International Banking General Bank Management (Module-A)

INTERNATIONAL BANKING
General Bank Management (Module-A)

Live Interactive Learning Session-
C.S.BALAKRISHNAN
FACULTY MEMBER
SIR SPBT COLLEGE
18.04.2007
Forex Market
 The total turnover in Forex Market apprx. US
dollar 1.5 trillion per day. Indian Market USD
1.20 BN per day.
 Round the clock market starting from Sydney
and Tokyo in the east through Hong Kong,
Singapore, Bahrain, London and New York.
 participants are –central banks , commercial
banks, investment funds, corporates, individuals
and brokers.
 Over the counter market
FEMA ACT 1999 Defines Foreign Exchange as
“Foreign Exchange means & includes:
a) All deposits,credits and balances
payable in foreign currency,and any
drafts,traveller’s cheques,letters of credit
and bills of exchange,expressed or
drawn in Indian currency and payable in
any foreign currency.
b) Any instrument payable at the option of

the drawee or holder,thereof or any other
party thereto,either in Indian currency or in
foreign currency,or partly in one and partly in
the other”.
FX Rates
 What is Exchange Rate ?
 Exchange Rate is a rate at which one
currency can be exchanged into another
currency. In other words it is value one
currency in terms of other.
say:
US $ 1 = Rs.45.18
This rate is the conversion rate of every
US $ 1 to Rs. 45.18
Factors Determining Exchange
Rates
(a). Fundamental Reasons:
- Balance of Payment – surplus leads to stronger currency.
- Economic Growth Rates –High/Low growth rate.
- Fiscal / Monetary Policy- deficit financing leads to depreciation
of currency.
- Interest Rates –currency with higher interest will appreciate in
the short term.
- Political Issues –Political stability leads to stable rates
(b). Technical Reasons
- Government Control can lead to unrealistic value.
- Free flow of Capital from lower interest rate to higher
interest rates.
(c). Speculation – higher the speculation higher the volatility in rates
Methods of Quotation
 Method – I  Method – II
 One Orange = Rs 2  Rs. 10 = 5 Oranges
 One Apple = Rs 2.50  Rs. 10 = 4 Apples
Price under both the methods is the same though expressed differently
Method - I Method - II
DIRECT(FC fixed) INDIRECT( HC fixed)
USD 1 = Rs 45.18 Rs 100 = USD 2.2133
GBP 1 = Rs.85.99 Rs 100 = GBP 1.1629
EUR 1 = Rs 57.92 Rs 100 = EUR 1.7265
With Effect from 02.08.1993, all exchanges are quoted in Direct

Method
Understanding Two Way Exchange Quotes
In Forex markets , there are two way
quotes i.e. both buying and selling
rates are given.
 1 USD = INR 45.16/ 18
 BUYING RATE $/RE = RE 45.16
 SELLING RATE $/RE = RE 45.18
In the abovementioned quote,

lowest is market buying rate and highest is market selling rate.
Understanding Two Way Exchange Quotes
One of the features of the FX markets is that this is the

nearest form of perfect markets existing today.
One of the reasons why this is so is that prices are always

Quoted as TWO WAY QUOTES
U S D 1 = C H F 1 .2 5 7 0 /7 3
C H F 1 .2 5 7 0 C H F 1 .2 5 7 3
B U Y IN G R A T E S E L L IN G R A T E
Understanding Exchange Rates
 Dollar/Swiss Francs -- USD/CHF

 Note the order of the currencies
 “USD” comes before the “CHF”
 The first currency($) - Base currency

 Second currency (CHF) - Terms currency
 It is important to remember that Bid &

Offer in trading always refers to the BASE
CURRENCY.
Understanding Exchange Quotes
 In the FX market, Time is of great
importance.
 Therefore, there are short forms for
everything.
 While quoting, the dealers use only the
third & fourth decimals.
 USD/CHF 1.2540 / 45
 USD/INR 45.1675 / 00
 GBP/USD 1.8000 / 10
 BIG FIGURE
 In a live dealing scenario dealers would
quote only 40/45 , 75/figure , figure/10
and the market assumes that all players
already know the BIG FIGURE
Calculating Cross Rates
 India is a market maker for Indian Rupee
 Dollar/ Rupee trading ( the first quotes) start in the
Mumbai Market
 BUT WHAT ABOUT OTHER CURRENCIES ?
 WHERE DO RATES FOR CHF, GBP, EUR ETC COME
FROM? HOW ARE THEY CALCULATED?
 A CHF/RUPEE RATE IS A CROSS OF DOLLAR/RUPEE &

DOLLAR / CHF.
 DOLLAR / RUPEE = 45.35/36
 DOLLAR / CHF = 1.3440 / 45
 CHF / RUPEE = 33.73 / 75

 In other words, 45.36 / 1.3440 = 33.75 AND
 45.35 / 1.3445 = 33.73
Calculating Cross Rates
 India is a market maker for Indian Rupee
 Dollar/ Rupee trading ( the first quotes) start in the
Mumbai Market
 BUT WHAT ABOUT OTHER CURRENCIES ?
 WHERE DO RATES FOR CHF, GBP, EUR ETC COME
FROM? HOW ARE THEY CALCULATED?
 A CHF/RUPEE RATE IS A CROSS OF DOLLAR/RUPEE &

DOLLAR / CHF.
 DOLLAR / RUPEE = 45.16/18
 DOLLAR / CHF = 1.2570 / 73
 CHF / RUPEE = 35.92 / 94

 In other words, 45.16 / 1.2570 = 35.92 AND
 45.18/ 1..2573 = 35.94
Types of Transaction: Value Date Concept
Due to vastness of the market and origin of transactions and
settlements may take place at different time zones, most of times
deal dates and settlement date differs. Market uses different
terminology which are used universally to avoid conflict.
Type of TXN Date of Deal Value Date

Cash/Ready 15.11.2006 15.112006
Wednesday Wednesday
TOM 15.11.2006 16.11.06
Wednesday Thursday
Spot 15.11.2006 17.11.06
Wednesday Friday
Forward 15.11.2006 Any day after
Wednesday 17.11.06
Types of Transaction: Value Date Concept
Due to vastness of the market and origin of transactions and
settlements may take place at different time zones, most of times
deal dates and settlement date differs. Market uses different
terminology which are used universally to avoid conflict.
Type of TXN Date of Deal Value Date

Cash/Ready 17.11.06 17.11.06
Friday Friday
TOM 17.11.06 20.11.06
Friday Monday
Spot 17.11.06 21.11.06
Friday Tuesday
Forward 17.11.06 Any day after
Friday 21.11.06
Forward Rates
 What is a Forward Rate ?

 Rate agreed for settlement on an
agreed date in the future
 All rates are derived from Spot rates
 Forward rate is the spot rate adjusted
for the premium / discount
 Forward Rate = Spot Rate + / -

premium or discount
Premium/Discount
 Forward price = Spot price plus or minus forward
margin.
 Premium –forward value of currency is higher
than spot rate. A currency with lower rate of
interest is said to be at premium in the forwards.
Forward margins added to spot rate.
 Discount – forward value of currency is lower
than spot rate. A currency with higher rate of
interest is said to be at discount. Forward
margins deducted from spot rate.
Derivative Instruments
Derivatives instruments are management tools derived from
underlying exposures (Assets) such as Currency,
Commodities, Shares, Bonds or any other indices, used to
reduce or neutralize the exposure on the underlying
contracts.
Derivatives could be Over the Counter (OTC) i.e. made to
order or Exchange Traded Facilities which are standardized
in terms of quantity, quality, start & ending dates.
What is an FX Option
 An FX option contract gives the buyer (or holder)

the right, but not the obligation, to:
 Buy Rupees, in the case of a Rupee call/ Dollar
put option, against Dollars (or sell Rupees against
Dollars in the case of a Rupee put/Dollar call
option);
 For a predetermined quantity of Rupees;
 At a predetermined fixed price (the strike or
exercise price);
 On (if European style) or until (if American style)
a fixed future date;
 For a premium (option price) negotiated at the
time of dealing.
How does an FX Option Differ from a
Forward
 Consider an exporter who expects to receive

$1MN in 3 months.
 The exporter can go in for
 Forward contract or Option contract
 Forward contract – performance is obligatory on the
for buyer and seller.*

• Option contract – performance is not obligatory for
for option holder.

 Suppose , exporter goes for option contract. He will
agree to sell $1 mn after 3 months. On due date,
depending upon $/RE rate, he will decide to exercise the
option or not.
Q. Option pricing would depend upon
Which of the following aspects?
(a) Amount (Whether market lot or small lot)

(b) Strike Price
(c) Spot Rate
(d) Type- American or European
(e) All of the above
Answer: (e)
Q. Which of the following statement is
false for a ‘Forward Contract’?
(a) An OTC Product

(b) Credit Risk on counter parties exists
(c) Can be for odd amount
(d) Works on Margins requirement
Answer: (d)
Q. An Irrevocable Letter of Credit can be
amended with the consent of following
parties.
(a) The Applicant (Buyer) and The

Beneficiary (Seller).
(b) Issuing Bank and Confirming Bank.
(c) The Advising Bank & Reimbursing Bank.
(d) (a) & (B) only
Answer: (d)
Q. Issuing Bank has to point out
discrepancies in Documents negotiated
under L/C to the negotiating bank
within a period of:
(a) 1 month
(b) 2 weeks
(c) 7 days
(d) Only upon receipt of objections from
the applicant.
Answer: (c)
Q. A ‘Red Clause’ Letter of Credit enables
the beneficiary to avail pre-shipment
credit from
(a) L/C Issuing Bank

(b) L/C Confirming Bank
(c) L/C Advising Bank or Nominated Bank
(d) Any bank preferred by the beneficiary.
Answer: (c)
Q. In case of an Acceptance Credit, the
usance period is calculated from the
date of Shipment or date of Bills of
Exchange.
(a) Statement is true

(b) Statement is false
(c) Statement is partially true
(d) Non of the above
Answer: (a)
Q. A ‘Certificate of Origin’ accompanying
documents must be issued & signed
by:
(a) Exporter/Seller
(b) Shipping Agents
(c) Customs Officials
(d) Chamber of Commerce of Exporter’s
Country.
Answer: (d)
Q. ‘Crystallization’ of Foreign Currency
Liability of the importer to be done by
the Issuing bank on the 10th day from
due date of payment in case of failure
on the part of importer. The conversion
of Foreign Currency Liability to Rupee
liability is done at:
(a) Bill Buying Rate

(b) TT Selling Rate
(c) Bill Selling Rate
(d) Spot Rate
Answer: (c)
Q. Export Proceeds from any of the ACU
countries should be settled under ACU
mechanism except:
(a) Sri Lanka

(b) Nepal
(c) Pakistan
(d) Republic of Iran
Answer: (b)
Q. Maximum amount for which AD can
permit for realization of export
proceeds beyond six months is:
(a) USD 100,000

(b) USD 1,000,000
(c) USD 50,000
(d) No such limit prescribed
Answer: (b)
Q. The Rate of interest charged for Export
Finance for period up to 180 days
which is stipulated by RBI is:
(a) At Bank’s BPLR

(b) Maximum BPLR minus 2.50%
(c) At Bank Rate
(d) At 9% flat.
Answer: (b)
Q. Waiver (exemption) for submission of
GR form is made in case of
Export/Remittance of Foreign Exchange
in which of the following case(s)?
(a) Gift up to Rs.5 lacs

(b) Trade Samples
(c) Export up to US $ 25000
(d) All of the above
Answer: (d)
Q. The GR forms are required to be signed
by Customs Officials where as PP
Forms (Post Parcel) is signed by APs in
the case of:
(a) 100% Advance Payment

(b) Against Letter of Credit
(c) Track Record of the Party
(d) All of the above
Answer: (d)
Q. The NPT (Notional Transit Period)
computation for Advance against Bills
sent on collection, the period
commences from:
(a) Bill of Lading

(b) Date of Bills of Exchange
(c) Date of acceptance of Bill at Branch
level for collection
(d) Usance period
Answer: (c)
Q. A mechanism by which APs finances
Exporters by discounting Export
Receivables without recourse to
Exporter/Seller is known as:
(a) Factoring
(b) Guarantees
(c) Forfaiting
(d) Bill Rediscounting
Answer: (c)
Q. IEC Code is issued by:
(a) RBI
(b) EXIM Bank
(c) ECGC
(d) DGFT
Answer: (d)
Q. Credit arranged by the importer (buyer)
from a bank/FI outside his country to
settle payments of imports is known
as:
(a) Supplier’s Credit

(b) Buyer’s Credit
(c) External Commercial Borrowing
(d) GDR
Answer: (b)
Q. NRE account can be jointly opened with
(A) With Non residents only

(B) With resident only
(C) with both Residents & Non Residents
Answer: (A)
Payment in rupees for purchase of foreign
exchange may be done in cash , if the rupee
value equivalent is not more than
A) Re 1,00,000
B) Re 50,000
C) RE 2,00,000
D) None of the above
Answer – (B)

International Banking General Bank Management (Module-A)

Uploaded by

Copyright:

Available Formats

International Banking General Bank Management (Module-A)

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

International Banking General Bank Management (Module-A)

Uploaded by

Copyright:

Available Formats

INTERNATIONAL BANKING

General Bank Management (Module-A)

b) Any instrument payable at the option of

With Effect from 02.08.1993, all exchanges are quoted in Direct

 BUYING RATE $/RE = RE 45.16

 SELLING RATE $/RE = RE 45.18

In the abovementioned quote,

One of the features of the FX markets is that this is the

One of the reasons why this is so is that prices are always

 Dollar/Swiss Francs -- USD/CHF

 “USD” comes before the “CHF”

 The first currency($) - Base currency

 It is important to remember that Bid &

 A CHF/RUPEE RATE IS A CROSS OF DOLLAR/RUPEE &

 DOLLAR / CHF = 1.3440 / 45

 CHF / RUPEE = 33.73 / 75

 A CHF/RUPEE RATE IS A CROSS OF DOLLAR/RUPEE &

 DOLLAR / CHF = 1.2570 / 73

 CHF / RUPEE = 35.92 / 94

Type of TXN Date of Deal Value Date

Type of TXN Date of Deal Value Date

 What is a Forward Rate ?

 Forward Rate = Spot Rate + / -

 An FX option contract gives the buyer (or holder)

 Consider an exporter who expects to receive

for buyer and seller.*

for option holder.

(a) Amount (Whether market lot or small lot)

(a) An OTC Product

(a) The Applicant (Buyer) and The

(a) L/C Issuing Bank

(a) Statement is true

(a) Bill Buying Rate

(a) Sri Lanka

(a) USD 100,000

(a) At Bank’s BPLR

(a) Gift up to Rs.5 lacs

(a) 100% Advance Payment

(a) Bill of Lading

(a) Supplier’s Credit

(A) With Non residents only

You might also like