Forex Numerical on Rates

Objective
• To understand the numerical on quotations
 FOREIGN EXCHANGE RATE: Foreign Exchange Rate is
the rate of one currency in terms of another currency

Direct quote: In this case there is one unit of foreign currency and
corresponding units of home currency. Examples of direct quotes:
• 1$ = Rs. 40 1£ = Rs. 82 1 Euro = Rs. 54
Indirect quote: In this case there is one unit of home currency and
corresponding units of foreign currency. Examples indirect quotes:
• Re.1 = $ 0.0250 Re.1 = £ 0.0122 Re. 1 = Euro 0.0185
Direct quote = 1/indirect quote Indirect quote = 1/direct quote
International Quotes (cross currency quotes): In this case, both the
currencies are foreign currencies. Examples of international quotes in
India: 1$ = £ 0.5488 1£ = $ 1.8222 1 Euro = $ 1.2000
Spot and Forward Rates: Purchase and sale of one currency against other currency may be either on spot basis or for
future delivery. In spot transaction, currencies are delivered either immediately (same day) or within two days from
date of transaction.
The exchange rate of a spot transaction is called as “spot Rate”.

A future delivery transaction is one in which a contract is made between two parties for purchase and sale of the one
currency against other at a stipulated future date at a rate agreed upon at the time of contract. In such contracts,
deliveries of currencies are made on the stipulated future date. The exchange rate of a future delivery transaction is
called as Forward Rate.

• Spot $ 1 = 39.95/Rs. 39.97

• 1 month forward $ 1 = 39.98/Rs. 40.00
• A person agrees to buy $ 10,000 on one month forward
(on the basis of above quotes) from X bank. Under this
contract, e will pay X Bank Rs. 4,00,000 nd X bank will pay
him $ 10,000 (both currencies to be delivered after one
month).
• Forward Premium or Discount: The forward rate
for a currency may be costlier or cheaper than its
spot rate. The difference between the forward
rate and spot rate is known as forward margin or
swap points. If a currency is costlier in future as
compared to spot, it is said at premium.
• FP= Forward price – Spot price*12*100
Spot price*N

Q: A person has to pay $ 13750 after three months today.

Spot Rate: Re. 1 = $ 0.0275. Rupee is likely to depreciate by
5% over three months. What is likely forward rate?
Cross Currency Rates: Let A,B and C be three currencies. We are given exchange
rates between A & B and between B & C. we can derive the rate between A & C.
The rates so derived are known as cross currency rates.
Example
1USD = Rs. 40.00 1 USD = CHF 1.40 1 CHF = Rs. ?

Answer
1 $ = Rs. 40.00 (It is Rs./$)
1$ = CHF 1.40 (It is CHF/$)
Re. 1 = $ 0.0250 (It is $/Re.)
1 CHF = $ 0.71429 (It is $/CHF)
We have to find (Rs./CHF)
• Rs./CHF = Rs./$ x $/CHF = 40 x 0.71429 = Rs. 28.5714
• 1 CHF = Rs. 28.5714
• Numerical
Q. No. 1
• Convert the direct quotes into
indirect quotes:
• 1$ = Rs. 40.00/40.05
• 1£ = Rs. 82.00/82.07
• 1 Euro = Rs. 56.00/56.18
• Answer
• $1 = Rs. 40.00 – 40.05.
• Re.1 = 1/40.05 – 1/40.00
• = $ 0.02496879 – 0.02500000
• 1£ = Rs. 82.00/82.07
• Re. 1 = 1/82.07 – 1/82.00
• = £ 0.0121847 – 0.01219512
• 1 Euro = Rs. 56.00 – 56.18
• 1 Re. = Euro 1/56.18 – 1/56.00
• = Euro 0.01779993 – 0.01785714
• Q.No.2
• Calculate how many rupees Shri Ras bihari Ji Ltd., a New
Delhi based firm, will receive or pay for its following four
foreign currency transactions:
• The firm receives dividend amounting to Euro 1,12,000 from
its French Associate Company.
• The firm pays interest amounting to 2,00,000 Yens for its
borrowings from a Japanese Bank.
• The firm exported goods to USA and has just received USD
3,00,000.
• The firm has imported goods from Singapore amounting to
Singapore Dollars (SGD) 4,00,000.
• Given: 1$ = Rs. 40.00/40.05 1 Euro = Rs. 56.00/56.04 1 SGD
= Rs. 24.98/25.00 100 Yens = Rs. 44.00/44.10
• Answer:
• Foreign Exchange rate: 1 Euro = Rs. 56.00/56.04
• The firm shall be selling Euros; the bank shall be buying the Euros
@ Rs. 56.00. The firm will receive 1,12,000 x 56 i.e., Rs. 62,72,000.
• Foreign Exchange rate: 1 yen = Re. 0.4400/0.4410
• The firm shall be buying the yens; the bank shall be selling the
yens @ Re. 0.4410. The firm will pay 2,00,000 x 0.4410 i.e., Rs.
88,200.
• Foreign Exchange rate: 1$ Euro = Rs. 40.00/40.05
• The firm shall be selling $; the bank shall be buying the $ @ Rs.
40.00. The firm will receive 3,00,000 x 40 i.e., Rs. 1,20,00,000.
• Foreign Exchange rate: 1 SGD = Rs. 24.98/25.00
• The firm shall be buying the SGD; the bank shall be selling the SGD
@ Rs. 25.00. The firm will pay 4,00,000 x 25.00 i.e., Rs.
1,00,00,000
Q3 Calculate how many British pounds a London based firm
will receive or pay for its following four foreign currency
transactions:
• The firm receives dividend amounting to Euro 1,20,000
from its French Associate Company.
• The firm pays interest amounting to 2,00,000 Yens for its
borrowings from a Japanese bank.
• The firm exported goods to USA and has just received USD
3,00,000.
• The firm has imported goods from Singapore amounting to
Singapore Dollars (SGD) 4,00,000.
• Given: 1$ = £0.50/0.51 1 Euro = £0.60/0.61
• 1 SGD = £0.39/0.40 1 Yen = £0.0049/0.0050
• Answer
• Foreign Exchange Rate: 1 Euro = £0.60/0.61
• The firm shall be selling Euros; the bank shall be buying the
euro @ £0.60. The firm will receive 1,20,000 x 0.60 i.e.,
£72,000.
• Foreign Exchange Rate: 1 Yen = £0.0049/0.0050
• The firm shall be buying the Yens; the bank shall be selling the
yens @ £0.0050. The firm will pay 2,00,000 x 0.0050 i.e., £
1,000
• Foreign Exchange Rate: 1 4 = £0.50/0.51
• The firm shall be selling $; the bank shall be buying the $ @
£0.50. The firm will receive 3,00,000 x 0.50 i.e., £ 1,50,000.
• Foreign Exchange Rate: 1 SGD = £0.39/0.40
• The firm shall be buying the SGD; the bank shall be selling the
SGD @ 0.40. The firm will pay 4,00,000 x 0.4000 i.e., £ 1,60,000.
• Q. No4
• Calculate how many US$ a New York based firm will receive or
pay for its following four foreign currency transactions:
• The firm receives dividend amounting to Euro 1,20,000 from
its French Associate Company.
• The firm pays interest amounting to 3,00,000 Yens for its
borrowings from a Japanese bank.
• The firm exported goods to UK and has received £3,00,000.
• The firm has imported goods fr1om Singapore amounting to
Singapore Dollars (SGD) 4,00,000.
• Given: 1 £ = $ 2.00/2.01
• 1 Euro = $ 1.20/1.21
• 1 SGD = $ 0.49/0.50
• 100 Yens = $ 0.89/0.90
• Answer
• Foreign Exchange Rate (FER): 1 Euro = $ 1.20/1.21
• The firm selling Euro 1,20,000. The bank will be
buying the Euros. The bank buys Euros @ $ 1.20.
Hence, the firm receives $1,44,000.
• FER: 1 Yen = $ 0.0089/0.0090. The firm will be buying
the Yens; the bank will be selling 3,00,000 Yens $ @
$0.0090. The firm pays $ 2,700.
• FER = 1 £ = $ 2.00/2.01. The firm will be selling
£3,00,000 @ $2. The firm receives $ 6,00,000.
• FER: 1 SGD = $ 0.49/0.50. The firm will be buying SGD
4,00,000 @ 0.50. The firm shall be paying $ 2,00,000.
• Calculate how many USD a New York based firm will receive or
pay for its following four foreign currency transactions:
• The firm receives dividend amounting to Euro 1,20,000 from its
French Associate Company.
• The firm pays interest amounting to 2,70,000 Yens for its
borrowings from a Japanese Bank.
• The firm exported goods to UK and has just received £3,00,000.
• The firm has imported goods from Singapore amounting to
Singapore Dollars (SGD) 4,00,000.
• Given:
• 1$ = Euro 0.7937/0.8000
• 1$ = Yens 135/136
• 1$ = Pound 1.99/2.00
• 1$ = SGD 1.60/1.61
• Answer
• 1 Euro = $ 1/0.8000 – 1/0.7937
• 1 Yen = $ 1/136 – 1/135
• 1 £ = $ 1 /2.00 – 1/1.99
• 1 SGD = $ 1/1.61 – 1/1.60
• The bank buys Euro 1,20,000 x 1/0.80 = $1,50,000
•  
• The firm receives $1,50,000.
• The bank sells Yens 2,70,000 for 2,70,000 x 1/135 = $ 2,000
• The firm pays $2,000.
• The bank buys £ 3,00,000 for 3,00,000 x 1 /2.00 = $ 1,50,000.
• The firm receives $1,50,000.
• The bank sells SGD 4,00,000 for 4,00,000 x 1/1.60 = $ 2,50,000
• The firm pays $2,50,000.
 Learning outcome
• We understood the numerical based on rates
in forex market