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BILL RATES

BILL BUYING RATE:

• Bill rates are applicable to instruments which have a usance period (time lag in
payment). Since there is a time lag, we cannot use spot rates. We have to use
forward rates.
• These instruments may follow standard months or may be broken dates
• In case of standard months, we have no problem, We just take the
premium/discount of that month and solve the sum.
• In case of broken dates, the date will fall in between two standard months and
banks have the option of choosing the rate of the higher month or lower month.So
when we are solving the sum, we have to take a decision of whether to use the
lower month or higher month
• How will we make that decision?
• As discussed earlier, we buy low and sell high. So therefore when we are buying,
we will round off to the cheaper rate and selling we will round off to the higher
rate.

• In case the currency is trading at a premium:
In a premium, the rates increase as the months increase. So therefore if we have to
buy, we will take the lower month
Spot Rate = 45.40.92
2 month premium = 20 paise
3 month premium = 30 paise
4 month premium = 40 paise
If we are given an instrument of 100 days, it falls between three and four months
right? So we have the option of taking either 30 paise (3 month rate) or 40 paise
(4 month rate). We are buying, so we will always look to buy at a cheaper rate.
Therefore if it is trading at a premium, and we are buying, we will take lower
month.
In short, If the currency is traded at a premium, banks round off to the lower
month
BILL BUYING RATE = BASE RATE + FORWARD PREMIUM (rounded off to
the lower month) – EXCHANGE MARGIN

• In case the currency is trading at a discount
In a discount, the rates decrease as the months increase. So therefore if we have to
buy, we will take the higher month.
Spot Rate = 55.69
2 month premium = 50 paise
3 month premium = 30 paise
4 month premium = 10 paise
If we are given an instrument of 70 days, it falls between two and three months
right? So we have the option of taking either 50 paise (2 month rate) or 30 paise

Therefore if it is trading at a discount. Suppose the contract is 15 days. • In the first bullet. • Please refer to the illustrations in the text book for bill buying rates. Exchange margin for TT is 0. • To solve this sum.80) = 26. you have to first calculate the TT selling rate using the TT exchange margin. There is an exception to this.premium discount) • In other words. you will be given two exchange margins.83 + (0. and we are buying. • After you calculate the TT selling rate.83) . If the currency is traded at a discount. We are buying. BILL SELLING RATE: • BILL SELLING RATE = TT SELLING RATE + EXCHANGE MARGIN • In this sum. .80. This falls between today (spot rate) and one month. If it is trading at premium we have to take lower month. • EG: Interbank selling rate is Rs 26.00125 x 26.0015 x 26. add the bill exchange margin to it. (3 month rate). In this case the lower month is 0 and so we have to take spot rate. so we will always look to buy at a cheaper rate.80 + (0. One is the TT exchange margin and the other is the bill exchange margin. we will take lower month. I have mentioned we have to take forward rates. TT selling rate = base rate + exchange margin = 26.15% (Solution: We have to first calculate TT selling rate. In short.83 Bill Selling rate = TT selling rate + Exchange margin = 26.125% and for bill is 0. Please use the correct one in the correct place • TT selling margin is calculated on the base rate and bill exchange margin is calculated on the TT selling rate. the exchange margin will be calculated on the forward rate. banks round off to the lower month BILL BUYING RATE = BASE RATE – FORWARD DISCOUNT (rounded off to the high month) – EXCHANGE MARGIN • The exchange margin will be calculated on (base rate +/.