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CFA studies: FOREIGN EXCHANGE ARITHMETIC

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CFA studies
Thursday, November 5, 2009
FOREIGN EXCHANGE ARITHMETIC
A foreign exchange transaction has two aspects – Purchase (Buy) and Sell. The Foreign exchange transaction is always talked from the Bank’s point of view and the item referred to is the foreign currency. Hence when we say “Purchase”, it means that the bank has purchased and it has purchased foreign currency & when we say “Sale”, the bank has sold and sold the foreign currency. In purchase transaction, the Bank acquires the foreign currency and parts with home currency. In a sale transaction the Bank parts with the foreign currency and acquires home currency. The Exchange rate is quoted as “Direct Quotation” and / or “Indirect Quotation”. In a “ Direct Quotation “, the foreign currency is fixed and the home currency is variable. For example, USD – Rs. 46. In a “ Indirect Quotation “, the home currency is fixed and the foreign currency is variable. For example, Rs. 100 = USD 2.20. Except in London Market, the direct quotations are only used. In India all quotes are on “Direct Method.”. There are three markets, where foreign exchange rates are quoted. While quoting rates for customers, the rate is called Merchant Rate and normally quoted either as a sale or purchase transaction. A customer wants a demand draft for USD 100. It implies that the customer wants to purchase USD 100 from the Bank and will sell him foreign currency by acquiring rupees. The rate quoted will be a “ Sale Rate” say USD 1 = 45.00. It means that Bank will take Rs.45 from the customer for each dollar sold to him. The exchange rate is always quoted in four decimals in multiples of
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html ▼ November (1) FOREIGN EXCHANGE ARITHMETIC About Me vickyrocks9009 View my complete profile 2/4 . (It is also called Bid rate or purchase rate).1650.3/4/13 CFA studies: FOREIGN EXCHANGE ARITHMETIC 0. A few currencies with their present rupee rates are as under: (as on 6. 45. GBP 1 = Rs.blogspot. ie upto 49 paise ignored and 50 to 99 paise rounded off to higher Rs. a Bank in Mumbai quotes a rate as under : USD 1 = Rs. Pakistani Rupee and Sri Lankan Rupee). meaning thereby USD 1 = Rs. Italian Lira. The rates quoted will be USD 1 – 45. rupee amount received or paid to the customer on account of exchange transaction should be rounded off to the nearest rupee.) TT SELLING (Rs. Japanese Yen. Indonesian Rupiah.36 EURO Euro 57.in/2009/11/foreign-exchange-arithmetic.2006) CODE CURRENCY TT BUYING (Rs. For example.87 GBP Great Britain Pound 85.2525. ie who is quoting a rate will express his intention either to buy or sell foreign currency. 48.2525.0125 is spread or profit of the Bank. quoted in the units of “100”. the difference of Rs. Inter Bank Rates are always quoted two – way.1650 for each USD it will be selling. Spanish Peseta and currencies of Asian Clearing Union countries ( Bangladesh Taka. Belgian Franc. 48. Iranian Riyal. Kenyan Shilling. 48. In India. The last two digits will be rounded off to quarter. Following currencies are however.1525 / 1650 More often the rate would be quoted as USD 1 = 1525/1650 as the market players understand the big number ie 48.1525 for each Dollar. Myanmar Kyat.) USD United State Dollar 45. 48.17 86.0025.0.47 45. It indicates that the quoting Bank is willing to buy USD 1 from the other party by giving the other Bank Rs. If the Bank buys dollars in the market at Rs. It also indicates that the quoting Bank is willing to sell USD 1 from the other party by taking Rs. the rates quoted by the Bank to another Bank is called interbank rate.55.1525 and sells each dollar at Rs. 48. All currencies are quoted in the units of “ One”.10.43 thecostlystudy. TRANSACTIONS IN INTERBANK MARKET While the rates quoted to the customers by their Banks are called merchant rates. 80. The market maker bank.

99 AUD Australian Dollar 33.80 5.81 6.48 29.in/2009/11/foreign-exchange-arithmetic.11 40.69 7.05 Posted by vickyrocks9009 at 7:22 AM NO COMMENT S : POS T A COMMENT thecostlystudy.blogspot.html 3/4 .84 HKD Hongkong Dollar 5.94 NZD New Zealand Dollars 29.92 NOK Norwegian Kroners 6.47 SEK Swedish Krone 6.88 30.35 JPY Japanese Yen (Per 100) 38.36 38.07 36.79 DKK Danish Krone 7.18 6.38 CAD Canadian Dollar 40.71 34.91 CHF Swiss Franc 36.31 SGD Singapore Dollar 28.3/4/13 CFA studies: FOREIGN EXCHANGE ARITHMETIC 58.

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