OVERVIEW OF FOREIGN EXCHANGE

PRESENTATION
BY
DEEPAK TANDON

12/08/21 1
 OVERVIEW OF FOREIGN EXCHANGE

FOREIGN EXCHANGE IS THE SETTLEMENT AND

ARRANGEMENT OF FUNDS AROUND THE WORLD, BY
BUYING AND SELLING CURRENCIES.

MORE THAN US$ 1.5 TRILLION IS EXCHANGED

DAILY BY THOUSANDS OF BANKS AND FOREIGN
CURRENCY TRADERS ALL OVER THE WORLD.

12/08/21 2
 FOREX ENTITLEMENTS

PRIVATE TRAVEL : USD 10,000 IN ANY CALENDER YEAR

FOR ANY COUNTRY EXCEPT NEPAL AND BHUTAN.
STUDY ABROAD: USD 1,00,000 FOR EACH ACADEMIC YEAR.
MEDICAL TREATMENT ABROAD: USD 1,00,000. IN
ADDITION, USD 25,000 FOR BOARDING / LODGING /
AND ACCOMPANYING ATTENDENT.
EMPLOYMENT ABROAD: USD 1,00,000
EMIGRATION: USD 1,00,000
GIFTS AND DONATIONS: USD 5,000 PER YEAR
REMITTANCE FOR MISC. PURPOSES: USD 50,000 WITHOUT
ANY DOCUMENT.
BUSINESS VISITS ABROAD: USD 25,000

12/08/21 3
 FOREX ENTITLEMENTS

• IF RUPEE EQUIVALENT AMOUNT EXCEEDS 50,000

WHILE TAKING FOREX, ENTIRE PAYMENT BY CHEQUE.
• FOREX CAN BE TAKEN 60 DAYS AHEAD OF JOURNEY
DATE.
• UPTO USD 2,000 CAN BE RETAINED FOR INDEFINITE
PERIOD IN FGN. CURRENCY OR TRAVELLERS
CHEQUES.
• FOREIGN COINS CAN BE RETAINED WITHOUT ANY
LIMIT.
• FOREX CAN BE BROUGHT INTO INDIA WITHOUT ANY
LIMIT. IF VALUE EXCEEDS USD 5,000 IN CASH AND
USD 10,000 IN CASH AND/OR TRAVELLERS CHEQUES,
12/08/21 4
DECLARATION IN CDF TO BE OBTAINED.
 ROLE OF I B D
 CALCULATION OF EXCHANGE RATES (CARD RATES) AND ITS
CIRCULATION TO AUTHORIZED BRANCHES.

 TO MAINTAIN POSITION AND TO UNDERTAKE COVER

OPERATIONS.

 TO MAINTAIN NOSTRO ACCOUNTS IN FOREIGN CURRENCIES

WITH FOREIGN BANKS.

 TO ISSUE GENERAL GUIDELINES TO AUTHORIZED BRANCHES

AND BE A LINK BETWEEN RBI AND THESE BRANCHES.

 MANAGEMENT OF FOREIGN CURRENCY ASSETS AND

12/08/21 5
LIABILITIES FOR THE BANK.
 AUTHORIZED PERSONS

RBI AUTHORIZES FOLLOWING CATEGORIES TO DEAL IN

FOREIGN EXCHANGE:

 AUTHORIZED DEALERS
 MONEY CHANGERS
 OFFSHORE BANKING UNITS

AUTHORIZATION CAN BE REVOKED IF RBI INSTRUCTIONS/

PROVISIONS OF FEMA ARE NOT FOLLOWED

12/08/21 6
 CORRESPONDENT RELATIONSHIP

AGENCY ARRANGEMENTS WITH VARIOUS FOREIGN

BANKS ON RECIPROCAL BASIS.

 NOSTRO ACCOUNT : AN ACCOUNT MAINTAINED BY

AN INDIAN BANK WITH A BANK ABROAD IN FOREIGN
CURRENCY.
 VOSTRO ACCOUNT : AN ACCOUNT OPENED BY A
FOREIGN BANK WITH AN INDIAN BANK IN RUPEES.
 LORO ACCOUNT : OBC IS HAVING AN ACCOUNT
WITH CHASE. WHEN BOB REFERS TO THIS A/C
WHILE CORRESPONDING WITH CHASE, IT WOULD BE
REFERRED
12/08/21 AS LORO A/C.”THEIR A/C WITH YOU” 7
 FOREX TRANSACTIONS
FOREIGN CURRENCY IS LIKE A COMMODITY THAT IS
PURCHASED AND SOLD BY A BANK.

• PURCHASES
THE BANK ACQUIRES A FOREIGN CURRENCY AND
PARTS WITH HOME CURRENCY.

• SALES
THE BANK PARTS WITH FOREIGN CURRENCY AND
ACQUIRES HOME CURRENCY.
12/08/21 8
 FOREIGN EXCHANGE MANAGEMENT
ACT,1999 (FEMA)
• IS A LAW TO REPLACE FERA 1973
• AN OFFENCE IN FERA WAS A CRIMINAL OFFENCE LIABLE FOR IMPRISONMENT
• FEMA SEEKS TO MAKE OFFENCES RELATING TO FOREIGN EXCHANGE CIVIL
OFFENCES
• UNDER FERA NOTHING WAS PERMITTED UNLESS SPECIFICALLY PERMITTED.
TONE AND TENOR OF FERA VERY DRASTIC.
• UNDER FEMA, A PERSON IS PRESUMED INNOCENT UNLESS PROVED GUILTY

• ALL 32 OFFICES OF DGFT FULLY COMPUTERIZED. EXPORTERS CAN TRANSACT

BUSINESS WITH DGFT ON LINE.
• TRANSPORT SUBSIDY TO BE PROVIDED ON AGRO BASED EXPORTS.
• EXPORT OF SAMPLES LIBERALISED. NO GR FORM REQUIRED.
• RECOGNITION FOR CLUSTER BASED INDUSTRIES e.g. TIRUPUR, PANIPAT AND
LUDHIANA.
• FOCUS ON EXPORTS TO LATIN AMERICAN COUNTRIES AND AFRICA.
12/08/21 9
 EXCHANGE RATE SYSTEM

BUYING / SELLING RATES

WHEN A BANK BUYS FOREIGN EXCHANGE FROM THE
CUSTOMER, IT SELLS THE SAME IN THE INTERBANK MARKET
AT A BETTER RATE AND TRIES TO MAKE A PROFIT OUT OF
THE TRANSACTION.

IN THIS WAY, THE INTERBANK BUYING RATE FORMS THE

BASIS FOR QUOTATION OF BUYING RATE BY THE BANK TO
ITS CUSTOMER.

LIKEWISE, WHEN THE BANK SELLS FOREIGN EXCHANGE TO

THE CUSTOMER, IT PURCHASES THE REQUIRED FOREIGN
EXCHANGE FROM THE INTERBANK MARKET. THEREFORE, THE
INTERBANK SELLING RATE FORMS THE BASIS FOR
12/08/21 10
QUOTATION OF SELLING RATE TO THE CUSTOMER.
 ….BUYING / SELLING RATES
• TT BUYING RATE
 ANY TRANSACTION WHERE NO DELAY INVOLVED IN
ACQUIRING THE FOREIGN EXCHANGE WILL BE DONE
AT TT BUYING RATE. FOR EXAMPLE:
PAYMENT OF DEMAND DRAFTS; MAIL TRANSFERS;
TELEGRAPHIC TRANSFERS WHERE BANK’S NOSTRO
ACCOUNT IS ALREADY CREDITED.
 FOREIGN BILLS COLLECTED - THE BANK PAYS THE
EXPORTER ONLY WHEN THE IMPORTER PAYS FOR
THE BILL AND BANK’S NOSTRO ACCOUNT HAS BEEN
CREDITED. IN TRANSACTIONS INVOLVING
CANCELLATION OF FOREIGN EXCHANGE SOLD
EARLIER,
12/08/21 TT BUYING RATE WILL BE APPLICABLE.11
 ….BUYING / SELLING RATES

• BILL BUYING RATE

WHEN A FOREIGN BILL IS PURCHASED, BILL BUYING

RATE IS APPLIED. SINCE THE USUAL TRANSIT
PERIOD AND USANCE PERIOD ARE TAKEN INTO
CONSIDERATION WHILE CALCULATING THE BILL
BUYING RATES, THESE ARE WORKED OUT
ACCORDINGLY. THE FOREIGN EXCHANGE IN THESE
TRANSACTIONS IS AVAILABLE AFTER A PERIOD.
 
12/08/21 12
 ….BUYING / SELLING RATES

• TT SELLING RATE
IN TRANSACTIONS, WHICH DO NOT INVOLVE
HANDLING OF DOCUMENTS, TT SELLING RATE IS
APPLICABLE. FOR EXAMPLE:
• ISSUE OF DEMAND DRAFTS; MAIL TRANSFERS; AND
TELEGRAPHIC TRANSFERS – OTHER THAN FOR
RETIREMENT OF IMPORT BILL
• CANCELLATION OF FOREIGN EXCHANGE PURCHASED
EARLIER. WHEN AN EXPORT BILL PURCHASED
EARLIER IS RETURNED UNPAID BEFORE ITS DUE
DATE,
12/08/21 THE BANK WILL APPLY TT SELLING RATE.13
 ….BUYING / SELLING RATES

• BILLS SELLING RATE

 
THE BILLS SELLING RATE IS APPLICABLE ON ALL
TRANSACTIONS, WHICH INVOLVE HANDLING OF
DOCUMENTS BY THE BANK. FOR EXAMPLE, PAYMENT
AGAINST IMPORT BILLS.

12/08/21 14
 CONVERTIBILITY OF RUPEE
• CONVERTIBILITY OF A CURRENCY REFERS TO ITS
CONVERSION TO ANY FOREIGN CURRENCY AS DESIRED BY
THE HOLDER. THE CURRENCY CAN BE SAID TO BE FULLY
CONVERTIBLE IF THE HOLDER CAN CONVERT IT INTO ANY
OTHER CURRENCY AT RATES DETERMINED BY THE MARKET
FORCES OF DEMAND AND SUPPLY WITHOUT ANY
INTERFERENCE FROM THE GOVT. BASICALLY, IT COVERS TWO
ASPECTS:
• RATES SHOULD BE DETERMINED BY THE MARKET FORCES
AND NOT BY THE REGULATOR.
• THERE SHOULD NOT BE ANY RESTRICTION ON THE
REPATRIATION OF THE CURRENCY.

• RUPEE
12/08/21
IS NOW FULLY CONVERTIBLE ON CURRENT ACCOUNT
15
TRANSACTIONS WITH EFFECT FROM AUGUST 1994.
 ….CONVERTIBILITY OF RUPEE
CURRENT ACCOUNT:
• FULL CONVERTIBILITY ON CURRENT ACCOUNT CAN BE
PLACED IN 4 CATEGORIES:
• PROHIBITED CATEGORY THAT INCLUDES TRANSACTIONS
WITH NEPAL AND BHUTAN, EARNINGS FROM
LOTTERY/RACING.
• SCHEDULE II TRANSACTIONS, REQUIRING GOVT. APPROVALS
• TRANSACTIONS IN SCHEDULE III WHERE ADs CAN ALLOW
REMITTANCE UP TO THE PRESCRIBED LIMITS.
• ALL OTHER CURRENT ACCOUNT TRANSACTIONS THAT THE
ADS CAN ALLOW REMITTANCE WITHOUT MONETARY LIMIT.

12/08/21 16
 
 ….CONVERTIBILITY OF RUPEE
CAPITAL ACCOUNT:
• TRANSFER OF MONEY AND OTHER CAPITAL ITEMS
(SUCH AS FOREIGN INVESTMENT IN INDIA, LOANS,
COMMERCIAL BORROWINGS, SHORT TERM CREDITS
ETC.,). FEW EXAMPLES ARE:
·  INVESTMENT IN FOREIGN SECURITIES
· TRANSFER OF IMMOVABLE PROPERTY OUTSIDE
INDIA.
·  LOANS AND OVERDRAFTS TO A PERSON RESIDING
OUTSIDE INDIA AND REMITTANCE OUTSIDE INDIA
OF CAPITAL ASSETS OF AN INDIAN RESIDENT.
· ISSUING GUARANTEES IN FAVOUR OF OR ON
BEHALF
12/08/21 OF INDIAN RESIDENTS. 17
 FINANCING OF EXPORTS
GENERALLY, TWO KINDS OF FACILITY TO
EXPORTERS

 PRE-SHIPMENT OR PACKING CREDIT TO PROCURE,

PROCESS AND MANUFACTURE, PACK AND PREPARE
GOODS FOR EXPORT.
IN RUPEES OR P C F C

 POST-SHIPMENT FROM THE TIME GOODS ARE

SHIPPED AND TILL EXPORT PROCEEDS ARE
REALIZED
12/08/21 18
 FINANCING OF IMPORTS

NEEDS OF IMPORTERS ARE MET THROUGH

FOLLOWING METHODS:

 OPENING LETTERS OF CREDIT

 ADVANCE REMITTANCE
 BILLS FOR COLLECTION
 IMPORT LOANS AND GUARANTEES
 IMPORT TRUST RECEIPTS

12/08/21 19
 FREE TRADE ZONE(FTZ)

• FTZ OR EXPORT PROCESSING ZONES ARE THOSE

INDUSTRIAL ESTATES CORDONED OFF FROM
DOMESTIC TARIFF AREAS.
• TRADE BARRIERS APPLICABLE TO THE REST OF THE
ECONOMY DO NOT APPLY.
• WHERE EXPORT-ORIENTED UNITS CAN OPERATE
FREE OF IMPORT DUTIES OR QUANTITATIVE
RESTRICTIONS.
• UNITS ARE GIVEN OTHER ADVANTAGES
INCLUDING TAX EXEMPTIONS.
12/08/21 20
 SPECIAL ECONOMIC ZONE (SEZ)

• PERMITTED EXTERNAL COMMERCIAL BORROWING

FOR TENURE OF LESS THAN 3 YEARS.

• UNITS IN SEZ WILL HAVE FULL INCOME TAX

EXEMPTION ON EXPORT PROFITS FOR THE FIRST
FIVE YEARS OF OPERATION AND 50% OF THE
EXPORT PROFITS FOR THE NEXT 2 YEARS WOULD
GET TAX EXEMPTION

12/08/21 21
 OFFSHORE BANKING UNITS
• IT IS A PLACE WHERE INTERNATIONAL BANKING
BUSINESS IS ATTRACTED BY OFFERING MANY
CONCESSIONS INCLUDING RELAXATIONS FROM
RESTRICTIONS ON OPERATIONS.
• OBU IN SEZS. AS PER RBI POLICY, THE BRANCHES OF
INDIAN BANKS LOCATED WITHIN SEZS WILL BE
VIRTUALLY FOREIGN BRANCHES - OFFSHORE BANKING
UNITS.
• RBI GRANTS EXEMPTION FROM CRR REQUIREMENTS TO
THE PARENT BANK WITH REFERENCE TO ITS OBU
BRANCH.
• OBUs WILL EXERCISE ANTI – MONEY LAUNDERING
MEASURES. WILL BE REGULATED AND SUPERVISED BY
RBI
12/08/21 22
 
 FEDAI

FEDAI WAS ESTABLISHED IN 1958. ALL AUTHORIZED

DEALERS NUMBERING ABOUT 70 ARE ITS MEMBERS.
THE MAIN FUNCTIONS OF FEDAI ARE:

 TO FRAME RULES FOR THE CONDUCT OF FOREIGN

EXCHANGE BUSINESS IN INDIA. THE RULES COVER
VARIOUS ASPECTS LIKE HOURS OF BUSINESS,
CHARGES FOR FOREIGN EXCHANGE TRANSACTIONS,
INTER-BANK DEALINGS ETC. AUTHORIZED DEALERS
HAVE GIVEN AN UNDERTAKING TO THE RBI TO ABIDE
BY THE FEDAI GUIDELINES.

12/08/21 23
 
 FF EE D
DAA II
 
 TO COORDINATE WITH RBI IN PROPER
ADMINISTRATION OF FOREIGN EXCHANGE

 TO CIRCULATE INFORMATION AMONGST ITS

MEMBERS WHICH IS LIKELY TO BE OF INTEREST TO
THEM.

FEDAI ACTS AS A MOUTHPIECE OF THE AUTHORIZED

DEALERS AND REPRESENTS THEIR VIEWS TO THE
RBI AND OTHER INTERNATIONAL AGENCIES.
  12/08/21 24
 E U ER U
OR O

ON JAN 1, 2002, 12 NATIONS OUT OF 15 MEMBERS OF EUROPIAN UNION

ADOPTED THE PHYSICAL FORM OF THE NEW CURRENCY - EURO.
CRITERIA FOR BECOMING MEMBERS WAS:

• INFLATION NOT EXCEEDING 1.5%

• INTEREST RATES NOT MORE THAN 2%
• GOVT. DEBT NOT TO EXCEED 60% OF GDP
• BUDGET DEFICIT NOT TO EXCEED 3% OF GDP

INDIAN BANKING SYSTEM HAS RESPONDED POSITIVELY TO THE

EMERGENCE OF EURO.
The euro is the currency of 13 European Union countries:
Belgium, Germany, Greece, Spain, France, Ireland, Italy,
Luxembourg, the Netherlands, Austria, Portugal, Slovenia and
Finland.
12/08/21 25
 ENCASHMENT OF
TRAVELLERS CHEQUES

• INSTRUMENTS INTRODUCED NEARLY 100 YEARS AGO.

• WIDELY USED AS A SUBSTITUTE TO CASH / CURRENCY.
• BRANCH SHOULD BE FAMILIAR WITH SECURITY ASPECTS
OF TCs.
• NORMAL ENCASHMENT UPTO US$2,000. AMOUNTS
BEYOND, SATISFACTION OF AD A MUST.
• TT BUYING RATE APPLIED ON ENCASHMENTS.

12/08/21 26
 ENCASHMENT OF
TRAVELLERS CHEQUES
WATCH

• CUSTOMER SHOULD COUNTERSIGN IN THE

PRESENCE OF PASSING OFFICIAL.
• SIGNATURE OF CUSTOMER / ISSUING BANK
OFFICIALS SHOULD BE COMPARED.
• VERIFY THE LIST OF LOST / STOLEN TCs.
• TC SHOULD HAVE NOT BEEN ALTERED, ERASED OR
TRACED OVER.
• NO DISTRACTIONS WHILE HANDLING TCs.
• NEVER
12/08/21 ENCASH TCs IN A HURRY. 27
 HANDLING OF
CLEAN INSTRUMENTS
FOREIGN CURRENCY INSTRUMENTS RECEIVED BY
RESIDENTS AS EXPORT PROCEEDS, GIFTS AND
DONATIONS CAN BE BROADLY CLASSIFIED AS:
DRAFTS/PAY ORDERS PAYABLE IN FGN. CURRENCY
o PAYABLE ABROAD
o PAYABLE IN INDIA

o PERSONALCHEQUES DRAWN IN [Link]

o ENCASHMENT OF FGN. CURRENCY TRAVELLERS CHEQUES.
o ENCASHMENT OF FOREGIN CURRENCY.
o RUPEE DRAFTS DRAWN FROM BANKS/OFFICES ABROAD.
o RUPEE DRAFTS ISSUED BY EXCHANGE HOUSES ON BANKS
IN INDIA
12/08/21 28
 HANDLING OF
CLEAN INSTRUMENTS
PRECAUTIONS

 TO BE ACCEPTED GENERALLY FROM CUSTOMERS OF THE

BRANCH.
 TO BE LODGED WITH BRANCHES STATING THE CURRENCY,
AMOUNT, PURPOSE, NAME AND ADDRESS OF REMITTER.
 RUPEE INSTRUMENTS SHOULD BE HANDLED LIKE INLAND
COLLECTIONS.
 FOREIGN CURRENCY INSTRUMENTS WILL BE FORWARDED TO
THE BANK CONCERNED.
 IF REMITTANCE OVER Rs. 1 LAC, THE PURPOSE OF
REMITTANCE SHOULD BE ASCERTAINED.
12/08/21 29
 HANDLING OF
CLEAN INSTRUMENTS
… PRECAUTIONS:

 WHERE REIMBURSEMENT ALREADY PROVIDED TO OUR

NOSTRO A/C, NO INTEREST OR OTHER CHARGES TO BE
RECOVERED.
 WHERE REIMBURSEMENT HAS TO BE CLAIMED AFTER
PAYMENT, 10 DAYS’ INTEREST PLUS EXCHANGE TO BE
LEVIED.
 INSTRUMENTS WHERE CREDITS ARE TO BE RECEIVED
INTEREST AT MAXIMUM RATE FOR 15 DAYS PLUS EXCHANGE
MARGIN TO BE CHARGED.
 NO INTEREST TO BE CHARGED FOR DELAYED REALISATION
AFTER 15 DAYS. IN CASE OF RETURN OF CHEQUES INTEREST
12/08/21 30
TO BE CHARGED UPTO THE DATE OF RECOVERY.
 UCP 500 ARTICLES

• FORMATION OF ICC .
• FIRST ADOPTED VERSION OF UCP DATES BACK
TO 1929. REVISIONS IN 1933, 1951.
• 1962 REVISION PROVIDED A MAJOR BREAK
THROUGH GAINING THE ACCEPTANCE OF
INFLUENTIAL UK AND COMMONWEALTH
BANKING COMMUNITY. TECHNICAL
REFINEMENTS WERE CARRIED OUT IN 1974 AND
1983.
• UCPDC 500 IS IN FORCE FROM 1 JANUARY 1994.
• 4912/08/21
ARTICLES IN UCP 500 31
 UCP 500 ARTICLES
MAIN COMPONENTS
•  GENERAL PROVISIONS AND DEFINITIONS 1-15

• FORM AND NOTIFICATION OF CREDITS 6-12

• LIABILITIES AND RESPONSIBILITIES 13-47

• DOCUMENTS, ARTICLES 20-38

• MISCELLANEOUS PROVISIONS 39-47

• TRANSFERABLE CREDITS 48

• ASSIGNMENT
12/08/21
OF PROCEEDS 49 32
 
 ISBP: INTERNATIONAL STANDARD
BANKING PRACTICE

ISBP IS A PRACTICAL COMPLEMENT TO UCP 500.

ALTHOUGH IT DOES NOT AMEND UCP, IT EXPLAINS,
HOW THE RULES ARE TO BE APPLIED ON DAY-TO-
DAY BASIS.

AS SUCH, IT FILLS A NEEDED GAP BETWEEN THE

GENERAL PRINCIPLES ANNOUNCED IN THE RULES
AND THE DAILY WORK OF THE DOCUMENTARY
CREDIT PRACTITIONER.

12/08/21 33
 ISBP: INTERNATIONAL STANDARD
BANKING PRACTICE

• IS THE PRODUCT OF 2.5 YEARS OF WORK BY A TASK

FORCE OF THE ICC BANKING COMMISSION.

• APPROVED BY FULL COMMISSION AT ITS MEETING

IN ROME IN OCTOBER 2002 WHERE IT WAS
DECIDED TO MAKE IT AN OFFICIAL DOCUMENT OF
THE ICC.

• ISBP USAGE WILL HELP SIGNIFICANT REDUCTION IN

THE NUMBER OF DOCUMENTS REFUSED FOR
DISCREPANCIES
12/08/21
ON FIRST PRESENTATION.   34
 ISBP: INTERNATIONAL STANDARD

BANKING PRACTICE
• CONTAINS 200 PARAGRAPHS ON ALL KEY
ISSUES RELATING TO DOCUMENTARY CREDITS.

• USE OF GENERALLY ACCEPTED

ABBREVIATIONS, e.g. “LTD”, “INT’L”, “CO”, “IND”,
“KGs”, “MFR” DOES NOT MAKE A DOCUMENT
DISCREPANT.

• EXPRESSIONS AND INCONSISTENCIES NOT

DEFINED IN UCP HAVE BEEN CLARIFIED IN ISBP.
12/08/21 35
 VARIOUS TERMS USED
IN FOREIGN EXCHANGE
• ARBITRAGE:
An act of simultaneous buying and selling in two
different markets, for taking advantage of the
temporary differential that exists between two prices.
• CALL OPTION:
An option which gives the holder the right, but not the
obligation, to buy an amount of fgn. currency at a
specific price on or before maturity date.
• CURRENCY OPTION:
Gives the buyer the right but not the obligation to sell,
a specific amount of currency at a specified exchange
rate, on or before a future date.
12/08/21 36
 VARIOUS TERMS USED
IN FOREIGN EXCHANGE
• EUROPEAN OPTION:
That can be exercised only on the date of expiry and
not before that.
• PUT OPTION:
That gives the holder the right, but not the obligation,
to sell amount of foreign currency at a specific price
on or before a specific maturity date.
• SWAP:
Means simultaneous sale at spot and purchase
forward of fgn. currency or the converse.
12/08/21 37
 VARIOUS TERMS USED
IN FOREIGN EXCHANGE
• SPOT:
Exchange rate between one currency against another
is quoted either “spot” or “forward”.Time limit for spot
transactions may be same day, the following day or
within two working days.
• FORWARD CONTRACT:
Currency will be delivered, and another received, at
the same time in future.
• HEDGING:
The protection of a fgn. exchange exposure either by
a forward contract or by borrowing in the local
12/08/21 38
currency. Purpose is to retain the net position at zero.
 VARIOUS TERMS USED
IN FOREIGN EXCHANGE

• LIBOR(LONDON INTER-BANK OFFERED RATE):

Interest rate at which prime banks offer to lend
foreign currency to other prime banks as on a given
date.
• MARK- TO- MARKET:
The valuation of the portfolio with reference to the
current prices.
• PLAIN VANILLA:
A simple derivative with standard features is termed
as plain vanilla.
12/08/21 39