Day 5 One Liner - 25535260 - 2024 - 07 - 08 - 07 - 24

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Numerical Examples related to Forex Rates.
Suppose, USD being quoted at Rs.61.50/55. Furnish /
Calculate the following
a) Base Rate
b) Bill Buying Rate (OD Buying)
c) TC Buying Rate
d) Currency Buying Rate
e) TT Selling Rate
f) Bill Selling Rate
g) TC Selling Rate
h) Currency Selling Rate
Notes :
Basis of Exchange Rate quotation:
Buying:- Rate at which Foreign Currency bought from
customer can be sold in the market i.e., market buying rate.
Selling:- Rate at which Foreign Currency to be sold to the
customers can be bought in the market i.e., market selling
rate.
Base rate is the rate derived from ongoing market rate, based
on which buying / selling rates are quoted for merchant
transactions. The interbank rates are normally for spot
deliveries. Hence, for quoting rates for merchant transaction
on cash basis (i.e. value Today), the base rate will be adjusted
to the extent of cash/spot differences.
Exchange Margin
The Base Rates, which are derived from the ongoing interbank
spot rates, are applied for arriving at rates for merchant
purchase and sale transactions. Banks have been given

freedom to fix the quantum of exchange margin to be loaded
to the base rate for quoting rates for different types of
merchant transactions e.g. TT Buying/Selling, Bill
Buying/Selling etc.
In line with the business maxim of “Buy Low Sell High” while
arriving at the merchant rate the exchange margin is reduced
from the base rate in case of purchases and added on for sale
transactions in the case of direct quotation.
The TT buying rate is applicable for:
a. Clean inward remittances (TT/DD) for which cover has
already been credited to our Nostro account.
b. Proceeds of export bills/cheques etc. sent for collection.
c. Cancellation of outward TT/DD etc
d. Cancellation of forward sale contract on or after due date.

e. Conversion of RFC, EEFC, FCNR(B) deposits and PCFC/FC
Loan into Indian Rupees.
Bill Buying Rate (OD Buying)
The bill buying rate is applicable for purchase/discounting of
bills and other instruments. Although the Bank on
purchasing/discounting the export bill immediately parts with
the Rupee equivalent, the foreign exchange will be received
(delivered) on a future date after realisation of the bill. In the
case of usance bill, forward rate will be applicable. However,
in the case of sight bill, forward rates are not quoted even
though transit period is involved, as bills are likely to be
realised early.
TC Buying Rate is applied for purchase of foreign currency
traveller cheques.

Currency Buying Rate is applied for purchase of foreign
currency notes tendered by a customer.
The TT Selling rate is applicable for :
i) Outward remittance in foreign currency (TT/DD)
ii) Cancellation of purchase
a) Bill purchased/returned unpaid
b) Bill purchased/transferred to collection a/c
c) Refund of inward remittances
iii) Forward purchase contract cancellation on or after due
date
iv) Conversion of NRE deposit to FCNR/RFC deposits
v) Recovery of interest on PCFC/FC Loan
Bill Selling Rate

The Bill Selling rate is applied for transactions involving
transfer of proceeds of import bills.
It is to be noted that although the transfer may take place by
way of a DD/TT etc. the TT selling rate is not to be applied.
TC Selling Rate is applicable for sale of foreign Traveller
Cheques to the customers.
Currency Selling Rate is applicable for sale of foreign
currencies.
Solution
A) Base Rate
As USD being quoted at Rs.61.50/55, the market will buy USD
from us at Rs.61.50 and hence the base rate will be taken at
Rs.61.50.
B) Bill Buying Rate (OD Buying)
Base Rate Rs. 61.50

Add premium/deduct discount as the case may be, for the
period of delivery/realisation.
For Ex, Premium for 3 months Rs.0.60 Rs. 00.60
----------
Rs. 62.10
Less: Exchange Margin @ say 0.150% Rs. 00.09
------------
Rs.62.01
F) Bill Selling Rate

Base rate would be Rs. 61.53
(after adjusting Cash/Spot Difference say 2 Paise)
Add: Exchange margin, say 0.200% Rs. 00.12
----------
Rs. 61.65
G) TC Selling Rate
Base rate is TT Selling rate Rs. 61.62
Add. Margin say 0.50% Rs. 00.30
-----------
Rs. 61.92
Rounded off to nearest 5 paise Rs. 61.95
(Additional commission @1% if advised by Bank need to be
added)
H) Currency Selling Rate
This rate is applicable for sale of foreign currencies :
Base Rate is TC Selling Rate Rs.61.95
Add :Margin say 0.50% Rs 00.30
---------
Rs.62.25
Rounded off to nearest 5 paise Rs.62.25

02. A Bank quote its rate as - One US dollar=Rs.46.57- 46.75
In the above context
a) What is the Buying Rate ?
b) What is the Selling Rate ?
Answer :
a) In the case of One US dollar=Rs.46.57- 46.75, the first
Rs.46.57 is the buying rate,
b) In the case of One US dollar=Rs.46.57- 46.75, the first
Rs.46.57 is the buying rate, the second 46.75 is the selling
rate.
03. A Bank quote its rate as - Rs.100=USD 2.2432- 2.2768.In
the above context
a) What is the Buying Rate ?
b) What is the Selling Rate ?
Answer :

a) In the case of Rs.100=USD 2.2432-2.2768, the bank agrees
to sell at the rate of USD 2.2432 for Rs.100.
b) In the case of Rs.100=USD 2.2432-2.2768, the bank is
willing to buy at USD 2.2768 for Rs.100.
(The buying rate is known as the bid rate and the selling rate is known
as offer rate)
04. From the following Inter Bank Rates, calculate Rupee Franc
Rate
US Dollar to Indian Rupee is $1=Rs.34.2400 – 34.2600
US Dollar and French Franc are $1=French Franc 4.9660 -
4.9710.
Answer :
First the customer buys US Dollar from the market in India at
$1 selling rate of Rs.34.2600.
The US Dollar thus acquired is disposed off in the London
market for French Franc at the market buying rate $1=French
Franc 4.9660.
Therefore the Rupee Franc Rate is:
French Franc 1= 34.2600/4.9660 = 6.8989
Rounded off to Rs. 6.8990.
05. From the following data arrive at Quote for Swiss Francs
(SFR) against the Deutsch Mark (DM).
$1=SFR 1.1326/1.1336 and $1=DM1.3750/1.3755
Answer :
Our aim is to derive the Selling and Buying Rates for Swiss
Francs (in terms of Deutschmarks (DM)
If we are selling Swiss francs we will be buying Deutschmarks.

So we begin with the rate for selling Swiss francs and buying
dollars; we then move to selling dollars and buying
Deutschmarks.
We have to apply Cross Rule (Chain Rule) of these two rates to arrive
at Rate for selling Swiss francs and buying Deutschmar
Step 1 (to calculate rate for One USD in SF)

The rate for selling Swiss francs to the dealer and buying
Dollars is SFR 1.1336;
When SFR 1.1336 = 1 USD
One SFR = 0.8822 { 1 / 1.1336 = 0.8821 }
To get one USD we have to pay SFR 0.8821
Step 2 ((to calculate rate for One USD in DM)
The rate for selling Dollars and buying Deutschmarks is DM
1.3750.
One USD = DM 1.3750
One USD = SFR 1.1336
Step 3
As such Quote SFR/DM will be as under:
DM 1.3750 = SFR 1.1336 (as both are equal to one USD)
One DM = SFR 1.1336 / DM 1.3750 = 0.8244
Or
SFR 1.1336 = DM 1.3750 (as both are equal to one USD)
One SFR = 1.3750 / 1.1336 = 1.2130
Thus the rate for Selling Swiss francs and Buying
Deutschmarks is
1 SFR =DM 1.2130 or 1 DM = SFR 0.8244

08. If the quotation for Pound Sterling in the Interbank
Market is ……..
Spot GBR 1 = Rs. 73.4000/4300
Spot/May 3800/3600
Spot/June 5700/5400
From the above data, calculate following Outright Rates (both
buying and selling)
Spot delivery
Forward delivery May
Forward delivery June
Solution:
Since the forward margin is in descending order (3800/3600),
forward sterling is at discount.
The outright forward rates are calculated by deducting the
related discount from the spot rate.

Buying Rates
May June
Spot rate 73.4000 73.4000
Less discount 00.3800 00.5700
73.0200 72.8300
Selling Rates
May June
Spot rate 73.4300 73.4300
Less discount 00.3600 00.5400
73.0700 72.8900
From the above we may conclude as under.
Buying Selling
Spot GBP 73.4000 73.4300
Forward delivery May 73.0200 73.0700
Forward delivery June 72.8300 72.89

09. Spot rate $1=Deutschmark 1.5000
Interest for USD = 3.5%
Interest for DEM = 11.5%
Based on the above information Calculate the Forward
Margin.
Solution:
The forward margin can be calculated for a specific period
given the spot rate and interest differential.
Interest rate differential = 8 % (US 3.5% and DEM 11.5%).
Let us also assume that the Number of days in a year to be
360 days and the forward margin is for a period of 180 days or
6 months.
Forward Margin =
Forward period x Interest Differential x Spot rate

= -----------------------------------------------------
100 x No. of days in the year
180 x 8 x 1.5000 2160
= --------------------------- = --------- = 0.0600
100 x 360 36000
The Forward margin for 180 days = 0.0600.

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d. Cancellation of forward sale contract on or after due date.

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Bill Selling Rate

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F) Bill Selling Rate

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Step 1 (to calculate rate for One USD in SF)

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