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    This document discusses exchange rate mechanisms. It defines exchange rates as the rate at which one currency is converted to another. Direct rates keep the foreign currency unit constant while indirect rates keep the home currency unit constant. There are various types of exchange rates like ready/cash rates for same-day settlement, tom rates for next day settlement, and spot rates for settlement in 2 days. Premiums and discounts apply when future rates are higher or lower than present/spot rates. Different card rates apply to transactions involving remittances, bills, and forward contracts based on base rates and exchange margins.

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    120513_Exchange Rate Mechanism

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    This document discusses exchange rate mechanisms. It defines exchange rates as the rate at which one currency is converted to another. Direct rates keep the foreign currency unit constant while indirect rates keep the home currency unit constant. There are various types of exchange rates like ready/cash rates for same-day settlement, tom rates for next day settlement, and spot rates for settlement in 2 days. Premiums and discounts apply when future rates are higher or lower than present/spot rates. Different card rates apply to transactions involving remittances, bills, and forward contracts based on base rates and exchange margins.

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    Download as PPT, PDF, TXT or read online from Scribd
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    18 views11 pages

    ERM-Exchange Rate Mechanism

    Uploaded by

    akranjan888
    This document discusses exchange rate mechanisms. It defines exchange rates as the rate at which one currency is converted to another. Direct rates keep the foreign currency unit constant while indirect rates keep the home currency unit constant. There are various types of exchange rates like ready/cash rates for same-day settlement, tom rates for next day settlement, and spot rates for settlement in 2 days. Premiums and discounts apply when future rates are higher or lower than present/spot rates. Different card rates apply to transactions involving remittances, bills, and forward contracts based on base rates and exchange margins.

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    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    of 11

    Exchange Rate Mechanism

    October 27, 2013 Academy of Excellence

    TC Baroda

    Inventing Methods for Igniting Minds

    Exchange Rate Mechanism

    The rate at which one currency is converted into another currency is called exchange Rate. In other words, rate of exchange is the price of a unit of one currency expressed in terms of other currency. Such rates can be direct as well Indirect rates.

    Academy of Excellence

    Inventing Methods for Igniting Minds

    Direct & Indirect Rates


    Direct rates: where the unit(s) of foreign currency remains constant, whereas the home currency units fluctuate: US $ 1 = Rs. 45.00

    Indirect rates: where the unit(s) of home currency remains constant against variable units of foreign currency Rs. 100= US $ 2.2222
    Academy of Excellence Inventing Methods for Igniting Minds

    Types of Rates
    Cash or Ready Rate: When the settlement of the deal takes place on the same day then it is known as Value Cash / Ready Rate TOM or Value tomorrow rate: When the settlement takes place on the next working day then it is known as TOM Spot Rate: When the settlement takes place on second working day from the date of the deal or T+2
    Academy of Excellence

    Inventing Methods for Igniting Minds

    Type of Rates
    CROSS Rate: The rate of exchange between two foreign currencies is called cross rate

    Academy of Excellence

    Inventing Methods for Igniting Minds

    Premium or Discount
    Premium: When the currency is dearer for future delivery than in the spot delivery i.e. currency is dearer for forward purchase than in the spot purchase. Discount: When the currency is cheaper in future delivery than in the spot delivery i.e. currency is cheaper in forward purchase than in the spot purchase.

    Academy of Excellence

    Inventing Methods for Igniting Minds

    Card Rates
    TT Selling Rate: Base Rate + Exchange Margin Transactions: Outward Remittance, Cancellation of Purchase Contract

    Bill Selling Rate: Base Rate + Exchange Margin +Handling Charges Transactions: Transactions involving transfer of proceeds of import bills

    Academy of Excellence

    Inventing Methods for Igniting Minds

    Card Rates
    TT Buying Rate: Base Rate - Exchange Margin Transactions: Inward Remittance, Conversion of proceeds of instruments sent for collection, cancellation of outward TT, MT,DD etc., cancellation of forward sale contract Bill Buying Rate: Base Rate +/- forward premium/discount - Exchange Margin Transactions: Inward Remittance, Conversion of proceeds of instruments sent for collection, cancellation of outward TT, MT,DD etc., cancellation of forward sale contract
    Academy of Excellence Inventing Methods for Igniting Minds

    Card Rates

    Forward Selling Rate: Base Rate + Exchange Margin +/- premium/discount

    Forward Buying Rate: Base Rate-Exchange Margin+/-Premium/discount

    Academy of Excellence

    Inventing Methods for Igniting Minds

    Summary

    Different types of rates are used based on the nature & the value date of the transactions

    Academy of Excellence

    Inventing Methods for Igniting Minds

    Academy of Excellence

    Inventing Methods for Igniting Minds

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