Chapter No. Page No. 20 350 International Finance COMMERCIAL RATES OF EXCHANGE SPOT RATE � THE NORMAL RATE QUOTED IN THE FOREIGN EXCHANGE MARKET IS THE SPOT RATE. � THIS RATE IS QUOTED FOR TRANSACTIONS WHERE THE FOREIGN CURRENCY BOUGHT OR SOLD IS TO BE RECEIVED OR DELIVERED IMMEDIATELY. � IT IS THE BASIC RATE FROM WHICH ALL OTHER RATES OF EXCHANGE ARE CALCULATED.
Chapter No. Page No. 20 350 International Finance COMMERCIAL RATES OF EXCHANGE T T RATE THIS IS SPOT RATE USED FOR REMITTANCES FROM ONE COUNTRY TO ANOTHER BY TELEGRAPHIC TRANSFERS, i.e. FOR TRANSACTIONS IN WHICH THE RECEIVING AND PAYING OVER OF THE AMOUNTS INVOLVED ARE MADE ALMOST SIMULTANEOUSLY AND NO QUESTION OF INTEREST IS INVOLVED .
Chapter No. Page No. 20 350 International Finance COMMERCIAL RATES OF EXCHANGE VALUE- DATED TRANSACTIONS TRANSACTIONS IN FOREIGN EXCHANGE WHICH SPECIFY THE DATE ON WHICH THE FOREIGN CURRENCY BOUGHT AND SOLD HAS TO BE DELIVERED AND THE PRICE THEREOF IN THE LOCAL CURRENCY IS TO BE PAID ARE VALUE –DATED TRANSACTIONS.
Chapter No. Page No. 20 352 International Finance COMMERCIAL RATES OF EXCHANGE BUYING RATES THERE ARE FOUR TYPES OF BUYING RATES: 1. TT BUYING RATES: THIS IS THE RATE AT WHICH A BANKER BUYER BUYS A TT OR DRAFT ISSUED ON HIM BY AN OVERSEAS BRANCH OR CORRESPONDENT. IT IS THE RATE AT WHICH THE FOREIGN CURRENCY, IN WHICH THE TT OR DRAFT IS DRAWN, IS CONVERTED INTO THE HOME CURRENCY BEFORE MAKING PAYMENT. CONT… .
Chapter No. Page No. 20 352 International Finance COMMERCIAL RATES OF EXCHANGE BUYING RATES THERE ARE TWO KINDS OF TTs IN FOREIGN EXCHANGE TRANSACTIONS: i. TT (CLEAN) RATE-APPLICABLE TO TTs (CLEAN) IN WHICH THE HANDLING OF DOCUMENTS IS NOT INVOLVED. ii. TT (DOC.) RATE-APPLICABLE TO TTs (DOC.) IN WHICH THE HANDLING OF DOCUMENTS IS INVOLVED. CONT…
Chapter No. Page No. 20 352 International Finance COMMERCIAL RATES OF EXCHANGE BUYING RATES 2. OD (ON DEMAND ) BUYING RATES: IT IS THE TT (CLEAN) BUYING RATE LOADED WITH INTEREST FOR THE TRANSIT PERIOD. THIS RATE APPLIES TO TRANSACTIONS SUCH AS PURCHASE OR NEGOTIATIONS OF EXPORT BILLS. 3. LONG BUYING RATES: THIS IS THE RATE USED FOR DISCOUNTING USANCE OR LONG BILLS, AND IS CALCULATED BY LOADING THE TT (CLEAN) BUYING RATE WITH INTEREST FOR THE TRANSIT PERIOD PLUS THE PERIOD OF USANCE PLUS THE DAYS OF GRACE, WHERE APPLICABLE. 4. TEL QUEL RATE OR T.Q. RATE: THIS IS A LONG BUYING RATE AND IS QUOTED FOR DISCOUNTING USANCE BILLS HAVING ONLY A BROKEN PERIOD OF USANCE TO RUN.
Chapter No. Page No. 20 353 International Finance COMMERCIAL RATES OF EXCHANGE SELLING RATES SALE TRANSACTIONS IN FOREIGN EXCHANGE ARE CLASSIFIED INTO TWO GROUPS. CLEAN SALES– ISSUE OF TTs, MTs, DRAFTS LETTER OF CREDIT, TRAVELER’S CHEQUES, etc., AND SALES ARISING OUT OF IMPORT BILLS. THEREFORE THERE ARE TWO TYPES OF SELLING RATES 1. TT SELLING RATES. 2. BC BILL. (COLLECTION)
Chapter No. Page No. 20 353 International Finance COMMERCIAL RATES OF EXCHANGE EXCHANGE RATE MAXIMS � BUY HIGH, SELL LOW: HERE THE WORD HIGH MEANS THE HIGHER RATE OF EXCHANGE AND THE WORD LOW MEANS THE LOWER RATE OF EXCHANGE. THE MAXIM IMPLIES THAT IT IS ADVANTAGEOUS FOR THE BANKER TO BUY AT THE HIGHER RATE AND SELL AT THE LOWER RATE AVAILABLE. THIS MAXIM IS SOME TIMES EXPRESSED AS “TAKE MORE, GIVE LESS”.
Chapter No. Page No. 20 353 International Finance COMMERCIAL RATES OF EXCHANGE EXCHANGE RATE MAXIMS � BUY LOW SELL HIGH: THIS MAXIM IS APPLICABLE TO DIRECT/HOME CURRENCY QUOTATIONS. IT IMPLIES THAT IT IS PROFITABLE FOR A BANKER TO PURCHASE FOREIGN CURRENCY AT THE LOWER RATE AND SELL IT AT THE HIGHER RATE. � THE BETTER THE BILL, THE LOWER THE RATE: THE EARLIER A BILL OF EXCHANGE IS PAYABLE THE BETTER IS IT CONSIDERED TO BE . THUS A DP BILL i.e. A BILL PAYABLE ON PRESENTATION, IS BETTER THAN A USANCE BILL, i.e. A BILL PAYABLE AFTER A SPECIFIED PERIOD.
Chapter No. Page No. 20 354 International Finance COMMERCIAL RATES OF EXCHANGE CROSS RATES A CROSS RATE IS A RATE OF EXCHANGE DERIVED FROM THE QUOTATIONS OF ANY TWO CURRENCIES IN TERMS OF A THIRD, OR OF MORE THAN TWO CURRENCIES IN TERMS OF ANOTHER .
Chapter No. Page No. 20 356 International Finance COMMERCIAL RATES OF EXCHANGE COMPOSITION OF RUPEE-STERLING SPOT RATES THE RUPEE-STERLING SPOT RATES THAT BANKS OFFER TO THE PUBLIC ARE BASED ON, BUT ARE NOT THE SAME AS, THE RESERVE BANKS’BUYING AND SELLING RATES. CERTAIN LOADING FACTORS ENTER INTO THE COMPOSITION OF THESE RATES, MAKING THEM DIFFERENT FROM THE RESERVE BANK RATES.
Chapter No. Page No. 20 357 International Finance COMMERCIAL RATES OF EXCHANGE RUPEE-OTHER CURRENCY RATES THE RATE OF EXCHANGE BETWEEN THE RUPEE AND ANY FOREIGN CURRENCY OTHER THAN POUND STERLING IS CALCULATED BY THE CHAIN RULE METHOD OUT OF THE PREVAILING RUPEE-STERLING RATE WITH REFERENCE TO THE CLOSING RATE BETWEEN POUND STERLING AND THE CURRENCY CONCERNED OF THE PROCEEDING DAY OF THE LONDON MARKET AS REPORTED BY THE PRESS TRUST OF INDIA.
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