Sunday, 30 September 2018

EXPORT IMPORT CREDIT MCQs


EXPORT IMPORT CREDIT MCQs

1. Minimum andmaximum amount up to which the Gold Credit card can be issued to exporter is Rs
________ lac and Rs lac. : (a) 100,1000 (b) 50, 500 (c) 100, 5000
(d) 20,200 (e) None of these as it is based on anticipated turnover.**

2. Aspertheexchangecontrolregulations,thepaymentforexportsshouldingeneralberealizedwithina
periodof:(a) 12months fromdate of shipment** (b) 3months from date of shipment
(c) 6months fromthe date of shipment (d) 1month fromdate of shipment
(e) 45 days formdate of shipment
3. Units in a special economic zone are permitted to realise and repatriate to India the full export value of
goods or software within a period of......................................... from the date of shipment.
(a) 3months (b) 6months (c) 180 days (d) 360 days (e) none of these as there is no time limit*

4. In respectof shipmentsmade toIndianownedwarehouses abroad establishedwithpermissionof RBI,
export proceeds shouldbe realizedwithin:
(a) 6 months (b)3 months (c) 9 months (d)15 months* (e) 150 days

5. RBImonitorsoverdueexportbills-not realizedwithinthestipulatedtimeby calling for ahalf yearly
statement fromADs referredtoas : (a) BEF (b)XOS** (c) GTE-1 (d) ST-9 (e) ENC

6.Packing credit advances mean :
advances granted to industrial units for packing of manufactured goods for sale in Indiaadvances granted to eligible exporters for purchase/manufacture/processing/transporting/packing etc. of goods meant for export*
(c) advancesgrantedtoimporterstoenablethemtostoreandsubsequentlysellimportedgoodslocally
(d) any one or more of the above (e) none of the above.

7. To be eligible for packing credit advances the customer :
(a) should not be in the caution list of RBI or specific approval list of ECGC
(b) must be holding importer/exporter code number allotted byDGFT
(c) should be recognised export house (d) all above (e) both (a) and (b)**

8. Packing credit advances is normally allowed for :
(a) 90 days (b) 60 days (c) 360 days (d) 180 days (e) as per requirement of the exporter**

9. `Normal Transit Period ' in the context of export financemeans:
(a) the number of days the documents take to reach destination
(b) the gap between period taken by the ship and the documents to reach destination
(c) the number of days taken by a ship to complete a voyage
(d) the number of days fixed by FEDAI and is the average period normally involved from date of negotiation to credit to
NOSTRO account.**
(e) either (a)or (b)

10. For facilities grantedupto30.6.2010, rateof interestonpost shipment credit inrupeesupto180days in
respectofusancebills is :
(a) 12% (b) 15% (c) not exceeding BPLR
(d) not exceeding BPLR minus 2.5% (e) not exceeding BPLR plus 1.5%**

11. Refinance for export credit fromRBI is available for howmany days?
(a) 90 days . (b) 180 days** (c) 360 days (d) 270 days- (e) None of these

12. Refinance against eligible export finance is available from:
(a) RBI* (b) IDBI (c) ECGC (d) Exim Bank (e) None of these

13. On PCFC refinance is available to the extent of % of outstanding PCFC.
(a) 15% (b) 50% (c) 25% (d) Nil** (e) None of these

14. Forfacilitiesgrantedupto30.6.2010ConcessionalinterestrateonPostshipmentcreditinrupeesis
permittedupto:
(a) 180 days** (b) 90 days (c) 270 days (d) 360 days (e) None of these
15. Which of the following is not correct regarding Liberalised Remittance Scheme?
(a) Amount can be remitted for capital aswell as current account transactions
(b) Maximumamount that can be remitted in a financial year is restricted toUSD200,000
(c) Remittance for gift and donationwill bewithinUSD200,000 permitted under LRS
(d) Bank can allowadvance to a resident individual formaking remittance under this scheme**
(e) None of these

16_ For outward remittance formedical expenses, estimate fromthe doctor or hospital is required if the
remittance is more than USD : (a) 1 lac (b) 5 lac (c) 10 Lac (d) none of these as it is required in all cases

17. What is themaximumamount of inwardremittance that can bedone by a resident individual?
(a) USD 1 Lac (b) USD 5 lac (c) USD 10 Lac (d) None as there is no limit
*
18. How much amount can be released for remittance abroad for education on declaration basis and withou estimate
from educational institution?
(a) USD 1 Lac** (b) USD 5 lac (c) USD 10 Lac (d) None as there is no limit

19.Which of the following is true?
(a) If a bank has oversold position, Bankwill gain if the rate of foreign currency rises.
(b) If a bank has oversold position, Bankwill gain if the rate of foreign currency declines**
(c) If a bank has oversold position, Bankwill lose if the rate of foreign currency declines
(d) If a bank has overbought position, Bankwill gain if the rate of foreign currency declines
(e) None of these

20. ADsmay allowadvance remittance for import of goodswithout any ceiling.However, if the amount of
advance remittance exceedsUSD50,00,000 or its equivalent it ismandatory to obtain-
(a) unconditional irrevocable stand byUC of an international bank of repute situated outside India
(b) guarantee froman international bank of repute situated outside India(c) guarantee of anADinIndia, if such guaranteeis issuedagainst counter guarantee of aninternational
bankof reputesituatedoutside India
(d) any one of the above (e) either (a) or (b) only***

21. BEF statement containingdetailsof remittance exceedingUSD1,00,000where evidence of import is
not furnishedwithin6months fromdateof remittance is submittedby ADs toRBIon:
(a) monthlybasisby 10thof thefollowingmonth
(b) quarterlybasisby 15thof themonthfollowing closeofquarter
(c) half yearly basis forMarch/ September by 15th of succeedingmonth
(d) half yearly basis as of June/ December by 15th of succeedingmonth **(e) none of these


22. Crystallisation of import bill under UCmeans:
(a) bill is scrutinisedwhether it is as perUC terms or not
(b) it is ensured that currency of IJC and insurance is the same or not
(c) converting bill amount into Indian rupees and deciding customer's liability on due date in case of usance**
bill and on 10th day from date of receipt in case of demand bills.
(d) none of the above as the concept is gonewith the termination of PSCFC

23. ApplicationformakingpaymenttowardsimportsintoIndiahastobemadetoauthoriseddealersby
importersin:(a) ENC (b) R-3 (c) Form A-1 *(d) Form A-4 (e) none of the above


24. Advance remittance for import of goods into India is to be allowed after obtaining guarantee froman
international bank of repute situated outside India or guarantee of an AD in India against counter-guarantee of an
international bank when amount of advance remittance exceeds:
(a) US $ 10,000 (b) US $ 25,000 (c) US $5,000 (d) US $ 15,000 (e) US $ 50,00,000***

25. How much advance remittance is allowed for import of services without guarantee of a reputed
international bank?
(a) USD 1 Lac (b) USD 5 lac **(c) USD 10 Lac (d) None as there is no limit

26. Which of the following types of Bill of Lading is not acceptable by a bank under LC?
(a) On Board (b) Clean (c) Charter Party** (d) AN of these (e) None of these

27. Interest Subvention is available on rupee export credit at the rate of 2% for loan up to Rs
but
interest rate after subvention should not be less than 7%.
(a) Rs 3 lac (b) Rs 5 lakh (c) Rs 10 lakh (d) Rs 100 lakh (e) None of these**

-28. Interest rate charged by RBI on export refinance to banks is at the rate of :
(a) Bank Rate (b) Repo Rate** (c) Reverse Repo Rate (d) Base Rate (e) None of these

29. Export Refinance is provided by RBI at the rate of __________ % of eligible outstanding export credit?
(a) 15% **(b) 25% (c) 50% (d) 100% (e) None of these

30. R Return is submitted to RBI onwhich of the following dates of themonth?
(a) 7th and 2151 (b) 15th & last day **(c) 10th, 20th and last day (d) None of these

31.Overdue import demand bills and usance bills are crystalised onwhich dates?
(a)10thday&duedate **(b)15thdayand30thday (c)30thdayand60thday(d)10thdayand60thday(e)Noneofthese

132. Which of the following is incorrect regarding export declaration forms?

(a) GR formis usedfor declaration of exports other than by postwhere customoffice not linked to EDI
(b) ExportDeclaration formis not required to be submitted for exports up toUSD25000.
(c) Softex formis used for declaration of export of software in physical or electronic form.**
(d) None of these (e) All of these

33.. Presently rate of interest on pre-shipment credit in forex (PCFC) up to 180 days is not exceeding:
(a) 200 basis points above LIBOR ***(b) 100 basis points above LIBOR
(c) 150 basis points above LIBOR (d) 50 points above LIBOR (e) 350 basis points below LIBOR

34. As per current guidelines of RBI, for loans sanctioned up to 30.6.2010, rate of interest on pre-shipment credit in rupees up to
270 days should not exceed :
(a) Bank Rate plus 2.5% (b) BPLR plus 1.5% (c) BPLR minus 2.5%**
(d) Bank Rate minus 2.5% (e) lower of (a) and (b)

35. As per the exchange control regulations, the payment for exports should in general be realized within a period of:
(a) 12 months from date of shipment** (b) 360 days from date of packing of goods
(c) 180 days from the date of shipment (d) 270 days from date of shipment
(e) 180 days from the date of receipt of consignment by the buyer in foreign country

36. Which of the following is/are not true with regard to features of Gold Card Scheme for exporters:
(a) Only exporters whose accounts have been 'Standard' continuously for 3 years are eligible
(b) Gold Card holderswill be given preference is granting packing credit in foreign currency (PCFC)
(c) Time normfor disposal of fresh applications for credit under the schemewill be 25 days
(d) Gold Card for exporters will be issued for a period of 5 years (e) none of these**




EXPORTFINANCE
Case- STUDY
An exporter approaches the popular bank for pre-shipment loanwith estimated sales ofRs.100 lakh. The bank
sanctions a limit ofRs.50 lakh,with followingmargins: Pre-shipment loan on FOB value—25%; ForeignDemandBill -
10%; Foreign usance bilis—20%.
The firmgets an order forUSD50,000 (CIF) toAustralia.On 1.1.2011when theUSD/INRratewasRs.43.50 perUSD,
the firmapproached theBank for releasing pre-shipment loan (PCL),which is released.
On 31.3.2011, the firmsubmitted export documents, drawn on sight basis forUSD45,000 as full and final shipment.
The bank purchased the documents atRs.43.85, adjusted thePCL outstanding and credited the balance amount to the
firm's account, after recovering interest forNormalTransit Period (NTP). The documents were realized on
30.4.2011 after deduction of foreign bank charges of USD 450. The bank adjusted the outstanding post
shipment advance. against the bill. Bank charged interest for pre-shipment loan@7%up to 90 days and,@8%
over 90 days up to 180 days. For Post shipment credit, theBank charged interest@7%for demand bills and@7.5%
for usance (D/A) documents up to 90 days and@8.50%thereafter and on all over dues, interest@10%.
01 What is the amount that the Bank can allow as PCL to the exporter against the given export order,
considering the profit margin of 10% and insurance and freight cost of 12%?
a) Rs.2200000 b) Rs.1650000 c) R6.1485000 d) Rs.1291950
02What is the amount of post shipment advance that can be allowed by the Bank under foreign bills
purchased, for the bill submitted by the exporter?
a) Rs.19,80,000 b) Rs.17,75,925 c) Rs.19,73,250 d) Rs.21,92,500
03 What will be the period for which the Bank charges concessional interest on DP bills, from date of
purchase of the bill?
a) 90 days b) 25 days c) 31 days d) Up to date of realization
04 in the above case, when should the bill be crystallized (latest date), if the bill remains unrealized for
over two months, from the date of purchase-(ignore holidays)?
a) On 30.4.2011 b) On 24.4.2011 c) On 24.5.2011 d) On 31.5.2011
05 What rate of interest will be applicable for charging interest on the export bill at the time of realization,
for the days beyond Normal Due Date (NDD)?
a) 8% b) 7% c) 7.5% d) 10%
Ans. 1-d 2-c 3-b 4-c 5-d Explanations:
1. FOB value =
CIF Value i.e. 50000x43.5 = 2175000
Deduct Insurance & freight 12% of 2175000 = 261000
Balance = 1914000
Deduct profit margin 10% of 1914000 =191400
Balance = 1722600
Less Margin 25% = 430650
PCL = 1291950
2. 45000 x43.85=1973250
3. Concessional• rate will be charged for normal transit period of 25 days and there after overdue
interest will be charged.
4. Crystallisation will be done when the bill becomes overdue after 25 days of normal transit period. Date of
overdue will be 25.4.2011. if bill remains overdue, it will be crystalised within 30 days i.e. up to 24.5.2011.
5. Rate of interest will be 10%as the overdue interest is stated as 10%in the question.

Foreign Exchange basic numerical

Foreign Exchange basic numerical

1)  TOD rate or Cash Rate Same day (it is also called ready rate)
TOM Rate Next working day
Spot Rate 2nd working day (48 hours)
Forward Rate After few days/months
 If Next day or 2nd day is holiday in either of the two countries, the
settlement will take place on next day. For example Spot deal is
stuck on 23rd Dec. 25th is Christmas Day and 26th is Sunday. Under
such circumstances, value date will be 27th i.e. Monday.
 There are two types of rates- Fixed and Floating. Floating rates are
determined by market forces of Demand and Supply. India
switched to Floating exchange rates regime in 1993.

2) Buy Low Sell High (Direct Quotations)
Buy rate is also called Bid Rate and Sell Rate is called Offer Rate.
Buy High Sell Low (Indirect Quotations)
 When Local Currency is fixed, bank will like to have more foreign
currency while buying and give less foreign currency while selling.

3) Direct Rates Indirect Rates
1 US $ = Rs.49.40 Rs.100 = US $ 2.51

DIRECT QUOTATION

In a direct quotation, there is a variable unit of the home currency and fixed unit of the foreign currency.
When it is quoted that 1 US = Rs.49.10, it is a direct quotation.With a view tomake profit, the rule
followed for quotation is buy low and sell high. For instance, if the US $ is purchased at Rs.48.90 and
sold at Rs.49.10, there will be gain to the dealer. By buying low, the dealer will be required to pay
lesser units of home currency and by selling high, he would receivemore units of home currency.
INDIRECT QUOTATION
In an indirect quote, there is fixed unit of home currency and a variable unit of foreign currency.When
Rs.100 = US $ 2.04 is quoted, it is a case of indirect quotation. The principle followed in indirect

quotation to earn profit is to buy high and sell low. By buying high, the dealer will getmore US $ per
Rs.100 and by selling low he would have to part with lesser US $.

4) TWO WAY QUOTATIONS : Banks quote two rates in foreign exchange quotation out of which one is for

buying and the other for selling. For instance, when the quotation is US $ 1 = Rs.48.90 - 49.10, the buying

rate on the basis of principle of buy low and sell high, would be Rs.48.90 and the selling rate Rs.49.10.

The buying rate is also called a 'bid rate' and the selling rate as 'offer rate'.



5)CROSS RATES OR CHAIN RULE : When rate between two currencies is not directly available, it has

to be calculated through a 3rd currency which is called cross rate. This is done by using chain rule.

For example, US $ 1 = Rs.50.00 and US $ 1 = Euro 0.7500. Euro 1 = 50 / 0.75 = Rs.66.67

A bank is offered to purchase an export bill of Pound 100000 and the inter-bank rates are US $

1 = Rs.50.00/10 and Pound 1 = US $ 1.5000/10.

In this case, the bank will purchase pounds at given US $ rate of Rs.50 and deliver rupees to exporter.

Bank will sell pounds in London in inter-bank market at US $ 1.50. The amount will be worked with chain

rule. Pound 1 = 1.50 x 50 = Rs.75.



6) Date of Contract Delivery

   Date / settlement

date

                                       Rate to be used

Oct 12, 2008 Oct 12, 2008 Cash/ Ready Rate

Oct 12, 2008 Oct 13, 2008 Tom Rate

Oct 12, 2008 Oct 14, 2008 TT or Spot Rate

Exchangemargin—While selling or buying foreign exchange banks retain sufficientmargin to cover the

administrative cost, cover the exchange fluctuation and also tomake some profit on the transaction. This is

done by adding or reducing themargin fromthe prevailingmarket rate.



7) Forward Rates (Premium is  always added and Discount is always deducted from Spot Rate to

arrive at Forward Rate)

It is required when currency is exchanged after few months/days.

Buy Transactions :

Spot Rate (+ ) premium OR ( - ) Discount

( Lower premium is added OR Higher discount is deducted )

Sale Transactions:

Spot Rate (+ )Higher premium OR (-) Lower discount

(So that currency may become cheaper while buying and dearer while

selling

In India, Forward Contracts are available for Maximum period

of 12 Months.


Examples of

Forward rates

Euro 1 = USD$1.3180/3190

Forward differentials:

1M = 15/18, 2M= 30/37, 3M=41/49

Calculate 2M Bid rate and 3M Offer rate

2M Bid rate = 1.3180+.0030 = 1.3210

3M Offer rate = 1.3190+.0049=1.3239



8) ExchangeMargin::

Exchange margin is deducted while buying and added while selling.

9) Direct, Indirect &Cross Rates

Direct Rates

Foreign Currency is fixed ---say 1USD = INR 55.70

Indirect Rates

Local currency remains fixed---say Rs. 100 = 1.93 USD

At present, following 4 currencies are quoted in Indirect mode:

EURO, GBP, AUD and NZ$

Cross Rates

Cross rate is price of currency pair which is not directly quoted. It is arrived

at from price of two other currency equations.

1. Suppose bank hasto Quote GBP against INR, but in India, GBP is

not quoted directly. In India,

1USD =48.10 and GBP/USD is quoted as 1GBP= USD1.6000.

Therefore 1 GBP = 48.10X1.6 = 76.96

2. An Import bill of GBP 100000 has to be retired. Rates are:

1 GBP=1.5975/85 USD

1USD = 48.14/15 INR

TT margin =.20%

Here Cross selling rate of both currencies will apply.

Bank has to remit GBP. GBP/USD Quote (Indirect) will be available in

International market whereas USD/Rupee Quote (Direct) is available in

local market. Bank will sell USD to buy GBP.

While buying GBP, bank would like to quote higher rate as Buy high Sell

Low maxim will apply. 1GBP = 1.5985

While selling USD, bank will opt to quote higher rate as Buy Low Sell High

maxim will apply.

1GBP=1.5985*48.15 = 76.9675 + Margin@.20% = 77.1214 (say

77.1225)



10) Per Unit and 100

Unit Quotes

All currencies are quoted as per unit of currency whereas the following

currencies are quoted as 100 units of Foreign currency:

1. Japanese Yen

2. Indonesian Rupiahs

3. Kenyan Schilling.

4. Belgian Francs

5. Spanish Peseta

Intervening Currencies in India

1. US Dollar

2. British Pond

Cross Rates

where two

markets are

involved and

one of them is

international

market

Suppose, In India, 1USD=42.8450/545 and in UK, 1USD=.7587/.7590

EURO. The customer intends to remit Euro and he desires to know 1 Euro

= ? INR. We will buy Euro against sale of USD. (One is domestic market

and other is International market)

Calculation

Sell rate of 1USD = .42.8545 and Buy Rate of Euro is 1USD=.7587

.7587Euro = 1USD = INR 42.8545

1 EURO = 42.8545/.7587 = 56.48

In India, there is Full Convertibility of Current Account transactions.

Example Where one currency is bought and another currency is sold

A wants to remit JPY 100.00 million at TT spot with margin @.15%. Given

USD/INR at 48.2500/2600 and in Japan USD/JPY = 90.50/60

Solution:

We will buy Japanese Yen and sell USD and the rate to be applied is:

48.2600/90.50 = .533260 per JPY

Rate per 100 JPY = 53.3260 + Margin @.15%(.0799) = 53.4059 (say

53.4050)


Following 4 types of buying and selling rates are important:

1.    TT Buying rate

2.    Bill Buying rate

3.    TT Selling rate

4.    Bill Selling rate



In Interbank market, exchange rate is quoted up to 4 decimals in multiples of 0.0025. e.g. 1USD=53.5625/5650



For customers the exchange rate is quoted in two decimal places i.e. Rupees and paisa. e.g. 1 USD =Rs. 55.54.



Amount being paid or received will be rounded off to nearest Rupee.



TT Buying Rate


It is required to calculate when our Nostro account is already credited or being credited without delay e.g. Receipt of DD, MT, TT or collection of Foreign bills. This rate is used for cancellation of Forward Sales Contract.

Calculation



Spot Rate –  Exchange Margin



Bill Buying Rate     Bill Buying rate is applied when bank gives INR to the customer before receipt of Foreign Exchange in the Nostro account i.e. Nostro account is credited after the purchase transaction. In such cases.



Examples are:

·         Export Bills Purchased/Discounted/Negotiated.

·         Cheques/DDs purchased by the bank.

Calculation



Spot Rate + Forward Premium (or deduct forward discount) – Exchange margin.



TT Selling RateAny sale transaction where no delay is involved is quoted at TT selling rate. It is desired in issue of TT, MT or Draft. It is also desired in crystallization of Export bills and Cancellation of Forward purchase contract.



Calculation



Spot Rate + Exchange Margin



Bill Selling Rate     It is applied where handling of documents is involved e.g.  Payment against



Import transactions:

Calculation



Spot Rate + Exchange Margin for TT selling + Exchange margin for Bill Selling





Examples

Q. 1

Bank received MT of USD 5000 on 15th Sep. The Nostro account was already credited. What amount will be paid to the customer: Spot Rate 34.25/30. Oct Forward Differential is 22/24. Exchange margin is .80%



Solution



TT buying Rate will be applied

34.25 - .274 = 33.976 Ans.

Q. 2

On 15th July, Customer presented a sight bill for USD 100000 for Purchase under LC. How much amount will be credited to the account of the Exporter. Transit period is 20 days and Exchange margin is 0.15%. The spot rate is 34.75/85. Forward differentials:


Aug: .60/.57

Sep:1.00/.97

Oct: 1.40/1.37

Solution


Bill Buying rate of August will be applied.



Spot Rate----34.75

Less discount .60

= 34.15

Less Exchange Margin O.15% i.e. .0512

=34.0988 Ans.


( Transit period is rounded to next month since currency will be cheaper as it is buy transaction)

Q. 3
Issue of DD on New York for USD 25000. The spot Rate is  IUSD = 34.3575/3825   IM forwardrate is 34.7825/8250

Exchange margin: 0.15%

Solution:

TT Selling Rate will Apply

Spot Rate = 34.3825                Add Exchange margin (.15%) i.e. 0.0516

TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.



Q. 4On 12th Feb, received Import Bill of USD-10000. The bill has to retired to debit the account of the customer. Inter-bank spot rate =34.6500/7200. The spot rate for March is 5000/4500. The exchange margin for TT selling is .15% and Exchange margin for Bill selling is .20%. Quote rate to be applied.


Solution

Bill Selling Rate will be applied.


Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill selling = 34.7200+.0520+.0695 = 34.8415 Ans.



Forward Contract – Due date and Transit period (Bill Buying Rates and Bill Selling Rates)

If due date after adding transit period and forward period falls in a particular month



Buy Transactions



Quote rates applicable to lower month (if currency is at premium) and same month (if currency is at discount) due to the reason that currency becomes cheaper and Buy low and Sell High



Sale Transactions



Quote rates applicable to Same month (if currency is at premium) and lower month (if currency is at discount) due to the reason that currency becomes dearer and Buy low and Sell High Forward contracts can be booked by Resident Individuals up to USD1lac.



Buy



Spot Rate on 16.07.2012 is 1 USD = 34.6850/7275



Transactions-



Spot August = 4000/4200,

Spot Sep = 7500/7700,  Spot Oct = 1.05/1.07

Currency at



Spot Nov =1.40/1.42





Premium



Transit Period = 25 days ,

Exchange Margin = 0.15%



Transit Period is



Calculate Forward Buying Rate of 3 M Usance bill.



rounded off to lower month in



Due date of realization of Bill = 16.7.2012 + 3M + 25 days = 9.11.2012

which due date



By Rounding Transit period to lower month, Oct Rate will be as under:

falls



34.6850+1.05 - .0536 (exchange margin) = 35.6814



Buy



On 22.7.2013,





Transactions-



Spot Rate is 35.6000/6500

Forward 1M=3500/3000

2M=5500/5000

Currency at



3M=8500/8000





Discount



Transit Period ----20 days

Exchange Margin = 0.15%.







Find Bill Buying Rate & 2 M Forward Buying Rate



Transit Period is rounded off to 
Solution


same month in



Bill Buying Rate (Ready) : Bill Date +20 days = 11.8.2013



which due date


Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange

falls



Margin 0.15% (0.529)



i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971


2 M Forward Buying Rate:  = Transaction date +2M +20 days =11.10.13

3 Month Forward Buying Rate will be applied.



Spot Rate = 35.6000 Less Forward Discount of 3M (.8500) Less Exchange Margin (.0521)

i.e. 35.6000-.8500-.0521(0.15% of 34.7500) = 34.6979 Ans.



Cancellation of



Deal                         Cancellation of Buy contract is done at TT selling rate and cancellation of Sale contract is done at TT buying rate.



Example



A bank purchased export bill of USD 50000 at Rs. 42.66, which was dishonored for non-payment. How much amount will be recovered from exporter, if Spot rate is 42.2000/3000. Exchange margin is 0.15%.



Solution



TT  selling rate will be applied to recover the amount TT Selling rate= Spot rate +Exchange margin



=42.3000+0.06345 = 42.36345= 42.3625 (Rounding off to nearest .0025)

Amount to be debited to customers‟ account =50000*42.3625=2118125 --------------Ans.



Value Date



It is date on which payment of funds or entry to an account becomes effective. Under TT transaction, value date is same. In other spot and forward contracts, Value Date is the date when Nostro Account is actually credited.




Arbitrage



It consists of purchase of one currency in one center accompanied by


immediate resale against same currency at other center.

Per Cent and Per



1% is on part of 100 whereas per mille is 1 part of thousand

Mille

AuthorizedDealers



Authorized dealers are called Authorized Persons. The categories are as


under:

AP category 1 -----AD banks, FIs dealing in Forex transactions.


AP  category  2-----Money  changers  authorized  to  sell  and  purchase


Foreign currency notes, TCs and Handle remittances.


AP  category  3----Only  purchase  of  Foreign  currency  and  Travelers



Cheques. These were earlier called “Restricted Money Changers.”



Forward Point

Spot Rate


Calculation



Euro 1 = US$1.3180

3 Month Forward Rate

Euro 1 = US$1.3330


Forward Point = 1.3330 – 1.3180 = 150 points


Arbitrage &;



It consists of purchase of one currency in one center accompanied by

Forward Point



immediate resale against same currency at other center.

Calculation



Example:


Let us borrow from one center and lend at other center at higher rate. In

USA, rate of interest is 6% whereas in Germany, rate of interest is 3% for EURO. We will borrow from Germany and lend in USA where 1EURO =1.5 USD



Forward Point Calculation for 3 Months



Spot Rate x Interest rate difference x Forward Period 100 x Nos. of days in a year



= 1.5 x 3 x 90

100*360

=0.01125



3 month swap rate = 1.5 + 0.01125 = 1.5112

Calculation of Interest Differential



Forward Points x Nos. of Days x 100

Forward Period x Spot Rate



=  0.01125 x 360 x 100

=3%

1.5 x 90


Some additional examples
Ex.1

Calculate TT selling rate for GBP/INR, if USD/INR is 43.85/87 & GBP/USD is 1.9345/49. A

margin of 0.15% is to be loaded.

Solution ; TT selling rate of GBP/INR



1 GBP = 1.9349 USD

= (1.9349 *43.87)+Margin 0.15%

=84.8841+.1273=85.0114 INR 85.0114-------------------------Ans.



Ex.2



A foreign correspondent intends to fund his Vostro Account maintained with Mumbai branch of SBI. What rate will be quoted if 1 USD = 44.23/27 and margin is 0.08% Solution : TT buying rate will quoted



44.23-.035 = 44.195 ---------------------------------------Ans.



Ex.3



If Swiss Franc is quoted as USD = CHF 1.2550/54 and in India, USD =INR43.50/52, how much INR will exporter get for his export bill of CHF 50000.

Solution :



Swiss Franc will be sold for USD in overseas market and USD will be bought in local market i.e. Sell Rate of CHF and Buy rate of USD.(Buy Low Sell High in both quotations)



1 USD = 1.2554 CHF           and  1USD=INR 43.50



1CHF=43.50/1.2554 = 34.6503

Amount as paid to exporter = 34.6503*50000=17,32,515/- ----------------Ans.



(Both are direct quotations and Maxim Buy Low Sell High will apply in both)

Ex.4



If Swiss Franc is quoted as USD = CHF 1.2550/54 and USD =INR43.50/52, how much INR will Importer pay for his import bill of CHF 50000.

Solution :



Swiss Franc will be bought against USD in overseas market and USD will be sold in local market i.e. Buy rate of CHF and Sell rate of USD.



1 USD = 1.2550 CHF and 1USD=INR 43.52 1CHF=43.52/1.2550 = 34.6773



Amount to be received from Importer = 34.6773*50000 =17,33,865/- ----Ans.



(Both are direct quotations and Maxim Buy Low Sell High will apply in both)





Q. 5



Exporter received Advance remittance by way of TT French Franc 100000.



The spot rates are in India IUSD = 35.85/35.92               1M forward =.50/.60



The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward =.0040/.0045 Exchange margin = 0.8%



Solution



Cross Rate will apply

USD will be bought in the local market at TT Buying rate and sold at Spot Selling Rates in

Singapore for French Francs:



TT  Buying Rates USD/INR = Spot rate – Exchange margin = 35.8500-.0287 = 35.8213 Spot Selling Rate for USD/Francs = 6.0340



Inference:



6.0340 Franc = 1USD

= INR 35.8213

1 franc = 35.8213/6.0340 = INR 5.9366 Ans.



(Both are direct quotations and Maxim Buy Low Sell High will apply in both)



Q.6 What rate will be quoted for repatriation of FCNR deposit (spot rate or TT rate) Ans. No rate as the amount is to be paid in Foreign currency itself.