Buying & Selling Rates

Buying & Selling RatesExchange ratesThe rates at which an AD buys and sells foreign exchange are called exchange ratesBuying/Selling RatesBuying rate for buy (bid) transactionsSelling rate for sale (ask/offer)transactionsSelling rate is higher than buying rateThe difference between these two rates is the margin/profit/spread of the ADBuying/Selling transactionsIn a Buying Transaction (Purchase), the AD buys/acquires forex from a customer and gives/parts with rupeesAll inward remittances when converted to rupees result in a buying transactionIn a selling transaction (Sale), the AD gives forex/remits forex and takes rupees from the customerAll outward remittances give rise to sales transactions if the AD has to convert rupees to forex.The transaction is always viewed from the ADs (banks) point of view and the commodity is the forexPurchase/Sale transactionsBuying/Purchase transaction means the bank is buying and it is buying forexSelling/Sale transaction means the bank is selling foreign exchangeThere is a buying/selling transaction only when the AD is required to convert forex to rupees or vice versa Exchange Rate Quotation 2nd August 1983 India adopted direct quotes systemDirect quotes the foreign currency is kept constant and the amount of home currency varies e.g. $1 = Rs. 55.50; GBP 1 = Rs. 72.00Also called Rupee quotation or Home currency quotationUsually one unit of FC exceptions JPY, Indonesian Rupiah & Kenyan Schilling rate is given for 100 units of FC Indirect quotes the home currency is kept constant and its rate is expressed in variable units of foreign currency e.g. Rs. 100 = USD 1.8020Two way direct quoteWhen a quotation gives both the buying and selling rate it is called a two-way quoteA two-way quote does not mention as to which one is the buying rate and which is the selling rate.The lower of the two is the buying rate and higher of the two is the selling rateBuying rate Bid rateSelling rate Offer rateThe mean of Bid rate and Offer rate is called MIDDLE RateThe price difference between Bid & Offer rates is called BASIS POINT SPREAD

Different Types of Buying RatesTwo categoriesTT Buying Rate Bills Buying RateTT Buying Rate

This rate is applied for those buying transactions where the foreign exchange is already credited to the Nostro account Payment of draft issued by a correspondentRealization of foreign cheques/bills sent on collection basisCancellation of outward remittancesPayment of FCNR depositCancellation of forward sale contract

TT Buying rate is the best rate for the customer

Bills Buying Rate

This rate is applicable to those transactions for which the AD buys foreign exchange today but gets the credit to his Nostro account at a future date. As the AD gets the forex on a future date, he has to quote a rate as appropriate to such a future date. And such future rates are called FORWARD rates depending upon the tenor of the billPurchase of export billsPurchase of TC and Currency notes

Purchase of export billsThis depends on the tenor of the bills, with many Bill Buying ratesTC Buying rateUsed for buying(i.e. encashing) TCs; it is a specific version of bill buying rate the forward period is uniformly assumed to be one monthFC Buying rateQuoted for buying (i.e. encashing) foreign currency notesIt is derived from TC buying rate by deducting from it a margin of ) 0.5%It is also a specific version of Bill Buying RateOther instruments buying rateApplied for purchase of Bankers Pay Order, International Money Order (IMO), FDD issued (without any credit to nostro account) by other banks and personal cheques of a NR on banks outside India and such other instruments for which nostro account is not credited.

Other instruments buying rateThese may be classified into two categories:Instruments which will be sent to the foreign correspondent for realization and credit to nostro accountInstruments for which there exists an arrangement that the AD, having paid the same, claims reimbursement from the issuing branch by drawing on it a BE or a draft which are commonly called cover drafts

Nostro A/C and Buying RatesCredit in Nostro Account and Buying RatesIf Nostro Account is already creditedIf Nostro Account is yet to be creditedApply TT buying Rate, or other instruments Buying RateApply Bills buying Rate or TC Buying Rate or FC Buying RateDifferent Types of Selling RatesThe exchange rate quoted for a sale transaction is called selling rate or simply sales RateTwo types:TT Selling rateBills selling rateDocuments and Selling RatesHandling of Documents and Selling RatesNo documents handled by Authorised dealerDocuments handled by Authorised dealerTT Selling RateTC Selling Rate FC Selling RateBills Selling RateTT Selling rate

Applied to all transactions which do not involve handling of documentse.g.Issue of DD/MT/TT and all clean instruments for remittances outside India for different purposesCancellation of forward purchase contracts

Bills Selling RateThis rate is applied when the AD is required to handle documents e.g.Payment of import billsAdvance Payment for importsTC Selling RateRate applied when selling foreign TCsIt is computed by adding to TT selling rate a maximum margin of 0.5% towards handling charges (FEDAI)TC/FC Selling RateSelling RatesTT Selling

Add 0.5%

TC Selling

Add 0.5%

FC Selling

Bills SellingFC Note Selling RateRate applied when selling FC notesIt is computed by adding a maximum margin of 0.5% to the TC selling rate.Buying/Selling Rates and their applicabilityABUYING RATESApplicabilityiTT Buying rateWhere AD has received forex in his nostro a/ciiBill Buying rateWhere AD is yet to receive forex in his nostro a/ciiiTC Buying rateTraveller cheque encashmentivFC Buying rateForeign currency notes encashmentvOther Inst. RatesPersonal cheques, IMO, BC encashmentBSELLING RATESiTT Selling rateSales not involving handling of documents/BEiiBill Selling rateSales involving handling of documents/BEiiiTC Selling rateSale of travellers chequesivFC Selling rateSale of foreign currency notesNotional Rates - MeaningWhen an AD receives FC for opening/crediting FC accounts like FCNR deposit account, RFC account, EEFC deposit account or any such account, he is not converting the same to rupees.However, for accounting purpose, the FC deposit must be expressed in rupees by applying some assumed rate. Such an assumed rate is called Notional RateNotional rateEarlier head office of a bank used to fix this rate. But from December 2005 all banks fix the notional rate in line with the weekly average of daily rates for different currencies advised by FEDAI every Friday. (Accounting Standard 11)Banks are required to report rupee value of all foreign currency deposits and loans as on 31st March at the prevailing notional rate onlyMerchant rateThe rates actually quoted to public based on ongoing market rate at the time of approach by the customerBase rateThe rate at which bank is able to get funds from market either for sale or purchase. Merchant rates are computed from base rate by loading marginsFine RateDepending upon the relationship of the parties, banks quote competitive rates with thinner spreads. Such rates are referred to as Fine rates.Cross rateIf the rate of a foreign currency is given in terms of another foreign currency it is called a Cross Rate