Welcome to our presentation

Group -12
Serial No. Name Identification
Number
1. Shihab Sharar Khan 021820046

2. Most. Ruma Khatun 021720022

3. MD. Mantu Rahman 021820045

Foreign Exchange Arithmetic
 What is Foreign Exchange Transaction?
A transaction involving foreign exchange is called foreign exchange
transaction.

Purchase and Sale Transactions:

Purchase Transaction : A foreign exchange transaction which
involves the conversion of foreign currency into home currency is a
purchase transaction

Sale Transaction : A foreign exchange transaction which involves

the conversion of home currency into foreign currency is a sale
transaction.
 What is Exchange Rate?
Exchange rate is the price of one currency expressed in terms of another
currency. In other words, it is the rate at which one currency is exchanged for
another currency.
Depending on the currency in which the exchange rate is expressed, two types
of exchange rate quotations are described below:
1) Direct Quotation- Direct quotation is when the one unit of foreign
currency is expressed in terms of domestic currency. In this quotation, for
example: US$1=Tk. 71.2550. the amount in dollar, i.e. base currency is
fixed while the amount in Tk, i.e. quoted currency varies.
2) Indirect Quotation- The indirect quotation is when one unit of
domestic currency expressed in terms of foreign currency. Suppose,
America quotes on Dhaka US$ 1= tk 71.2550-71.7550. Here, it is currency
rate. Buying rate is Tk. 71.7550 and selling rate US$ 1= tk. 71.2550=US$ 1.
 Exchange Margin
Exchange margin is a sufficient margin that should be built
into the rate to cover the administrative cost, cover the
exchange fluctuations and provide some profit on the
transaction to the bank.

Forward Margin
The forward rate has to be calculated by loading the forward
margin into the spot rate. So, forward margin is the difference
between the spot and forward rate of a currency.
 Interest Calculation
The calculation of interest can be done by the following formula:

𝑷∗𝑹∗𝑻
I=
𝟏𝟎𝟎
Here, P is Principal, R is the rate % per annum and T is the time in years.

Example: Principal is tk. 1000 at 10% per annum for 3 months what is the interest
amount?
 Spot Transaction
The transaction where the exchange of currencies takes place two days after the date of
the contract is known as the spot transaction. For instances, if the contract is made on
Monday, the delivery should take place on Wednesday. Taka payment is also made on
the same day the foreign currency is received.
Forward Transaction
The transaction in which the exchange of currencies takes place at a specified future
date, subsequent to the spot date is known as a forward transaction. The forward
transaction can be for delivery one month or two months or three months.
 Principal types of Buying Rates
There are four types of buying rate, depending on the interest factor involved in the foreign
exchange transactions.
TT Buying Rate- This is the rate applied when the transaction does not involve any delay in
realization of the foreign exchange by the bank.
Example- On 15th June you receive a Mail transfer from your New York correspondent for US$
5000 payable to your customer. Your account with the correspondent bank has been credited
with the amount of the mail transfer in reimbursement.
Assuming Taka/US dollar are quoted in the local interbank market as under:
Spot US$ 1= 71.25/2700
Spot/October 71.22/2300
Calculate the exchange rate and taka amount payable to the customer, bearing in mind that your
require an exchange commission of .080% to be loaded in the rate. Fraction of taka should be
rounded off to whole taka.
 Solution
The rate applicable is the TT buying rate. The rate quoted to the customer will be based on the
market buying rate of tk 71.25
Dollar/Taka market spot buying rate =tk 71.2500
(-)Exchange commission at .08% on tk 71.25 =tk 0.0570
=tk.71.1930
The rate quoted to the customer would be tk. 71.1930 per dollar. The amount payable to the
customer for $5000 at the rate of tk. 71.1930 per dollar is tk 3,55,965.
Bill Buying Rate- This is the rate to be applied when a foreign bill is purchased.

Process of Bill Buying Rate-

Dollar/taka market spot buying rate tk
(+) Forward premium
(For transit and usance; rounded off to lower month)
Or
(-) Forward discount tk
(For transit and usance; rounded off to lower month)
(-) Exchange margin tk
Bill buying rate tk
Rounded off to the nearest multiple of .0025
Example- On 25th July, your customer has presented to you a sight document for
$100000 under an irrevocable letter of credit. The letter of credit provides for
reimbursement by the negotiating bank’s own demand draft on the opening bank at
New York.
Assuming tk/us dollar is quoted in the inter bank market as under
Spot $1=71.6525/6650
Spot/August 6000/ 5700
Spot/September 1000/.9700
Spot/October 14000/3900
Transit period for the bill is 25 days. What rate will you quote to your customer if
you require an exchange commission of .15%? Also calculate and show the amount
in taka payable to the customer.
Solution-The bank has to quote bill buying rate. The transit period is 25 days and
dollar is at discount. Therefore the transit period will be rounded off to one
month and the rate quoted will be based on one month forward buying rate(i.e.
spot/august)for the dollar in the interbank market.
Dollar/ taka market spot buying rate =tk 71.65250
(-) Discount for one month =tk .60000
Dollar/Tk one month forward buying rate =tk 71.05250
(-)Exchange commission at .15% on tk 71.0525 =tk. .10658
Bill buying rate =tk 70.94592
The rate quoted to the customer would be tk 70.94592 per dollar.
The taka amount payable to the customer on purchase of the bill for $ 100000 at
tk 70.94592 per dollar is tk 7094592.
 Principal types of Selling Rates
Mainly 2 types of selling rates are quoted in Bangladesh. They are
1)TT and OD selling rate 2)Bills Selling Rate

1)TT and OD selling rate- This is the rate to be used for all transactions
that do not involve handling of documents by the bank.

2)Bills Selling Rate- This rate is to be used for all transactions which
involve handling of documents by the bank; for example- payment
against import bills, the bills selling rate is calculated by adding exchange
margin to the TT selling rate.
 Calculation of TT and Bills Selling Rates
Selling Rates
( TT and bills selling)
Dollar/tk market spot selling rate =tk
(+) Exchange margin for TT selling rate =tk
Selling rate =tk
(+) Exchange margin for Bills selling rate =tk
Bills Selling Rate =tk
Rounded off to nearest multiple of .0025 and quoted to customer .
Example- Your Customer requested you to issue a demand draft on New York for $ 25000.
Assuming the ongoing spot rates in the local market for US dollar is as under:
Spot $ 1 =tk 71.3575/3825
1 month forward =tk71.7825/8250
You require an exchange margin of .15%.
What rate will you quote to your customer and what is the taka amount payable by the
customer?
Solution-The Bank has to quote its TT selling rate based on the market selling rate.
Dollar/tk market spot selling rate tk 71.35250
(+) Exchange margin at .15% on tk .71.3825 +tk .10707
TK 71.46957
Rounding off to the nearest multiple of 0.0025, the rate quoted to the customer would be tk
71.2800per dollar.
The amount payable by the customer for $25000 at tk 71.2800 per dollar is tk 1782000.
Example- On 12th February your customer has received an import bill for $10000. He asks you to
retire the bill to the debit of his account . Inter bank rate for dollar is :
Spot $1 =tk 70.7050/7200
Spot/March 5000/4500
You require an exchange margin of .15% for TT sales and .20% for bills selling rate. With what
amount will you debit his account?
Solution- The bank is to quote bills selling rate to the customer based on market selling rate.
Dollar/Taka market spot selling rate tk 70.72000
(+) Exchange margin at .15% on tk 70.7200 for TT Selling +tk .10608
TT Selling rate tk 70.82608
(+) Exchange margin at .20% on tk 70.82608 for Bills Selling tk .14165
Bills Selling Rate 70.96773
Rounded off to the nearest multiple of .0025 the rate is quoted 70.6800 per dollar.
Customer’s account would be debited for $10000 at tk 70.6800 a dollar with tk 706800.
Questions