Foreign Exchange basic numerical
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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 receive more 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 $.
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