Buying & Selling Rates

Exchange rates
The rates at which an AD buys and
sells foreign exchange are called
exchange rates
Buying/Selling Rates
Buying rate for buy (bid)
transactions
Selling rate for sale
(ask/offer)transactions
Selling rate is higher than buying
rate

Buying/Selling
transactions

In a Buying Transaction (Purchase), the AD

buys/acquires forex from a customer and gives/parts
with rupees
All inward remittances when converted to
rupees result in a buying transaction
In a selling transaction (Sale), the AD gives
forex/remits forex and takes rupees from the customer
All outward remittances give rise to sales
transactions if the AD has to convert rupees to
forex.
The transaction is always viewed from the ADs
(banks) point of view and the commodity is the forex

Purchase/Sale
transactions
Buying/Purchase transaction means
the bank is buying and it is buying
forex
Selling/Sale transaction means the
bank is selling foreign exchange
There is a buying/selling transaction
only when the AD is required to
convert forex to rupees or vice versa

Exchange Rate Quotation

2nd August 1983 India adopted direct quotes
system
Direct quotes the foreign currency is kept constant
and the amount of home currency varies e.g. $1 = Rs.
55.50; GBP 1 = Rs. 72.00
Also called Rupee quotation or Home currency quotation
Usually one unit of FC exceptions JPY, Indonesian
Rupiah & Kenyan Schilling rate is given for 100 units of
FC
Indirect quotes the home currency is kept constant
and its rate is expressed in variable units of foreign
currency e.g. Rs. 100 = USD 1.8020

Two way direct quote

When a quotation gives both the buying and selling
rate it is called a two-way quote
A two-way quote does not mention as to which one is
the buying rate and which is the selling rate.
The lower of the two is the buying rate and higher of
the two is the selling rate
Buying rate Bid rate
Selling rate Offer rate
The mean of Bid rate and Offer rate is called MIDDLE
Rate
The price difference between Bid & Offer rates is
called BASIS POINT SPREAD

Different Types of Buying

Rates
Two categories
(i) TT Buying Rate
(ii)Bills Buying Rate

TT Buying Rate
This rate is applied for those buying transactions
where the foreign exchange is already credited
to the Nostro account
1. Payment of draft issued by a correspondent
2. Realization of foreign cheques/bills sent on
collection basis
3. Cancellation of outward remittances
4. Payment of FCNR deposit
5. Cancellation of forward sale contract
TT Buying rate is the best rate for the customer

Bills Buying Rate

This rate is applicable to those transactions for
which the AD buys foreign exchange today
but gets the credit to his Nostro account
at a future date.
As the AD gets the forex on a future date, he
has to quote a rate as appropriate to such a
future date. And such future rates are called
FORWARD rates depending upon the tenor of
the bill
1. Purchase of export bills
2. Purchase of TC and Currency notes

Purchase of export bills

This depends on the tenor of the

bills, with many Bill Buying rates

TC Buying rate
Used for buying(i.e. encashing) TCs;
it is a specific version of bill buying
rate the forward period is uniformly
assumed to be one month

FC Buying rate
Quoted for buying (i.e. encashing)
foreign currency notes
It is derived from TC buying rate by
deducting from it a margin of ) 0.5%
It is also a specific version of Bill
Buying Rate

Other instruments buying

rate
Applied for purchase of Bankers Pay
Order, International Money Order
(IMO), FDD issued (without any credit
to nostro account) by other banks
and personal cheques of a NR on
banks outside India and such other
instruments for which nostro account
is not credited.

Other instruments
buying rate
These may be classified into two categories:
1. Instruments which will be sent to the
foreign correspondent for realization and
credit to nostro account
2. Instruments for which there exists an
arrangement that the AD, having paid the
same, claims reimbursement from the
issuing branch by drawing on it a BE or a
draft which are commonly called cover
drafts

Nostro A/C and Buying

Rates
Credit in Nostro Account and Buying Rates
If Nostro Account is
already credited

If Nostro Account is yet to

be credited

Apply TT buying Rate, or other Apply Bills buying Rate or TC

instruments Buying Rate
Buying Rate or FC Buying Rate

Different Types of Selling

Rates
The exchange rate quoted for a sale
transaction is called selling rate or
simply sales Rate
Two types:
(i) TT Selling rate
(ii) Bills selling rate

Documents and Selling

Rates
Handling of Documents and Selling Rates
No documents handled by
Authorised dealer
TT Selling Rate
TC Selling Rate
Selling Rate

FC

Documents handled by
Authorised dealer

Bills Selling Rate

TT Selling rate
Applied to all transactions which do
not involve handling of documents
e.g.
1. Issue of DD/MT/TT and all clean
instruments for remittances outside
India for different purposes
2. Cancellation of forward purchase
contracts

Bills Selling Rate

This rate is applied when the AD is
required to handle documents
e.g.
1. Payment of import bills
2. Advance Payment for imports

TC Selling Rate
Rate applied when selling foreign TCs
It is computed by adding to TT selling
rate a maximum margin of 0.5%
towards handling charges (FEDAI)

TC/FC Selling Rate

Selling Rates
TT Selling
Add 0.5%
TC Selling
Add 0.5%
FC Selling

Bills Selling

FC Note Selling Rate

Rate applied when selling FC notes

It is computed by adding a maximum
margin of 0.5% to the TC selling rate.

Buying/Selling Rates and their

applicability
A
i
ii
iii
iv
v
B
i
ii
iii

BUYING RATES

Applicability
Where AD has received forex in his
TT Buying rate
nostro a/c
Where AD is yet to receive forex in his
Bill Buying rate
nostro a/c
TC Buying rate Traveller cheque encashment
FC Buying rate Foreign currency notes encashment
Other Inst.
Personal cheques, IMO, BC encashment
Rates
SELLING
RATES

Sales not involving handling of

TT Selling rate
documents/BE
Sales involving handling of
Bill Selling rate
documents/BE
TC Selling rate Sale of travellers cheques

Notional Rates - Meaning

When an AD receives FC for
opening/crediting FC accounts like FCNR
deposit account, RFC account, EEFC
deposit account or any such account, he
is not converting the same to rupees.
However, for accounting purpose, the
FC deposit must be expressed in rupees
by applying some assumed rate. Such
an assumed rate is called Notional Rate

Notional rate
Earlier head office of a bank used to fix this
rate.
But from December 2005 all banks fix the
notional rate in line with the weekly average
of daily rates for different currencies advised
by FEDAI every Friday. (Accounting Standard
11)
Banks are required to report rupee value of
all foreign currency deposits and loans as on
31st March at the prevailing notional rate only

Merchant rate

The rates actually quoted to public

based on ongoing market rate at the
time of approach by the customer

Base rate
The rate at which bank is able to get
funds from market either for sale or
purchase.
Merchant rates are computed from
base rate by loading margins

Fine Rate
Depending upon the relationship of
the parties, banks quote competitive
rates with thinner spreads.
Such rates are referred to as Fine
rates.

Cross rate

If the rate of a foreign currency is

given in terms of another foreign
currency it is called a Cross Rate