`

1. Cross Currency Dealing Your forex dealer had entered into a cross currency deal and had sold USD 5, 00,000 against EURO at USD 1 = EUR 1.4400 for spot delivery. However, later during the day, the market became volatile and the dealer in compliance with his managements guidelines had to square up the position by purchasing USD 5, 00,000 against EUR at the ongoing rate. Assuming the spot rates as under: USD 1 = INR 31.4300/ 4500 And USD 1 = EUR 1.440/4450 What will be the gain or loss in the transaction? Ignore brokerage, telex charges etc.

2. Forward Sales Contract Solution : Your customer requests to book a sale forward exchange contract for USD 5, 00,000 with delivery at 3rd month. Assuming USD is quoted in the local interbank market as under: Spot USD 1 = Rs. 47, 150/ 155: 1 Month Forward = 0.0850/ 0.0900: 2 Month Forward = 0.2650/ 0.2700: 3 Month Forward = 0.5300/ 0.5350 What rate will you quote to your customer, bearing in mind that you require an exchange profit of 0.15 % on the transaction? What will be your Profit / Loss?

3. Forward Sales Contract Your customer has booked a forward contract to meet an import bill during May 2005 for USD 5, 25,000. However, on the due date, he seeks cancellation. The contract was booked at USD 1 = 44.25. Interbank rate on the date of cancellation is: Spot rate USD/ INR : 42.4350/ 4450 You need an exchange margin 0.1%. Cancellation charges is Rs. 100.

4. Bills selling rate Your customer would like to import machinery from USA worth USD 100000 to be payable to the overseas suppliers on 31st Oct. 2006 [a] Spot Rate USD = Rs. 45.8500/8600 Forward Premium September 0.2950/3000 October 0.5400/5450 November 0.7600/ 7650 [b] Exchange margin 0.125% [c] Last two digits in multiples of nearest 25 Paise Calculate the rate to be quoted by the Bank? 5. Bills buying rate Your customer likes to export readymade garments to Rome during Nov 2006 for EUR 75000 Inter Bank Rate EUR 1=USD 1.0053/ 1.0057 Forward premium Nov USD 0.2350/ 0.2390 Forward Premium Dec USD 0.4420/ 0.4450 Forward Premium Jan USD 0.6700/ 6740 Spot USD = Rs. 43.5750/ 43.5850 Forward premium Nov 12/14 Dec 23/25 Jan 35/36

Exchange margin 0.1% What is the forward rate that the bank will quote and what is the rupee equivalent of EUR 75000?

6. TT selling rate Rate in Mumbai Inter Bank Market and London Market are: Mumbai USD 1 = Rs. 48.05/ 48.20 London GBP 1 = USD 1.6000/ 1.6500 At what rate the bank will sell GBP 10000, if it wants to make a profit of 25 paisa per GBP?

Solution : It is a selling transaction Step 1: The Bank has to purchase GBP from London by giving USD. GBP can be purchased at London Market Selling Rate GBP= USD 1.65 [Rule Buy low and sell high] Step 2: The USD for the above transaction is to be purchased in the Interbank market at the market selling rate i.e. 1 USD= Rs. 48.20 Step 3: Cross Selling rate i.e. GBP/INR [Selling Rate GBP/USD] * [Selling rate USD/ INR] 1.65 *48.20 = Rs. 79.53 Step 4: Exchange Margin Rs. 79.53 + 0.25 = 79.78 Step 5: Total amount payable GBP 10000* 79.78 = Rs. 797800 Forex Treasury Operations Forward Rate Quotations

7. Forward rate Solutions: Interbank market quotes If one were to buy US$ against EUR from the Spot US$ 1 = EUR 1.8235- 1.8245 market, one month forward, the price would Forwards Spot/ 1 Months 17/18 be calculated in the following manner. Spot/ 2Months 35/37 Spot US$1 = EUR 1.8245+ Spot/ 3 Months 53/56 One month Premium + 0.0018 Spot/6 Months 99/106 Premium to be added _______ Calculate USD/ EUR forward buying and EUR 1.8263 selling rate. Market is taking EUR while selling US$, therefore will take more EUR and hence higher of the two figures in one month premium will be added. Similarly, if one were to sell US$ against EUR to the market, one month forward, the price would be calculated in the following manner: Spot US$1 = EUR 1.8235 One month premium + 0.0017 Premium to be added EUR 1.8252 The markets one month outright forward quote would be: 1 Month Forward US$ 1 = EUR 1.8252- 1.8263 Note: If the forward differentials are in ascending order i.e. the first figure is lower than the second figure the base currency is at a premium

8. Calculation of Forward rate If exchange rate scenario is as under: Spot 1 = US$ 1.6284 1.6291 Forwards Spot/ 1Month 17/15 Spot/ 2Month 34/32 Spot/ 3Month 53/50 Spot/ 6Month 98/91 What will be / US$ forward rate?

Solution : If the forward differentials are in descending order i.e., the first figure is higher than the second figure the base currency is at a discount. If one were to buy 1 against US$ from the market, one month forward, the price would be calculated in the following manner: Spot 1 = US$ 1.6284 One month discount -0.0017 (Discount to be deducted) US$ 1.6267 Market is giving US$ while buying 1, therefore will give less US$ and hence of the two figures in one month discount will be deducted.

ANNEXURE 2

PRICE CALCULATIONS FOREX TREASURY 1. You have the following quotes from Bank A & Bank B BANK A: BANK B: SPOT USD/CHF 1.4650/55 1.4653/60 3-months 5/10 6-months 10/15 Cash/Spot 1/2 SPOT GBP/USD 1.7645/60 1.7640/50 3-months 25/20 6-months 35/25 1. To make Risk Less profits in case of USD/CHF Spot trades A. You should buy USD from bank B and sell them to bank A B. Buy USD from bank A and sell them to bank B C. Buy CHF from bank A and sell them to bank B D. There is no risk-less arbitrage opportunity. Solutions: D.There is no Risk Less Arbitrage Opportunity Risk Less Arbitrage opportunity exists when you can buy at a cheaper rate from one bank and sell at a higher rate to another Bank. You can buy USD against CHF at the offer rates which are 1.4655 and 1.4660 for bank A and Bank B respectively. So, the Cheapest Rate available is 1.4655. You can Sell USD Against CHF at the bid rates which are 1.4650 and 1.4653 for Bank A and Bank B respectively. So, the Highest rate realizable is 1.4653. Here, the cheapest rate at which one can buy 1 USD is for 1.4655 CHF and the highest rate available for Selling 1 USD is 1.4653 CHF. So there is no possibility of Risk less Profits,

2. If you want to buy GBP 1 million GBP Spot against CHF you have to pay Minimum Amount You have to pay is A. CHF 2.5875 Million B. CHF 2.5866 Million C. CHF 2.5881 Million D. CHF 2.5863 million

Solutions: B. CHF 2.5866 Million To buy GBP Against CHF First you have to buy USD against CHF and then you have to buy GBP against USD. To get the best rates you should choose the most favorable (the cheapest) rates at both the stages. To buy USD Against CHF you have to pay the USD/CHF offer rate. Offer rates are 1.4655 and 1.4660 respectively from Bank A & Bank B. You should choose to buy USD against CHF at the cheapest rate i.e.@ 1USD per 1.4655 CHF from Bank A. To buy GBP against USD you have to pay GBP /USD offer rate. Offer rates are 1.7660 and 1.7650 respectively from Bank A & Bank B. You should Choose to buy USD against CHF at the cheapest rate i.e.@ 1USD per 1.4655 CHF from Bank A. To buy GBP against USD you have to pay GBP/ USD offer rate. Offer rates are 1.7660 and 1.7650 respectively from Bank A & Bank B. You should Choose to buy GBP against USD at the Cheapest rate i.e.@ 1 GBP per 1.7650 USD From Bank B. Thus, You should buy USD Against CHF from Bank A and buy GBP against USD from Bank B. To buy 1 GBP you have to pay 1.7650 USD AND To buy 1 USD you have to pay 1.4655 CHF. Thus to buy 1 GBP You have to pay 1.7650 X 1.4655 CHF = 2.5866 CHF. To Buy 1 Million GBP you have to pay CHF 2.5866 Million.

3. Your forecast is that in 3 months time, the 3- months GBP interest rate would fall while the 3- months USD interest rate will rise. However, you are not sure how the spot GBP/USD will move. You should A. Sell GBP 6 months forward B. Buy GBP 6 months forward C. Buy GBP 3 months forward and sell 6 months forward D. Sell GBP 3 months forward and buy 6 months forward.

Solution : D.Sell GBP 3 months forward and buy 6 months forward. I would like to borrow the currency @ current rates in which I expect interest rates to rise and lend the currency @ current rates in which I expect interest rates to fall. So I should Borrow USD for 3 months, from now i.e. from 3rd to 6th month. For the same period I should lend GBP. To do this effectively equal to entering into a swap to SELL GBP 3 months Forward anf buy 6 months forward.

4. Considering the quotes from Bank A only, for GBP /CHF what are the Implied Swap points for Spot over 3 Months? A. 20/10 B. 35/25 C. 30/30 D. 28/12

Solution : D.28/12 To Calculate the Implied Swap points of Spot over 3 Months for GBP/ CHF from Bank A We should Calculate GBP/ CHF Spot Rates and Outrights 3 Months Forward Rates. Swap points would be equal to the difference between the two rates. Spot GBP/CHF bid = GBP/USD bid X USD/ CHF bid = 1.7645 X 1.4650 = 2.5850 GBP/ CHF Ask = GBP/ USD Ask X USD/ CHF Ask = 1.7660 X 1.4655 = 2.5881 Spot GBP/ CHF 2.5850/ 2.5881 Outright 3 Months GBP/ USD SPOT 1.7645/ 1.7660 3 Months Swap Points 25/20 It is Big/ Small therefore GBP is at Discount against USD. Therefore, Swap points should be deducted. Outright 3 months Forward 1.7620/ 1.7640 USD/ CHF SPOT 1.4650/ 1.4655 3 Months Swap Points 5/10 It is Small/ Big therefore USD is at Premium against CHF. Therefore, Swap points should be Added. Outright 3 months Forward 1.4655/ 1.4665 GBP/ CHF Bid = GBP/USD Bid X USD/CHF Bid = 1.7620 X 1.4655 = 2.5822 GBP/ CHF Ask= GBP/ USD Ask X USD/ CHF Ask = 1.7640 X 1.4665 = 2.5869 Outright 3 months Hs GBP/CHF2.5822/2.5869 GBP/CHF Spot 2.5850/ 2.5881 Outright 3 months 2.5822/ 2.5869

3months Swap Points 28/12