merchant rates

5/24/2018 Merchant Rates

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NAME ROLL NOMAYUR GADA 17CLEON MENEZES 33SUJITH NAIR 35MANJUNATH TARADI 56


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MEANING

Importers and Exporters and others who are required to

buy or sell foreign exchange are popularly known as

Merchants.

The Exchange rates quoted by Authorised Dealers in

India ,for transaction with merchants are known

MerchantRates

. The rates quoted by banks for dealing in Inter Bank

markets are known as InterbankRates.


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MODES OF REMITTANCE Telegraphic Transfer (TT)

Mail Transfer (MT)

Demand Draft (DD)


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TELEGRAPHIC TRANSFER (TT) Telegraphic Transfer (TT)of funds from one centre to another centre

is done by way of instructions through telex or telegram or SWIFT

(Society for Worldwide Interbank Financial Telecommunication)

The authenticity of a message is established by means of a private

check signal code and thereby the probability of message being fake

is reduced and is almost negotiable.

The use of TT is, however, restricted to banks having correspondent

relationship.


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MAIL TRANSFER (MT)

Mail Transfer (MT) of funds from one centre to another centre is

done by way of instructions sent by mail.

A mail transfer is an order in writing on the correspondent/ branch

abroad to pay the beneficiary the sum mentioned therein.

A mail transfer is an arrangement between two banks (offices) and

the instrument is not a negotiable pay order.

A mail transfer is not quick as TT but it is a cheaper mode as

compared to TT.


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DEMAND DRAFT (DD) A demand draft is an order in writing on the correspondent/ branch

abroad to pay the beneficiary the sum mentioned therein.

The party which wants to remit funds through DD, pays to the bank

necessary amount.

The bank issues a demand draft and the same is handed over to the

party and the party sends it abroad.

The DD is paid by the correspondent bank/ overseas branch of the

bank upon presentation.


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FEDAI RULES/ RGULATION FOR MERCHANT QUOTATION

CURRENCY TO BE QUOTED AGAINSTONE UNIT OF FOREIGNCURRENCIES:

CURRENCY TO BE QUOTED AGAINST100 UNITS OF FOREIGN CURRENCIES:

Australian Dollar

Bahrain Dinar

Austrian Schilling

Canadian Dollar

European Currency Unit

French Francs

Qatar Rial

Singapore Dollar

US Dollar

Sterling Pound

Belgian Franc

Indonesian Rupiah

Italian Lira

Japanese Yen

Kenyan Shilling

Spanish Peseta

ASIAN CLEARING UNION CURRENCIES

Bangladeshi Taka; Burmese Kyat; Iranian Riyal; Pakistani Rupee; Sri Lanka

Rupee


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TYPES OF MERCHANT RATES TRANSACTION

TT (Buying)

BILL (Buying)

TT (Selling)

BILL ( Selling)


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TT (Buying) RATE BILL (Buying) RATE

Clean Inward remittance TT, MT,

DD for which cover has already

been provided by credit to the

Nostro Account of the bank.

Conversion of proceeds ofinstruments sent on collection

basis.

Cancellation of outward TT, MT,

DD, etc.

Cancellation of forward sale

contract.

Purchase/ discount/negotiation of export bill


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TT (Selling) RATE BILL (Selling) RATE

Clean outward remittance in foreign

currency by TT, MT, DD.

Cancellation of Purchase i.e.

Bill purchased earlier is returned

unpaid

Bill purchased earlier transferred to

collection account.

Inward remittance returned to

remitting bank

Cancellation of forward purchase

contract.

Import documents received directly by

the importer.

Clean outward remittance in foreign

currency by TT, MT, DD.

Cancellation of Purchase i.e.

Bill purchased earlier is returned

unpaid

Bill purchased earlier transferred to

collection account.

Inward remittance returned to

remitting bank

Cancellation of forward purchase

contract


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GUIDELINES FOR COMPUTING MERCHANT RATES

1. BASE RATE

The base rate selected by Authorised Dealer (AD), should be in line with the ongoing

merchant rate.

Eg. US$1 Rs. 40.5300 40.6300, the base rate should be around this level only.

2. Earlier, the FEDAI had prescribed profit margins to be loaded by the Ads. Now Ads

are free to charge profit margin as per their discretion.

The earlier exchange (profit) margins prescribed by FEDAI were as follows:

TYPE OF RATE PROFIT MARGING RANGE

1. TT (Buying) 0.025% to 0.080%

2. BILL (Buying) 0.125% to 0.150%

3. TT (Selling) 0.125% to 0.150%

4. BILL (Selling) 0.175% to 0.200%


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3. SPREAD

The FEDAI had prescribed maximum spread for various currencies which is as under:

The spread is defined as

Spread = TT (S) TT (B)

TT (S) + TT (B)

2The Spread should not exceed:

CURRENCY SPREAD (%)

US$ 1

GBP, DEM, FRF, CHF 2

(Major Currencies)

All Other currencies No limit, bank can on their own


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4. ROUNDING OFF:

The rate offered to the merchants should be

quoted in four decimal places and last two digits

should be rounded off in the multiple of 25.


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COMPUTATION OF EXCHANGE RATE

TT Buying Rate

Step 1: Select appropriate base rate (market buying rate)

Step 2: Deduct exchange margin as per FEDAI or as per

the banksinternal guidelines.

Step 3: Round off the rate as per FEDAI guidelines i.e.,

quote to be in four decimal places and last two

digits in the multiple of 25.


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If the interbank exchange rate for US$ are as under:

Spot: US$ 1 = Rs. 42.882542.8975

Step 1: Cover rate Rs. 42.8825Deduction cushion -0.0100

Base rate Rs. 42.8725

Step 2: Base rate Rs. 42.8725

Less Exchange margin

As per FEDAI @0.080% or bank -0.0342

Bank is giving Rs., gives minimum Rs. 42.8383

Step 3: Round off rate as per FEDAI Rs. 42.8400


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TT Selling Rate


Step 2: Add exchange margin as per FEDAI or as per

thebanks

internal guidelines.





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If the interbank exchange rate for US$ are as under:

Spot: US$ 1 = Rs. 42.882542.8975

Step 1: Cover rate Rs. 42.8825

Add cushion +0.0200

Base rate Rs. 42.9175


Add Exchange margin

As per FEDAI @0.15% or bank +0.0643

Bank is taking Rs., takes maximum Rs. 42.9818

Step 3: Round off rate as per FEDAI

TT Selling Rate US$ 1 = Rs. 42.9825


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BILL Selling Rate


Step 2: Add exchange margin as per FEDAI or as per the banks

internal guidelines.

Step 3: Arrive at TT Selling Rate

Step 4: Add exchange margin again in TT selling rate as per FEDAI

Step 5: Round off the rate as per FEDAI guidelines i.e., quote to be in

four decimal places and last two digits in the multiple of 25.


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If the interbank exchange rate for US$ are as under:Spot: US$ 1 = Rs. 42.882542.8975


Add cushion +0.0200Base rate Rs. 42.9175


Add Exchange margin


Rs. 42.9818


(TT Selling Rate US$ 1 = Rs. 42.9825)

Step 4: TT Selling Rate US$ 1 Rs. 42.9825

Add Exchange margin


Bank is taking Rs., takes maximum. Rs. 43.0684

Step 5: Round off rate as per FEDAI

Bill Selling Rate US$ 1 = Rs. 43.0675


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BILL Buying Rate


Step 2: Load (Add premium/ Deduct discount) forward period.

Step 3: Deduct exchange margin as per FEDAI or as per

the banksinternal guidelines





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Suppose Mumbai interbank market quotes as follows:Spot: US$ 1 = Rs. 40.882540.8975

Forwards: Spot/May 2500/2700

Spot/June 5200/5500

Spot/July 7700/8200

If an export customer is to receive his US$ amount on July 31, the Authorized Dealer will compute

the bill buying rate as follows:


Deduction cushion -0.0100

Base rate USS$ 1 = Rs. 40.8725


Add premium for 31 July +0.7700

Rs. 41.6425

Step 3: Forward rate Rs. 41.6425

Less Exchange margin

As per FEDAI @0.150% or bank -0.0624

Bank is giving Rs., gives minimum Rs. 41.5801



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NOTIONAL DUE DATE (NDD) When the bank enters into a forward contract with an exporter, the exporter agrees to

tender export documents to the bank and the documents such as bill of exchange, etc.

entitle the bank to receive foreign exchange in future.

Therefore, the bank will receive foreign exchange as per the tenor of the bill of exchange.

For the bank to quote a rate is necessary to either know the value date or fix the same on

notional basis.

In the documents where a reference date like, date of bill of exchange or date of bill of

lading, etc., is not given only Usance of the bill of exchange is given, a due date is fixed

on notional basis and the same is known as NotionalDue Date

Notional Due Date (NDD) = Normal Transit Period (NTP) + Usance Period + Grace Period


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APPLICABILITY OF GRACE DAYS

COUNTRIES WHERE GRACEPERIOD IS APPLICABLE

COUNTRIES WHERE GRACEPERIOD ID NOT APPLICABLE

Australia

Burma

Canada

Hongkong

India

Malaysia

New Zealand

Sri Lanka

Abu Dhabi

Argentina

Bahrain

Mexico

South Africa

UK

USA

France

FEDAI has prescribed Normal Transit Period for directbilland indirectbillfordifferent countries


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DIRECT BILL:

Bill drawn payable in the currency of the country where it is

drawn payable is called Direct Bill.

INDIRECT BILL:

A bill drawn on a currency other than the currency of the

country on which it is drawn payable, is called Indirect Bill.


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CRYSTALLISATION OF OVERDUE

EXPORT BILL:

As per FEDAI guidelines an export bill remains overdue,

then on 30th day from the NDD or due date, the foreign

exchange liability has to be crystallized into rupees.

Crystallisation will be done at TT selling rate.

Subsequently, when the bill is realised, foreign exchange

will be purchased at TT buying rate.


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CRYSTALLISATION OF IMPORT BILLS All the foreign currency import bills drawn under

letters of credit are required to be crystallised intorupee liability on 10thday from the date of receipt of

the document a

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