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Presented by:- ROLL NO.Birendra kumar 10Hardik Kothari 21

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EXCHANGE RATEMECHANISM

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The rate at which one currency can be exchanged for

another currency.

In other words it is value of one currency in terms ofother.

say:US $ 1 = Rs.48.88

What Does Exchange

Rate Mean

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Foreign Exchange Market Process

Settlement /

Delivery

Deal /

Contract

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Types of Transaction: Value Date Concept

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Due to vastness of the market and origin of transactions,

settlements may take place at different time zones, most of

times deal dates and settlement date differs.

Type of TXN Date of Deal Value Date

Cash/Ready 12.09.2011

Monday

12.09.2011

Monday

TOM

12.09.2011

Monday

13.09.2011

Tuesday

Spot 12.09.2011

Monday

14.09.2011

Wednesday

Forward

12.09.2011

Monday

Any day after

14.09.2011

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Value date

Value date means the date on which the deal will besettled.

Also known as delivery date when the currency is to

be delivered by one party to another.

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Forward Contract?

A Forward Exchange Contract is an agreement between twobanks or between a bank and a customer to exchange one

currency for another at some future date.

FORWARD RATES:

Forward rates are derived from Spot rates.

Forward rate is the spot rate adjusted for the premium /discount.

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If the future price (forward) is higher than Spot rate, then it is

said to be at a premium.

If the future price is lower than Spot rate, then it is at a

discount.

e.g. Spot (14.09.2011) Forward (14.10.2011)

USD/INR 1 $= Rs.48.44 /46 1 $= Rs.48.94/96 ( Premium)

USD is dearer and at Premium.

INR is at Discount against USD

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Methods of Quotation

Method - I

DIRECT(FC fixed)

USD 1 = Rs 48.88GBP 1 = Rs.85.99

EUR 1 = Rs 57.92

Method - II

INDIRECT( LC fixed)

Rs 100 = USD 2.0458Rs 100 = GBP 1.1629

Rs 100 = EUR 1.7265

With Effect from 02.08.1993, all exchanges are quoted in Direct Method

Indirect QuotationThe Foreign Currencies are

expressed in terms of the

local currency.

Direct QuotationThe Quotation in which the

local currency is expressed in

terms of Foreign Currencies

(USD,EUR,GBP,JPY,AUD,NZD).

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Cross Rate

The rate at which two currencies exchange, based on

exchange rates using a third currency.

For example, the cross rate of EURO for JPY might be based

on the rate of EURO for USD and USD for JPY.

Cross rates usually do not involve the U.S. dollar.

India is a market maker for INR.

But what about other currencies?

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Where do rates for CHF, GBP, EUR,CAD,JPY, etc. come from?How are they calculated?

Computation of CHF / INR Rate:-

A CHF/INR rate is a cross of USD/INR & USD/CHF.

USD/INR = Rs. 45.16/18

USD/CHF= $1.2570/73

CHF 1 = Rs. 56.7796 (buying)

Rs. 56.7912 (selling)

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