a De ep ak Ho od a D ee pa k

Less Interest @ 7% fur 120 days = 106853


o

Less Commission @ 0.0625% = 2902


k

Amount payable to customer =4533245


d

############################################################################
k

p
k
o

An importer customer has to make payment of an import bill of Euro


o

100000. The TT margin is 0.10%. Euro/USD 1.6000/10 and $/₹


D
p

46.50/55. Rate to be quoted to nearest 0.25 paise. What rate will be charged to the customer.
e
p
k

++++++++++++++++++++++++++++++++++++
k
d
e

Import bill. payment is in Euro which will be purchased by bank


D ep ak H o a
a

D e a

from market, by paying USD. For obtaining USD, rupee will be paid by the customer. Hence it is a sale
p

transaction for the bank.


o

Cross rate = 1.6010 x 46.55 = 74.5266 say 74.5275 (rounded to next 0.25 paise)
D e

Add margin @0.10% = 00.0745


e

Rate i.e. Bills selling rate = 74.6011 say 74.60 (rounded to 0.25 paise).
k

############################################################################

The due date of an export bill is fall in during July 2010. On April 15, the exporter requests for
booking a forward contract. The $/₹ spot rate is 46.10/15. The forward premium is 15/16 paise for
p

May, 30/32 for June and 43/46 for July. Margin to be recovered by bank is 0.05 paise per USD.
od

od

Calculate the rate.


H od a

H od a
k

++++++++++++++++++++++++++++++++++++
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
56

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
This is forward purchase transaction for the bank. The forward premium of 30 paise will be taken for the
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
month of June (as it cannot be taken for July, because contract will mature in July and customer has the

d
ep k H od a
option to deliver the currency between 1st day to last day of July).

ep k H od a
Calculation of rate:
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Spot rate = 46.10

o
Deduct bank Margin = 00.05 paise

Premium = 00.30 (benefit of premium will be given to customer, Hence addition)


o

o
Total = 46.40

k
Rate to be quoted = 46.35

############################################################################

p
On April 1, 2010, an. importer request to book a forward contract against payment of an import bill
for USD 50000, due for payment on July 12, 2010. The spot rate is USD/₹ 46.30/35. The forward
premium rates are: Spot April 9/10, Spot May 19/20, Spot June 29/30, Spot July 39/40. Spot for June

e
D
to 15th July 7/8. calculate the rate, if margin is to be charged at 0.20%.

++++++++++++++++++++++++++++++++++++
e

e
H od a
It is a sale transaction for the bank, due to which selling rate will be taken.
d
Spot rate = 46.35

D ee a H oo da D ep ak H o a
Premium June = 30 paise
ee a H oo da D e a H o a

ee a H oo da D e a H o a
Premium Jun-15th July = 8 paise
o
p

p
Rate = 46.73
d

Add margin@ 0.20% = 00.10


d
D

Rate to be quoted to the customer = 46.83


D
a De ep ak Ho od a D ee pa k

############################################################################
o

o
k

A UK based bank is maintaining its NOSTRO account with a Champak Bank in New Delhi. Overseas
d

d
bank wants to fund its NOSTRO account for an amount of ₹ 50 Cr against £. Spot £/₹ is 78.70/80. No
exchange margin is involved. If the Champak Bank agrees to fund the account, what
k

p
k

rate will be quoted and what amount will Champak Bank will get in £.
o

o
D

++++++++++++++++++++++++++++++++++++
p

e
p

This is purchase transaction for Popular Bank. Hence the rate will be 78.70. The amount in £ will be £
k

6353240.15, which will be credited to NOSTRO account of Popular Bank.


k
d
e

############################################################################
D ep ak H o a
a

D e a
p

An importer has to make payment of Japanese Yen 10 million by TT value spot, against import of
o

electronic goods. $/₹ rate is 46.50/55 and $/¥ is 90.70/80. Bank is to load 0.15% margin to the
D e

exchange rate. calculate the rate to be quoted and the amount that will be paid by the importer.
e

++++++++++++++++++++++++++++++++++++
k

For this payment, the bank will buy USD and then with USD bank will buy ¥. Hence it is a sale transaction
and selling rate will be applicable. It may be noted that in India, as per FEDAI, Yen Is quoted as per 100 yen.
p

Cross rate for ¥/₹ = 46.55 / 90.70 = 0. 513230 per ¥ (selling rate for $ and market selling rate for ¥ in term of
od

od

USD i.e. less ¥ will be available per $).


H od a

H od a

Per 100 ¥ rate = 51.3230


k

Add 0.15% margin = 0.0777


D
o

Total = 51.4007 (rounded off to 51.4000)


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
57

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Amount that will be paid by the customer = 10 million x 51.40= 5140000.
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
ep k H od a
############################################################################

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a
On 17th July your export customer requests you to negotiate a 60 days DA export bill of EUR 50000

ee pa H oo da D e a H o a De ep ak H o a
o
on Germany, The rates quoted on 17 Jul.2015 are as under.

Spot EUR l=$ 1.1106/1528 $ 1 = ₹ 63.6825/7350


o

1 month forward 27/32 1125/1550

o
k
2 month forward 36/44 1650/2875
3 month forward 52/66 2250/3825
4 month forward 60/80 2975/5300

p
1. Normal Transit Period (NTP) = 25 days
2. Interest on export bills is 8.50% pa.

e
3. Exchange margin required is 0.10%

++++++++++++++++++++++++++++++++++++ D
e

e
1. What Exchange Rate will be quoted to the customer?
H od a d
Bank will discount the bill and quote buying rate to the customer for 3 months forward (60 days
DA & 25 days NTP = 3 months forward), which is calculated as under

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
a. Spot EURJUSD buying rate = 1.1106
o
p

p
Add 3 months premium =.0052
d

3 months’ forward rate for EUR/$


d
=1.1158
D

D
Spot $/₹ buying rate
a De ep ak Ho od a D ee pa k

b. =63.6825
o

Add 3 months premium =.2250


o
k

3 months’ forward rate for $/₹ = 63.9075


d

c. 3 months forward EUR/₹ buying rate = 1.115 8 x 63. 9075= 71,080


k

p
k

Less margin of 0.10% =71.3080 - .0713 = 71.2367


o

Final EUR/₹ Buying rate to be quoted to the customer= 71.2375


D
p

e
p

2. How much is the rupee amount payable to the customer?


k

= EUR 50000 x 71.2375 = ₹ 3561875


k
d
e

e
D ep ak H o a
a

3. How much interest will be recovered from the customer'?


D e a
p

Interest to be recovered on ₹ 3561875 at 8.50% for 85 days (60 + 25 = 85 days) comes to


p

₹ 705067
o
D e

############################################################################
e

On 7 Jul.2015 a customer requested to cancel the forward purchase contract for $ 50000 booked at ₹
k

63.87 due on 18 Sep.2015. Rates quoted on 17 Jul.2015 are as under

Spot $ 1 = ₹ 63.6825/7350
p

Aug.2015 1125/1550
od

od

Sep.2015 1650/2875
H od a

H od a

Oct.2015 2250/3825
k

Nov.2015 2975/5300
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
58

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
++++++++++++++++++++++++++++++++++++
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
1. At what rate the contract would be cancelled?
ep k H od a

ep k H od a
Forward purchase contract would be cancelled at the spot selling rate on the date of cancellation i.e.
ee pa H oo da D e a H o a De ep ak H o a
₹ 63.7350

ee pa H oo da D e a H o a De ep ak H o a
o
2. How much amount will be paid to OR recovered from the customer due to cancellation, if
cancellation charges are ₹ 500?
o

Due to cancellation bank can buy $ at 63.7350 (lower than the contracted rate of₹63.87)- hence

o
k
earns a profit of ₹ 0.1350 per $. Amount paid to the customer will be
a. Profit payable to the customer= 50000 x 0.1350 = ₹ 6750
b. Less Cancellation charges of ₹ 500, final amount payable to the customer

p
= 6750 - 500 = ₹ 6250

3. If on 17 Jul.2015 the customer requests to, extend the contract by 3 months, what rate will be

e
quoted to the customer?

D
3 months forward purchase rate will be Spot rate + 3 months (Oct.2015) premium= 63.6825 +
0.2250 = ₹ 63.9075
e

e
H od a
4. If on 17 Jul 2015 the customer requests you to extend the contract by 3 months with 1-
d
rd
month option during 3 month, what rate will be quoted to the customer?

D ee a H oo da D ep ak H o a
nd
Bank will quote him buying rate, lower of the 2 and 3rd month. Since the currency is at premium
ee a H oo da D e a H o a

nd
lower rate will be for 2 month, which will be Spot rate + 2 months (Sep.2015) premium
ee a H oo da D e a H o a
o

63.6825 + 01650 = ₹ 63.8475


p

p
d

o
d
############################################################################
D

D
Bank has been approached by an exporter for booking a forward contract for Euro 100000, for delivery in 3rd
a De ep ak Ho od a D ee pa k
o

month. An importer has also approached to book a forward contract for Euro 200000 for delivery in 2nd
o
k

month. The spot Euro/₹ 54.10/20. Exchange margin for purchase is


d

0.15% and for sale 0.20%. The forward premium rates (in paise) are 9/10 for 1st month, 19/20 paise for 2na
d
month and 29/30 paise for 3rd month.
k

Calculate the rate for booking the contracts.


k
o

++++++++++++++++++++++++++++++++++++
D
p

e
p

In the case of exporter it is a purchase transaction and in case of importer it is sale transaction, for the bank.
As regards the premium, for purchases, the premium is to be passed only up to beginning of the contract
k

period, while for sale, the premium to be for full period i.e. up to end of the contract period.
d
e

For booking forward contract for Exporter:


D ep ak H o a
a

D e a

Spot rate = 54.1000


p

Add 2nd month premium = 0.1900 (delivery is allowed in 3rd month.


o

Hence premium, being purchase, will be for 2 months)


D e

Rate = 54.2900
e

Less margin @ 0.15% = 00.0814 (being a purchase by bank, margin to be deducted)


Net rate = 54.2086
k

Rounded off to = 54.2075

For booking forward contract for Importer:


p

Spot rate = 54.2000


od

Add 2nd month premium = 00.2000 (delivery is in 2nd month. Hence premium being sale will be for 2
od
H od a

months) Rate = 54.4000


H od a
k

Add Margin @ 0.20% = 00.1088 (being a sale by bank, margin to be added)


k
D

Net rate = 54.5088


o

Rounded off to = 54.5100


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
59

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
############################################################################
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
d
Champak Bank successfully contracted an FCNR (B) deposit of 10 million USD for a period of 5 year
ep k H od a

ep k H od a
Out of these funds, the bank retains $ 4 million as deposit with a high rated US bank in its NOSTRO
ee pa H oo da D e a H o a De ep ak H o a
account and converts the remaining amount to Indian currency at prevailing $ rate = ₹ 46.

ee pa H oo da D e a H o a De ep ak H o a
o
01 If the foreign currency rate moves to ₹ 46.50:
a) the bank will gain ₹ 3 mio (million)
o

b) the bank will loose ₹ 3 mio (million)

o
k
c) the bank will gain ₹ 6 mio (million)
d) the bank will lose ₹ 6 mio (million)

p
02 What type of position the bank is having presently after this transaction?
a) an oversold position of $ 4 million
b) an oversold position of $ 6 million

e
c) an overbought position of USD 6 million
d) an overbought position of $ 4 million
D
03 If the foreign currency rate moves to ₹ 45.00:
e

e
H od a
a) the bank will gain ₹ 3 mio (million)
d
b) the bank will lose ₹ 3 mio (million)

D ee a H oo da D ep ak H o a
c) the bank will gain ₹ 6 mio (million)
ee a H oo da D e a H o a

d) the bank will lose ₹ 6 mio (million)


ee a H oo da D e a H o a
o
p

p
04 To square its position, the bank will have to undertake which of the following transaction?
d

o
d
a) Sell $ assets of at least $ 6 million
D

D
b) Sell $ assets of at least $ 4 million
a De ep ak Ho od a D ee pa k

c) Buy $ liabilities of at least USD 4 million


o

d) Buy USD liabilities of at least USD 6 million


k
d

d
05 If the bank decides to invest the amount received as FCNR deposit in a 3-year US govt. security at
6 month UBOR related rate of interest, the bank faces the following type of risk?
k

p
k

a) foreign exchange risk


o

b) liquidity risk
D

c) basis risk
p

e
p

d) no risk
k

+++++++++++++++++++++++++++++++++++
d
e

1- The dollar rate has increased which leads to loss to the bank on its open position. The loss will. be at ₹
D ep ak H o a
a

D e a

0.50 per $ on the remaining amount of $ 6 million. Hence loss will be ₹ 3 mio.
p

p
o

2. The bank has purchased $ 10 million - kept $ 4 million in NOSTRO account. Hence open over bought
D e

position is USD 6 million.


e

3. The dollar rate has declined which leads to gain to the bank on
k

its open position. The gain will be at ₹ 1.00 per USD on the remaining amount of $ 6 million. Hence gain will
be ₹ 6 million.
p

4. Bank is having over bought position of $ 6 million (10-4) which will be covered by acquiring $ assets worth
od

od

USD 6 million.
H od a

H od a
k

5. The bank will face the basis risk. The basis risk arise because the 6 month UBOR related interest rate
D
o

may change in different magnitude. For example in a declining interest rate scenario, the rate of interest on
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
60

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
assets may be declining in a different magnitude than the interest rate on the corresponding liability, which
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
may create variation in net interest income.

d
ep k H od a

ep k H od a
############################################################################
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
On Jan 10, 2012, the Bangalore branch of Champak bank entered into following foreign currency sale
and purchase transactions:
(1) With Mr. A for sale of USD 2000 to be delivered on the Jan 10.
o

(2) With Mr. B for purchase of USD 2000 to be delivered on Jan 11.

o
k
(3) With Mr. C for purchase of USD 2000 to be delivered on Jan 14 (Jan 12 and 13 being bank
holidays)
(4) With Mr. D for sale of USD 2000 to be delivered on Feb 11.

p
The inter-bank foreign currency rates on Jan 10, 2012 areas under:
Cash rate or ready rate USD = ₹ 45.50/60,
Tom rate ₹ 45.55/65,

e
D
Spot rate ₹ 45.60/70 and one month forward rate ₹ 45.80185.

On the basis of above, answer the following questions.


e

e
H od a d
01 What rate will be used for the transaction with A and what amount in Rupees will be involved:
a) ₹ 45.50, ₹ 91000

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

b) ₹ 45.55, ₹ 91100
ee a H oo da D e a H o a
o

c) ₹ 45.60, ₹ 91200
p

p
d) ₹ 45.65, ₹ 91300
d

o
d
D

D
02 What rate will be used for the transaction with B and what amount in Rupees will be involved:
a De ep ak Ho od a D ee pa k

a) ₹ 45.50, ₹ :91000
o

b) ₹ 45.55, ₹ 91100
k

c) ₹ 45.60, ₹ 91200
d

d
d) ₹ 45.65,₹ 91300
k

p
k

03 What rate will be used for the transaction with C and what amount in Rupees will be involved:
o

a) ₹ 45.50, ₹ 91000
D

b) ₹ 45.55, ₹ 91100
p

e
p

c) ₹ 45.60, ₹ 91200
d) ₹ 45.65,₹ 91300
k

k
d
e

04 What rate will be used for the transaction with A and what amount in Rupees will be involved:
e
D ep ak H o a
a

a) ₹ 45.50, ₹ 91000
D e a
p

b) ₹ 45.55, ₹ 91100
-
o

c) ₹ 45.60, R 6:91200
d) ₹ 45.65,₹ 91300
D ee

+++++++++++++++++++++++++++++++++++
k

1. It is a sale transaction. Hence, same day rate i.e. cash rate of ₹ 45.60 will be used.
The amount = 45.60 x 2000 = ₹ 91200
p

2. It is a purchase transaction. Hence, next day rate (TOM Rate) of ₹ 45.55 will be used.
od

od

The amount = 45.55 x 2000 = ₹ 91100


H od a

H od a
k

rd
k

3. It is a purchase transaction. Hence, 3 day rate (Spot Rate) of ₹ 45.60 will be used.
D
o

The holidays period will be excluded from counting. The amount = 45.60 x 2000 = ₹ 91200
o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
61

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
4. It is a forward sale transaction. Hence forward sale rate or ₹ 45.85 will be used.

d
ep k H od a
The amount = 45.85 x 2000 = ₹ 91700

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
############################################################################

o
An exporter submitted an export bill of USD 100000 drawn on 120 days usance basis from date of
shipment, which took place on Aug 03, 2012. The following further information is provided:
o

(1) The due date is Dec 01, 2012.

o
k
(2) Theexchangemarginis0.20%.
(3) Spot inter-bank USD rate is₹45.00/05.
(4) Premium spot Nov0.40/45

p
(5) Rate is quoted to nearest 0.25 paise and rupee amount to be rounded off
(6) Interest rateis8% forperiodupto180days.
(7) Commission on bill purchase is 0.50%

e
D
01 What is the rate at which the bill will-be purchased if it is a demand bill after adjustment of bank
margin, without taking into account, the premium?
e

e
a) ₹ 44.91
H od a d
b) ₹ 45.09
c) ₹ 45.31

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

d) ₹ 45.51
ee a H oo da D e a H o a
o
p

p
02 What is the rate at which the bill will-be purchased if it is a demand bill after adjustment of bank
d

o
d
margin and the premium?
D

D
a) ₹ 44.91
a De ep ak Ho od a D ee pa k

b) ₹ 45.09
o

c) ₹ 45.31
k

d) ₹ 45.51
d

03 What is the gross amount before application of interest and commission:


k

p
k

a) ₹ 4531000
o

b) ₹ 4410174
D

c) ₹ 4407908.50
p

e
p

d) ₹ 4507909
k

04 What is the amount of the bill without bank commission


d
e

a) ₹ 4531000
e
D ep ak H o a
a

b) ₹ 4410174
D e a
p

c) ₹ 4407908.50
o

d) ₹ 4407909
D ee

05 What amount will be credited to exporter's account:


e

a) ₹ 4531000
k

b) ₹ 4410174
c) ₹ 4407922.50
d) ₹ 4407909
p

+++++++++++++++++++++++++++++++++++
od

od
H od a

H od a

1. Calculation of buying rate will be as under: Spot rate ₹ 45.00 (buying rate will be applied as it is purchase)
k

Less 0.20% margin ₹ 00.09 Rate ₹ 44.91


D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
62

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
2. Calculation of rate will be as under: Spot rate ₹ 45.00 (buying rate will be applied as it is purchase) Less
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
0.20% margin ₹ 00.09 Rate ₹ 44.91 Add premium ₹ 00.40 (premium will be added as that benefit will be of

d
ep k H od a
the customer) Rate ₹ 45.31

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
3. Calculation of rate will be as under: Spot rate ₹ 45.00 (buying rate will be applied as it is purchase) Less

o
0.20% margin ₹ 00.09 Rate ₹ 44.91 Add premium ₹ 00.40 (premium will be added as that benefit will be of
the customer) Rate ₹ 45.31 Amount in ₹ 45.31 x 100000 = 4531000
o

o
4.Calculation of rate will be as under: Spot rate ₹ 45.00 Less 0.20% margin ₹ 00.09 Rate ₹ 44.91 Add

k
premium ₹ 00.40 Rate ₹ 45.31--GrossAmountin₹45.31x100000=4531000 Interest120days@8% ₹ 120826
Amount 4531000 - 120826 =4410174

p
5. Calculation of rate will be as under:
Spot rate ₹ 45.00
Less 0.20% margin ₹ 00.09

e
Rate ₹ 44.91
Add premium
Rate
₹ 00.40
₹ 45.31
D
e

e
H od a
Amount in ₹ 45.31 x 100000 = 4531000 Interest 120 days@8%₹ 120826 Commissionat0.05%₹ 2265.50
d
Amount to be credited 4531000-120826- 2265.50 = 4407908.50 (rounded to ₹ 4407909).

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

ee a H oo da D e a H o a
############################################################################
o
p

p
A customer wants to book the following forward contracts:
d

o
d
(1) Forward purchase of USD 50000 for delivery 3rd month
D

nd

D
(2) Forward sale of USD 50000 for delivery 2 month.
a De ep ak Ho od a D ee pa k

spot rate = 45.1000/45.1200.


o

Premium = 1 m - 0800/0900,
k

2m - 1700/1900
d

d
3 m - 2800/2900.
k

p
k

Exchange margin = for purchase -0.20% and for sale -0.25%.


o

o
D

01 What is the rate for forward purchase transaction:


p

e
p

a) 45.4233
b) 45.2705
k

c) 45.1795
d
e

d) 45.1700
e
D ep ak H o a
a

D e a
p

02 What is the rate for forward sale transaction:


o

a) 45.4233
D e

b) 45.3243
e

c) 45.4882
e

d) 45.3456
k

+++++++++++++++++++++++++++++++++++

1. For purchase the spot rate = 45.1000


p

Add 2 m premium = 00.1700 (premium for 2 months only to be added in purchase as bill may be given on
od

od

d st
any day of 3r month including on 1 day)
H od a

H od a

Total = 45.2700
k

Less margin of 0.20% = 00.0905


D
o

Rate = 45.1795
o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
63

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
2. For sale the spot rate = 45.1200

d
ep k H od a
Add 2 m premium = 00.1900 (premium for full period of 2 months only to be added in sale)

ep k H od a
Total = 45.3100
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
Add margin of 0.25% = 00.1133

o
Rate = 45.4233

############################################################################
o

o
k
An importer customer, wants to retire an import bill of Pound Sterling 100000 drawn under letter of
credit opened by you, and payable on demand on Oct, 12.2012. The TT margin is 0.10%. The inter-
bank rates are GBP/USD = 1.5975/1.6000 and USD/1NR = ₹ 44.90/45.00. On the basis of given

p
information, answer the following questions.

01 What rate will be quoted by the bank for this transaction in terms of GBP/INR without taking into
account the TT margin:

e
D
a) ₹ 71.7276
b) ₹ 71.9085
c) ₹ 72.0000
e

e
H od a
d) ₹ 72.0720
d

D ee a H oo da D ep ak H o a
02 What rate will be-quoted by the bank for this transaction in terms of GBP/1NR after taking into
ee a H oo da D e a H o a

account the TT margin:


ee a H oo da D e a H o a
o

a) ₹ 71.7276
p

p
b) ₹ 71.9085
d

o
d
c) ₹ 72.0000
D

D
d) ₹ 72.0720
a De ep ak Ho od a D ee pa k
o

03 What amount will be debited to cash credit or overdraft or current account of the customer for
k

retirement of this bill:


d

d
a) ₹ 7000000
b) ₹ 7207200
k

p
k

c) ₹ 7218300
o

d) ₹ 7222070
D
p

e
p

04 If this bill is not retired by the importer customer, the crystallization of this import bill will be on
which of the following dates:
k

a) Oct 12, 2012


d
e

b) Oct 21, 2012


e
D ep ak H o a
a

c) Oct 22, 2012


D e a
p

d) Nov 12, 2012


o

+++++++++++++++++++++++++++++++++++
D ee

1. This is a sale transaction for the bank. Bank will purchase pounds (GBP) at market selling rate and will sell
the USD to the customer to purchase pounds. The rate taken will be 1.6000 and 45.00. Hence the GBP/INR
k

= 1.6000 x 45.00 = 72.00. Further bank will add margin of 0.10% which will be 0.0720. The total rate = 72.00
+ 0.720. The customer would pay = 72.072 x 100000 = ₹ 7207200
p

2. This is a sale transaction for the bank. Bank will purchase pounds (GBP) at market selling rate and will sell
od

od

the USD to the customer to purchase pounds. The rate taken will be 1.6000 and 45.00. Hence the GBP/INR
H od a

H od a

= 1.6000 x 45.00 = 72.00. Further bank will add margin of 0.10% which will be 0.0720. The total rate = 72.00
k

+ 0.720= 72.072.
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
64

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
3. This is a sale transaction for the bank. Bank will purchase pounds (GBP) at market selling rate and will sell
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
the USD to the customer to purchase pounds. The rate taken will be 1.6000 and 45.00. Hence the GBP/1NR

d
ep k H od a
= 1.6000 x 45.00 = 72.00. Further bank will add margin of 0.10% which will be 0.0720. The total rate = 72.00

ep k H od a
+ 0.720. The customer would pay = 72.072 x 100000 = ₹ 7207200
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
o
4. The bill is to be paid on demand Le. Oct 12, 2012. As per FEDAI rule, where the demand import bills
drawn under LC are not retired on demand, these are required to be crystallized within 10 days from the date
of demand. Hence the latest date by which it should be crystallized is Oct 22, 2012. (For usance import bills
o

o
the crystallisation will be done on due date.

k
############################################################################

p
On Apr 15, 2012, XYZ Ltd expects to receive USD 20000 within July 2012. The company wants to
book a forward contract for July 2012. The USD/1NR inter-bank spot rate is ₹ 45.10/20. The forward
premium is 18/20 paise for May, 31/33 for June and 45/47 for July. The margin to be retained by the
bank is 0.10 paise per USD.

e
D
01 What is the FC rate at which the forward contract will be booked if the margin is not taken into
account:
e

e
H od a
a) ₹ 45.31
d
b) ₹ 45.41
c) ₹ 45.55

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

d) ₹ 45.57
ee a H oo da D e a H o a
o
p

p
02 What is the FC rate at which the forward contract will be booked if the margin is taken into
d

o
d
account
D

D
a) ₹ 45.31
a De ep ak Ho od a D ee pa k

b) ₹45.41
o

c) ₹ 45.55
k

d) ₹ 45.57
d

+++++++++++++++++++++++++++++++++++
k

p
k
o

1. For calculating the forward, the bank will take into account the forward premium for June as amount can
o

be received on any day in July including 1st July. Thus the premium amount is 31 paise. The rate would be:
D
p

Spot rate = 45.10


e
p

Forward premium for June = 00.31 (premium for July will not be paid as delivery is during July)
k

Total = 45.41
k
d
e

2. For calculating the forward, the bank will take into account the forward premium for June as amount can
D ep ak H o a
a

D e a

st
p

be received on any day in July including 1 July. Thus the premium amount is 31 paise. The rate would be:
p

Spot rate = 45,10


o

Forward premium = 00.31


D e

Total = 45.41
e

Less = 00.10
Rate to be = 45.31
k

############################################################################
p

The importer requests on Sep 01, 2012 to book a forward contract for payment of an import bill of
od

USD 50000 due for Dec 15, 2012. Spot rate USD/INR = 45.10/20. Forward premium for Sep 10/14 paise,
od
H od a

Oct 22/24 paise, Nov 33/35 paise, Nov to Dec 15-12/14 paise. Bank is to charge margin of 0.20%.
H od a
k

k
D

01 Without taking into account the margin, the rate that will be quoted by the bank is :
o

a) ₹ 45.2000
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
65

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
b) ₹ 45.5500
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
c) ₹ 45.6900

d
ep k H od a
d) ₹ 45.7814

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
01 By taking into account the margin, the rate that will be quoted by the bank is :

o
a) ₹ 45.2000
b) ₹ 45.5500
c) ₹ 45.6900
o

o
d) ₹ 45.7814

k
+++++++++++++++++++++++++++++++++++

p
Calculate the rate Nov premium
1. This is FC sale transaction. Hence bank will use the Spot rate = 45.20 + 0.35 + 0.14 = 45.69. When the
and premium up to Dec 15, will be added. The rate would be:45.20 margin of 0.20% i.e. 0.09138 is added,
the rate would be = 45.7814.

e
Calculate the rate Nov premium D
e

e
H od a
2. This is FC safe transaction. Hence bank will use the Spot rate = 45.20 + 0.35 + 0.14 = 45.69. When the
d
and premium up to Dec 15, will be added. The rate would be:45.20 margin of 0.20% i.e. 0.09138 is added,

D ee a H oo da D ep ak H o a
the rate would be = 45.7814.
ee a H oo da D e a H o a

ee a H oo da D e a H o a
o

############################################################################
p

p
d

M/s XYZ imported goods worth Japanese Yen (JPY) 50 million. They request to remit the amount. The
o
d
USDANR rate is ₹ 45.1500/1700 and USD/JPU is 91.30/50. The bank will load a margin of 0.20%. 01
D

D
What rate will be quoted (per 100 yen)?
a De ep ak Ho od a D ee pa k

a) ₹ 49.0456
o

o
k

b) ₹ 49.4743
d

c) ₹ 49.5730
d
d) ₹ 49.8712
k

p
k

02 What amount the importer has to pay in Indian currency?


o

a) ₹ 2472100
D

b) ₹ 2478500
p

e
p

c) ₹ 2428400
k

d) ₹ 2408300
k
d
e

+++++++++++++++++++++++++++++++++++
D ep ak H o a
a

D e a
p

1. JPY is to be sold against rupees for which no direct rate is available. It will be calculated as a cross rate.
o

Bank need to buy JPY against USD and USD against rupees. Hence the following rate will be used for
D e

USD/INR 45.1700 (the market selling rate) and for USD/JPY 91.30 (the market selling rate being lower in
e

this case).
e

Rate = 45.1700/91.30 = 0.494743 and for JPY 100 the same will be ₹ 49.4743 (As per FEDAI Rules, JPY is
k

quoted as per 100 yen)

2. JPY is to be sold against rupees for which no direct rate is available. It will be calculated as a cross rate.
p

Bank need to buy JPY against USD and USD against rupees. Hence the following rate will be used for
od

USD/INR 45.1700 (the market selling rate) and for USD/JPY 91.30 (the market selling rate being lower in
od
H od a

this case).
H od a

Rate = 45.1700/91.30 = 0.494743 and for JPY 100 the same will be ₹ 49.4743 (As per FEDAI Rules, JPY is
k

k
D

quoted as per 100 yen).


o

To this margin of 0.20% will be added which works out to 0.0989.


od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho od
pa k H o da D ee pa k H oo da D ep ak H oo da De ep ak

e
p
ee a H oo da D e a H

pa k H o da D ee pa k H oo da D ep ak H oo da De eep ak
oo a D ee pak k H oo da De eep ak Ho ood da De ep ak Ho o
ee pa H oo da D e a H o a De ep ak H o a
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D ee

ee a H oo da D e a H
e e p a k H oo da D

da D ee pa H oo da De ep ak H od a De ep ak Ho od a
D eep ak H oo da De ep ak Ho od a D De epa ak Ho od a D ee
o
66

oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
1. Exchange Rates and Forex Business

ep

o
oo da D ee pak H oo da De ep ak Ho od a De ep ak Ho od
pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak

p
k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H

pa k H o oda D ee pa k H oo da D eep ak H oo da De ep ak
D eep ak H oo da De ep ak Ho od a D e epa k Ho od a D

ee pa k H oo da D e a H oo da

k Ho od a D ee pa k H Hoo oda a D ee pak k H oo da De eep pak H


D

da D ee pa k H oo da De ep ak H ood a De ep ak Ho od a
e
e

D eep pak k H oo da De ep ak Ho ood a D De epa ak Ho od a


D eep ak H oo da De ep ak Ho od a D e epa k Ho od

e
Hence the rate will be 49.4743 + .0989 = 49.5732 rounded of to 49.5730
D

D
D eep pak H oo da De ep ak Ho od a D De epa ak Ho

e ep k Ho od a
Total Rupee payment = 5,00,00,000 x 49.573/100= 24786500

d
ep k H od a

ep k H od a
ee pa H oo da D e a H o a De ep ak H o a

ee pa H oo da D e a H o a De ep ak H o a
############################################################################

o
Bank had booked a forward purchase contract 3 months back at ₹ 45.60, for delivery 3 days later for
USD 10000. Due to delay in realization of export bill, the customer has requested-for cancellation of
o

the contract and re-book it for one month fixed date or option contract beginning one month from

o
k
spot date. The inter-bank spot rate is 45.2000/2200. One month forward premium is 0800/1000 paise.
The TT selling and buying margin 0.20%

p
01 What will be the rate at which the contract will be cancelled:
a) 45.2200
b) 45.2000
c) 45.3104

e
D
d) 45.3908

02 What amount will be debited or credited to customer account being difference:


e

e
H od a
a) ₹ 3202 debited
d
b) ₹ 3202 credited
c) ₹ 2996 credited

D ee a H oo da D ep ak H o a
ee a H oo da D e a H o a

d) ₹ 2996 debited
ee a H oo da D e a H o a
o
p

p
03 At what rate, the contract would be re-booked:
d

o
d
a) 45.2200
D

D
b) 45.2000
a De ep ak Ho od a D ee pa k

c) 45.3104
o

d) 45.3908
k
d

d
+++++++++++++++++++++++++++++++++++
k

The contract will be cancelled at TT selling rate i.e. 45.2200+0.20% margin i.e 0.0904 = 45.3104 The amount
k
o

at contracted rate of 45.60 = 45.60 x 10000 = 456000 The amount at cancelled rate of 45.3104=453104
o

Difference = ₹ 2996, which would be credited to customer account.


D
p

e
p

The contract will be cancelled at TT selling rate i.e. 45.2200+0.20% margin = 0.0904 = 45.3104 The amount
k

at contracted rate of 45.60 = 45.60 x10000 = 456000 The amount at cancelled rate of 45.3104=453104
k

Difference = ₹ 2996, which would be credited to customer account.


d
e

e
D ep ak H o a
a

D e a
p

For booking of contract,


p

the spot rate = 45.2000


o

Add one month premium = 00.0800


D e

Total = 45.2800
e

Less inter-bank margin at 0.20% = 00.0905


Rate = 45.1895
k

###########################################################################
p
od

od
H od a

H od a
k

k
D
o

o
od a d
k

Ultimate Study Material is Macmillan Book Only


k

Deepak Hooda

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