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INTERNATIONAL BANKING General Bank Management (Module-A) (ModuleLive Interactive Learning SessionC.S.


Forex Market    

The total turnover in Forex Market apprx. US apprx. dollar 1.5 trillion per day. Indian Market USD day. 1.20 BN per day. day. Round the clock market starting from Sydney and Tokyo in the east through Hong Kong, Singapore, Bahrain, London and New York. York. participants are central banks , commercial banks, investment funds, corporates, individuals and brokers. 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 .

18 .45.FX Rates   What is Exchange Rate ? Exchange Rate is a rate at which one currency can be exchanged into another currency.18 This rate is the conversion rate of every US $ 1 to Rs. say: US $ 1 = Rs. 45. In other words it is value one currency in terms of other.

Technical Reasons . . .deficit financing leads to depreciation Policyof currency. Fundamental Reasons: .Interest Rates currency with higher interest will appreciate in the short term. (c).Balance of Payment surplus leads to stronger currency.Fiscal / Monetary Policy.Factors Determining Exchange Rates (a).Political Issues Political stability leads to stable rates (b).Government Control can lead to unrealistic value. Speculation higher the speculation higher the volatility in rates . .Economic Growth Rates High/Low growth rate.Free flow of Capital from lower interest rate to higher interest rates. . .

2133 Rs 100 = GBP 1.85.18 GBP 1 = Rs.99 EUR 1 = Rs 57.Methods of Quotation    Method I One Orange = Rs 2 One Apple = Rs 2.I DIRECT(FC fixed) USD 1 = Rs 45.08.II INDIRECT( HC fixed) Rs 100 = USD 2. all exchanges are quoted in Direct Method .1993.1629 Rs 100 = EUR 1.50    Method II Rs.7265 With Effect from 02. 10 = 4 Apples Price under both the methods is the same though expressed differently Method . 10 = 5 Oranges Rs.92 Method .

.  1 USD = INR 45.18 In the abovementioned quote.e.16/ 18  BUYING RATE $/RE = RE 45. there are two way quotes i.16  SELLING RATE $/RE = RE 45. lowest is market buying rate and highest is market selling rate. both buying and selling rates are given.Understanding Two Way Exchange Quotes In Forex markets .

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.2573 BUYING RATE SELLING RATE . One of the reasons why this is so is that prices are always Quoted as TWO WAY QUOTES USD 1 = CHF 1.2570/73 CHF 1.2570 CHF 1.

Understanding Exchange Rates  Dollar/Swiss Francs -. CURRENCY.  .Terms currency It is important to remember that Bid & Offer in trading always refers to the BASE CURRENCY.Base currency Second currency (CHF) .USD/CHF  Note the order of the currencies  USD comes before the CHF   The first currency($) .

8000 / 10 1. there are short forms for everything. the dealers use only the third & fourth decimals. 75/figure .Understanding Exchange Quotes         In the FX market. While quoting. Therefore.1675 / 00 45.2540 / 45 1. figure/10 and the market assumes that all players already know the BIG FIGURE . USD/CHF 1.1675 GBP/USD 1.8000 BIG FIGURE In a live dealing scenario dealers would quote only 40/45 .2540 USD/INR 45. Time is of great importance.

DOLLAR / RUPEE = 45.3440 = 33. 45.35/36 DOLLAR / CHF = 1.36 / 1.75 AND 45.3445 = 33. GBP.73 / 75 In other words.35 / 1.3440 / 45 CHF / RUPEE = 33.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. EUR ETC COME FROM? HOW ARE THEY CALCULATED? A CHF/RUPEE RATE IS A CROSS OF DOLLAR/RUPEE & DOLLAR / CHF.73       .

16 / 1.2570 / 73 CHF / RUPEE = 35..16/18 DOLLAR / CHF = 1. GBP.2573 = 35. 45.92 AND 45.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. DOLLAR / RUPEE = 45. EUR ETC COME FROM? HOW ARE THEY CALCULATED? A CHF/RUPEE RATE IS A CROSS OF DOLLAR/RUPEE & DOLLAR / CHF.2570 = 35.18/ 1.92 / 94 In other words.94       .

11.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. Market uses different terminology which are used universally to avoid conflict. Type of TXN Cash/Ready TOM Date of Deal 15.2006 Wednesday 15.11.06 Friday Any day after 17.06 Thursday 17.112006 Wednesday 16.2006 Wednesday Value Date 15.06 Spot Forward .11.11.11. most of times deal dates and settlement date differs.11.2006 Wednesday 15.2006 Wednesday 15.11.

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.11.11.06 Tuesday Any day after most of times deal dates and settlement date differs.11.06 Monday 21.11.06 Friday 17.06 . Market uses different terminology which are used universally to avoid conflict.06 Friday 20. Type of TXN Cash/Ready TOM Spot Forward Date of Deal 17.11.06 Friday Value Date 17.06 Friday 17.06 Friday 17.

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  .

Forward margins added to spot rate. Premium forward value of currency is higher than spot rate. Discount forward value of currency is lower than spot rate. A currency with lower rate of interest is said to be at premium in the forwards. . Forward margins deducted from spot rate.Premium/Discount    Forward price = Spot price plus or minus forward margin. A currency with higher rate of interest is said to be at discount.

Shares. Commodities.Derivative Instruments Derivatives instruments are management tools derived from underlying exposures (Assets) such as Currency. Derivatives could be Over the Counter (OTC) i.e. . made to order or Exchange Traded Facilities which are standardized in terms of quantity. used to reduce or neutralize the exposure on the underlying contracts. start & ending dates. quality. Bonds or any other indices.

dealing. price). For a premium (option price) negotiated at the time of dealing. in the case of a Rupee call/ Dollar put option. For a predetermined quantity of Rupees. against Dollars (or sell Rupees against Dollars in the case of a Rupee put/Dollar call option). option). Rupees.What is an FX Option  An FX option contract gives the buyer (or holder) the right. . On (if European style) or until (if American style) a fixed future date. to: to:      Buy Rupees. but not the obligation. date. At a predetermined fixed price (the strike or exercise price).

He will agree to sell $1 mn after 3 months. exporter goes for option contract. The exporter can go in for Forward contract or Option contract  Forward contract performance is obligatory on the for buyer and seller. On due date. depending upon $/RE rate.  Suppose .How does an FX Option Differ from a Forward   Consider an exporter who expects to receive $1MN in 3 months.* Option contract performance is not obligatory for for option holder. he will decide to exercise the option or not.  .

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 Type(e) All of the above Answer: (e) .Q.

Q. Which of the following statement is false for a µForward Contract¶? (a) (b) (c) (d) An OTC Product Credit Risk on counter parties exists Can be for odd amount Works on Margins requirement Answer: (d) .

Bank. (a) (b) (c) (d) The Applicant (Buyer) and The Beneficiary (Seller).Q. The Advising Bank & Reimbursing Bank. (Seller). Bank. (a) & (B) only Answer: (d) . An Irrevocable Letter of Credit can be amended with the consent of following parties. Issuing Bank and Confirming Bank. parties.

Answer: (c) .Q. applicant. Issuing Bank has to point out discrepancies in Documents negotiated under L/C to the negotiating bank within a period of: of: (a) (b) (c) (d) 1 month 2 weeks 7 days Only upon receipt of objections from the applicant.

Q. Answer: (c) . A µRed Clause¶ Letter of Credit enables the beneficiary to avail pre-shipment precredit from (a) (b) (c) (d) L/C Issuing Bank L/C Confirming Bank L/C Advising Bank or Nominated Bank Any bank preferred by the beneficiary. beneficiary.

Exchange.Q. (a) (b) (c) (d) Statement is true Statement is false Statement is partially true Non of the above Answer: (a) . the usance period is calculated from the date of Shipment or date of Bills of Exchange. In case of an Acceptance Credit.

Answer: (d) .Q. Country. A µCertificate of Origin¶ accompanying documents must be issued & signed by: by: (a) (b) (c) (d) Exporter/Seller Shipping Agents Customs Officials Chamber of Commerce of Exporter¶s Country.

Q. The conversion importer. µCrystallization¶ 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. of Foreign Currency Liability to Rupee liability is done at: at: (a) (b) (c) (d) Bill Buying Rate TT Selling Rate Bill Selling Rate Spot Rate Answer: (c) .

Q. Export Proceeds from any of the ACU countries should be settled under ACU mechanism except: except: (a) (b) (c) (d) Sri Lanka Nepal Pakistan Republic of Iran Answer: (b) .

000 100.000. No such limit prescribed Answer: (b) .000 50. USD 1.Q. USD 50. Maximum amount for which AD can permit for realization of export proceeds beyond six months is: is: (a) (b) (c) (d) USD 100.000 000.

Answer: (b) . The Rate of interest charged for Export Finance for period up to 180 days which is stipulated by RBI is: is: (a) (b) (c) (d) At Bank¶s BPLR Maximum BPLR minus 2.Q. flat.50% 50% At Bank Rate At 9% flat.

Trade Samples Export up to US $ 25000 All of the above Answer: (d) .5 lacs Rs. 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) (b) (c) (d) Gift up to Rs.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: of: (a) (b) (c) (d) 100% 100% Advance Payment Against Letter of Credit Track Record of the Party All of the above Answer: (d) .Q.

the period commences from: from: (a) (b) (c) (d) Bill of Lading Date of Bills of Exchange Date of acceptance of Bill at Branch level for collection Usance period Answer: (c) .Q. The NPT (Notional Transit Period) computation for Advance against Bills sent on collection.

Q. A mechanism by which APs finances Exporters by discounting Export Receivables without recourse to Exporter/Seller is known as: as: (a) (b) (c) (d) Factoring Guarantees Forfaiting Bill Rediscounting Answer: (c) .

Q. IEC Code is issued by: by: (a) (b) (c) (d) RBI EXIM Bank ECGC DGFT Answer: (d) .

Credit arranged by the importer (buyer) from a bank/FI outside his country to settle payments of imports is known as: as: (a) (b) (c) (d) Supplier¶s Credit Buyer¶s Credit External Commercial Borrowing GDR Answer: (b) .Q.

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) .

000 B) Re 50.00.Payment in rupees for purchase of foreign exchange may be done in cash .00.000 D) None of the above Answer (B) . if the rupee value equivalent is not more than A) Re 1.000 C) RE 2.

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