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3 Risks in FOREX
For exporter customers, banks always offer Buying rate [in case of inflow of foreign currency]
1) Forward
2) Future
3) Option
4) Swap
Inflows Outflows
IR (Inward Remittances) OR (Outward Remittances)
Exports Imports
T T Buying Rate T T Selling Rate
Bills Buying Rate Bills Selling Rate
Value Dates
4 types of delivery (INCO Terms----International Commercial Terms)
USD/INR = Rs.44.25/27
means that banks/Money Exchangers buy/purchase US Dollar 1 as against Rs.44.25, but sells in the
market i.e. we have to buy/purchase from the market at Rs.44.27 [in one market]
GBP/USD = 1.7828/38
means that banks/Money Exchangers buy/purchase GBP 1 as against USD 1.7828, but sells in the
market i.e. we have to buy/purchase from the market at USD 1.7838 [in another market]
So, if we have to purchase GBP by INR, we need to convert by purchasing USD by 1 GBP first i.e.
USD 1.7838 and thereafter INR by USD i.e. Rs.44.27.
Thus, GBP/INR =Rs.44.27 x 1.7838
As per FEDAI (25, 50, 75, 00) are taken into consideration. Multiplication (x)
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R Kumar [02/05/2010----9830530956 (10 a.m. to 6 p.m.), rnk_sa2004@yahoo.co.in]
Exchange Rate
1) Buying 2) Selling
1) Buying
a) TT
[1 USD=Rs. 47.50]
b) Bills
[1 USD=Rs. 47.40]
2) Selling
a) TT
[1 USD=Rs. 47.80]
b) Bills
[1 USD=Rs. 47.90]
Nostro Account----Our Account with your bank. An Account with Indian bank maintained with
the bank outside India.
If the Nostro Account is credited at the time of buying Foreign Currency, it is TT Buying,
otherwise it is Bill Buying.
When an exporter quotes a Buying Rate, he must try to quote a rate as small as possible.
1 USD = Rs.50.00
USD/GBP = 1.5 i.e. 1 GBP = USD 1.5
So, 1 GBP = Rs.1.5 x 50 = Rs.75
USD/INR = 45.50/60 i.e. 1 USD = Rs.45.50/60
GBP/USD = 1.8340/50 i.e. 1 GBP = USD 1.8340/50
What is 1 GBP?
Buying Rate = 1.8340 x Rs.45.50
Selling Rate = 1.8340 x Rs.45.60
There are 2 parties in Option, one party having the Option is called ‘Buyer’ of the Option and the
other party is ‘Writer’ of the Option.
Call Option---Buying
Put Option—Selling
There are 2 Options ----European Option & American Option.
Future is a Derivative. It is a standardized contract where there will be no Counter party risk.
Regulatory body is present.
Future and Option are exchange-traded contracts.
SWAP
Sometimes buying and selling of some amounts of Foreign Currency for different maturities take
place between CBI & PNB.
Articles—49 Articles—39
Maximum period—7 banking days Maximum period—5 banking days
Banks to furnish Half yearly statement after 6 months to RBI informing the names of Defaulting
importers---------------BEF
Anybody intending to export must submit a Declaration Form before the Customs that the exporters
will get the full realization proceeds within 12 months.
Banks inform about the Defaulting exporters to RBI in a statement called XOX in 30th June and
31st December every year.
GR-----Non-computerized/Obsolete/
SDF---Computerized instead of GR
PP---By Post/Parcel
SOFTEX----Software exports
Factoring----Buyer’s Credit ---Purchasing of sundry debts or book debts with or without recourse.
Forfaiting----Supplier’s Credit---Purchase of exports Receivable always without recourse.
If there is any change of asset or liability of an Indian outside India or of a foreigner in India, it is
known as Capital Account transaction.
USD 10,000 per financial year for private visit/tour [Current Account]
USD 25,000 for Business trip
USD 1,00,000 for Medical treatment without any documentary evidence, or studying abroad or
employment
On execution of exports, exporter demands payment immediately. But importer wants deferred
payment. In that case, buyer’s credit or supplier’s credit occurs. Banks of both ends (importer and
exporter) play an important role on behalf of the importer so that imports are not disturbed and
exporter can get the payment in time.
Importer provides the Bank Guarantee to his (Importer’s) bank and in turn the importer’s bank
provides Bank Guarantee to exporter’s bank. So, exporter’s bank’s provides loan either to buyer or
to supplier. If Buyer’s account is debited, it is Supplier’s Credit (Importer). If supplier’s Account
is debited, it is Buyer’s Credit (Exporter).
For Non Resident Indians (NRI), there are 3 Deposit Schemes namely,
a) NRO ii) NRE & iii) FCNR (B)
Accounts under NRO, NRE can be opened in all/any branch of the banks and any type of account
i.e. Fixed, Savings Bank, Current & Recurring can be opened by an NRI.
FCNR (B) can be opened only in some branches of the banks in 6 denominated Foreign Currencies
i.e. 1) JPY 2) Euro 3) US Dollar 4) GBP 5) Aus Dollar 6) Can Dollar
NRE & FCNR (B) can’t be opened jointly without NRI. They are Repatriable. No Income Tax or
Wealth Tax is to be paid by the Account Holders. Indian Rupees can’t be deposited/credited in
these Accounts.
FEMA 1999 was enacted and gazette on 31/05/1999 and came into force from 01/06/2000.
Objective of FEMA is to manage Foreign Exchange in India with a uniform and steady growth of
Foreign Exchange.
When interest rate decreases, currency depreciates for long term, but in short term currency gets
appreciated.
GOI declares the Fiscal policy of the country, whereas RBI, being the Central Bank of the country
declares the Monetary policy time to time to regulate the financial markets.
RBI declares Repo Rate, CRR, SLR, Bank Rate, Selective Credit Control to determine the
Exchange rates of the markets.
Tarapore Committee headed by Tarapore erstwhile Dy. Governor of RBI recommended partial
convertibility of Capital Account i.e. up-to certain limits.
An Indian can easily purchase a land or building in India (Capital investment), but can’t purchase
land in any Foreign country, (outflows not allowed for capital investment outside India after the
limits.)
Similarly, a foreigner can’t have capital investment in India beyond the limits or not allowed to
withdraw currency as per their discretion.
But the many foreign countries adopt Capital Account Convertibility, as a result of which Libya,
Zambia, Malaysia get affected in Economic melt-down of 2008.
I USD = INR 45.10/12
Cash/Spot-----02/01
Spot/1st month-----05/06
Spot/2nd month---10/11
Premium
Discount
Over Night Limit (ON) is lower than Day Light limit (DL)
BP—22
AD will crystallize (converts) the exports proceeds if outstanding from Due date on 30th day in case
of exports.
AD will crystallize (converts) the imports proceeds if outstanding from Due date on 10th day in case
of imports, since Nostro Account has already been debited.
Derivative is a product which is derived from underlying assets.
ADR & GDR are underlying assets
Derivatives are of 4 kinds namely 1) Future 2) Swaps 3) Option & 4) Forwards
(BP—26)
8a) TT Buying rate for inward payment of USD 2,50,000, if Interbank rate is 46.00/02, and
margin to be charged at 0.08%
[Customer rates of 3rd & 4th decimal places will be ended with 25,50,75,00
In case of TT Buying Rate (Exports), Margin will be deducted
Pay Less, buy lower in case of imports]
BP--13
Exports-----Credit received in Nostro Account
It is a purchase of USD from the customer for which USD will have to be sold in the market.
Market buys USD at Rs.46.00 and sells at Rs.46.02. So, we have to quote Buying rate of Rs.46.00
less Margin i.e. T T Buying Rate.
8b) Bill Selling rates for import bill of USD 1,00,000, if Interbank market is 45.7650/7750, and
margin to be charged at 0.20%
8d) TT Selling Rate for issue of draft for JPY 1,00,000 delivery 3rd month (full month) if
USD/INR is 45.9400/9475 and USD/JPY 109.50/55. No margins. Give Rupee amount to be
charged.
USD/INR = 45.9400/9475
USD/JPY = 109.50/55
TT Selling Rate = Rs.45.9475/109.50 i.e. Rs.0.4196
For 100 JPY = Rs.0.4196 x 100 = Rs.41.9600
So, JPY 1,00,000 = Rs.41.9600/100 x 1,00,000 = Rs.41,960/-
For a sale contract, premium for the full period up-to end date of the contract shall be closed,
whereas for purchase contract, premium would be passed on only up-to the beginning of the
contract period.
[Exporter----purchase Forward Contract]
8e) Rate for Forward purchase booking of USD 1,00,000 delivery 3rd month (Full month) if
USD/INR Spot is 45.7850/7950 and Premium is 1 month—0.0850/0.0950, 2 months—
0.1600/0.1700 and 3 months---0.2500/0.2550. Ignore Margins
***** In case of Exporter, Premium will be given at the beginning of the next month [Added].
In case of Importer, Premium will be given at the end of the last month [Deducted].
2nd Golden Rule
For cancellation of any Forward Contract (Purchase or Sale), opposite T T Rate will be
applied.
8f) Forward Sale Contract USD 5,00,000 delivery 2nd month (Full month). If Spot and
Forward rates are same as given in 8e above and margin 0.15% to be charged.
We have to collect maximum Premium and add Margin (+) from the Importer, but give minimum
Premium and deduct Margin (-) from the Exporter.
8g) What rate would a Forward Purchase Contract of USD 1,00,000 due on Spot date be
cancelled if interbank Spot is Rs.45.7500/7550 and exchange margin on T T Purchase is
0.08% and T T Selling is 0.15%.
** Otherwise, if it would be a Sale Contract, for cancellation of Forward Sale Contract, as per 2nd
Golden Rule, T T Buying Rate will be applied.
So, T T Buying Rate----------------- Rs.45.7500
(-) Margin (0.08%) 0.0366
Rs.45.7134
So, T T Buying Rate of USD 1,00,000 = Rs.45.7134 X 1,00,000 i.e. Rs.45,71,340/-
8h) Calculate difference to be charged/paid to the customer, in the above question, if the
original contract was booked at Rs.46.00 per USD. [BP—26]
How long is too long----Maximum of 5 banking days following the day of presentation to
determine if a presentation is complying[Article 14]
BP—86
Question No-24
Bank will charge interest @Rs.7% on Rs.12,87,000 for 89 days i.e. Rs.21,967
Factoring is short term financing against Receivables for both domestic and export Receivables,
whereas forfeiting is financing against long term export Receivables only. The forfeiter is EXIM
Bank in India. Factoring is always with or without recourse and forfeiting is always without
recourse
In case of opening Bank Account in India, both NRI or PIO have same status