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K K JINDAL
FOREX MARKET
Overseas Market London, New York, Tokyo, Frankfurt
BI B2 B3 B4 B5 B6 B7 Bn Buy from ADs
RBI
IB Market
Mumbai, Delhi, Kolkata, Chennai AD1 AD2 AD3 AD4 AD5
ADn
AD
REMITTERS MERCHANT BENEFECIARIES IMPORTERS EXPORTERS
57.08% 28.42%
There are many indications that support the efficient market assumption for international money and exchange markets.
Market Equilibrium
There is an inverse relationship between exchange rate and quantity demanded, which explains why the demand curve for foreign exchange is downward sloping.
As the foreign exchange rate falls, the corresponding quantity of the foreign exchange demanded rises. As the exchange rate increases, the corresponding quantity demanded falls.
Changes in the demand for foreign exchange over time cause demand and supply schedules to shift upward or downward.
Despite of some weaknesses, the PPP theory is quite useful and seems to be valid over the long run.
By the same token, if spe4culators think that a forward rate is lower than the expected future spot rate, they will buy a foreign currency forward.
This speculative transaction will bid up the forward rate until it reaches the expected future spot rate.
Determination Theories
The forward rate is the best possible forecaster of the future spot rate. The text develops a graphical framework which emphasizes the links that exist among spot exchange rates, forward rates, interest rates, and inflation rates.
EXCHANGE RATE
DIRECT QUOTE
INDIRECT QUOTE
Number of domestic currency units needed to buy/sell one unit of foreign currency
Number of domestic currency units needed to buy/sell one unit of domestic currency
Existence of international speculators moving funds from one centre to another Day to day influences can move exchange rate substantially
Most of the future developments are foreseen by the market operations causing anticipatory adjustments in the market rates Development cast their shadows forward : the market discounts expected changes and after occurrence, currency rate may not more in the same directions
EXCHANGE RATES
1. Base Rate
The base rate selected by ADs should be in line with the ongoing market rate
it may be cover rate for large value orders
2. Exchange Margin
a) TT buying b) Bill buying c) TT selling Margin are negotiable 0.025% to 0.80% 0.125% to 0.150% 0.125% to 2.00%
3. Spread
TT (Selling) TT (Buying) TT (Buying) + TT (Selling)
2
US $ Pound Others 1% (not to exceed) 2% No limits
4. Round Off
To the nearest paise in case of card rates
TT SELLING RATE
Outward Remittance in Foreign Currency (TT, MT, PO, DD) Cancellation of purchase Bill purchased earlier is returned unpaid Transferred to collection Earlier inward remittance (returned to the remitting banks) A forward purchase contract cancelled Import documents received directly by the importer
Generally, if the remittance is clean remittance i.e. no documents to be handled by the bank, the TT selling rate is applied.
Remittance of proceeds of Import Bills retired by importers (bill received directly by Banks) Even if proceeds of import bills are to be remitted in FC by way of TT, MT. PO. DD. Rate to be applied is bill selling rate.
IILUSTRATIVE TRANSACTIONS
TT BUYING RATES (a) Clean inward remittance (TT, MT, DD for which cover has already been credited to Ads NOSTRO A/c abroad. (b) Conversion of proceeds of instruments sent on collection basis (c) Cancellation of outward TT, MT, DO. PO. Etc. (d) Cancellation of forward sale contract Generally, if the NOSTRO account has been credited, the TT Buying rate is applied BILLS BUYING RATES
TC SELLING RATES
Take clean TT selling rate Add a margin of 0.5% (Optional) Add commission of 1% (Optional) Round off to 5 paise
CURRENCY NOTES
PURCHASE RATE
SELLING RATE
Interest to be recovered separately to 15 days from customer at domestic commercial Rate or Interest
VALUE DATE
Is a date on which the exchange of currencies actually takes place CASH / READY SAME DAY It is the rate when exchange of currencies take place on the date of deal TOM When exchange of currencies takes place on the next working day SPOT When the exchange of currencies takes place on the second working day after the date of deal
FORWARD RATE
When the exchange of currencies takes place after period of spot date
Premium Discount : : When currency is costlier in future When currency is cheaper in future
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