Foreign Exchange Part-2 for Bank Promotion Exam

Foreign Exchange Part-2 for Bank Promotion Exam

Ø  Types of Transaction in foreign exchange (Based on rate settled today and Delivery different day or same time)

Types of Transation	Rate settled today  and Delivery
1.  Cash Transaction	Same Day – T + 0
2.   TOM	Next working day- T+1
3.   SPOT	Second Working Day –  T +2
4.   FORWARD	After second working day- T +3 onward

Ø Exchange Rate :

1.  Buying Rate :- Rate at which bank purchase foreign exchange.

:- In this case Bank inflow of Funds

:- Export bill Purchase/ Inward remittance.

2.  Selling Rate :- Rate at which bank sell foreign exchange.

:- Bank out flow of funds (Import Bills)

ü  Difference between Buying rate and selling rate is called Dealers spread.

3.  Direct Rate :- When foreign exchange are remains constant and home currency changes.

e.g. :-

US $ 1= Rs. 63.41

US $ 1= Rs. 62.69

4.  Indirect Rate :- When home currency remains constant and foreign currency changes.

e.g. :-

Rs. 100 = US $ 1.41

Rs. 100 = US $ 1.45

ü  In India direct rate are applied.

ü In India exchange rate are decided by market forces of demand & supply , Not decided by RBI.

ü Exchange rate of currency are most adverse compare to travel cheque, Draft etc because holding cost of currency is high.

A.  Buying Rate :- It is of 2 types

a.  TT Buying : When Nostro Account of Banks is credited before making payment to customer.

e.g. :- Payment of foreign DD drawn on US.

:- Collection of Export Bills.

b.  Bills Buying:- When Nostro Account of the bank is credited after making payment to customer.

e.g. : Purchase /Discount of Export bills

B. Selling Rate :-

It is also devided into two parts

a.  TT Selling :- When Foreing Exchanged is sold but import bill are not handled.

e.g. :- Issue of Foreign DD/TT/MT

:- Crystallisation of overdue export bill.

b.  Bill Selling :- When import bill are handled while selling foreign exchange.

e.g. :- A Retirement of Import Bill.