• Where is the wholesale market of forex?
  • The wholesale market is also called as Inter-Bank market.
  • It lies in the dealing room of the Bank’s Treasury.
• The transactions taking place between the banks or financial institutions are called as wholesale transactions or inter-bank transactions.
• 1 $ = 82.44 – this is called as Average interbank rate.
• 1 $ = Rs. 82.43/82.45
• 1 $ = Rs. 82.43/45
• Rs. 82.43 is called as Bank’s buying rate of Dollar or also called as Bid Rate.
• Rs. 82.45 is called as Bank’s selling rate of Dollar or also called as Offer Rate or Ask Rate.
• The Logic is Buy Low and Sell high, then only the trader can make profit. 
• The difference between Buying Rate and Selling rate is called as Spread.
• From the spread itself, we can come to know the depth of the market.
• Our Market today:
  • 1 $ = 82.43/45, the spread is 2 paise.
  • $ is called as the Base Currency, it will never move. 
  • Rupee is called as the Variable Currency, because $ makes the rupee to go up and down. 
  • The WTO approved countries are about 190 in the world.  Nearly 95% of the countries follow $ as the base currency.
• In Singapore the $ rate is:
  • 1$ = 1.3433/35 SGD, the difference is called as 2 pips.
• In the inter-bank or wholesale market, the minimum marketable lot size is $ 5,00,000 or also called as $ 500th.
• For example, Mr. X is exporter and has exported goods worth $ 200th 
  • B category branch where the exporter has got his account has securitized the export documents and it is in order.
  • Then What B Category will do:

• Any foreign exchange rate, we have to see from Dealing Room point of view;
• What is today’s inter-bank rate:
  • 1 $ = 82.43/45.
  • As per the logic, we have to take the buying rate of dealing room, that is Rs. 82.43.
  • B category has to load some margin for the work carried out for the exporter.
  • Assuming, B Category loads a margin of 2 paise per $, then the export merchant rate would be:
  • Inter-Bank Rate is : Rs. 82.43
  • Less Margin:                     0.02
  • Export Rate is:         Rs. 82.41
  • How much rupee would be credited to the account of the exporter?
    • $ 200th x Rs. 82.41 = Rs. 1,64,82,000 would be credited to the exporter’s account.
  • What is margin or profit earned by bank in the export transaction?
    • Rs. 0.02 x $ 200th : Rs. 4,000/-

For example, Mr. Y is importer and importing some goods from abroad for $ 200th 

• B category branch where the importer has got his account has securitized the import documents and it is in order.
• Then What BCategory will do:

• Any foreign exchange rate, we have to see from Dealing Room point of view;
• What is today’s inter-bank rate:
  • 1 $ = 82.43/45.
  • As per the logic, we have to take the selling rate of dealing room, that is Rs. 82.45.
  • B category has to load some margin for the work carried out for the importer.
  • B category is out of funds by Rs. 82.45
  • Assuming, B Category loads a margin of 3 paise per $, then the import merchant rate would be:
  • Inter-Bank Rate is : Rs. 82.45
  • Add Margin:                     0.03
  • Export Rate is:         Rs. 82.48
  • How much rupee would be debited to the account of the importer?
    • $ 200th x Rs. 82.48 = Rs. 1,64,96,000 would be debited to the importer’s account.
• What is margin or profit earned by bank in the import transaction?
  • • Rs. 0.03 x $ 200th: Rs. 6,000/-
• Simple thumb rules:
  • For exporters or inward remittances:
    • Take the less rupee from the inter-bank quote.
    • Export or inward remittance margin is deducted.
    • Exporter’s rupee account is credited. 
  • For importers or outward remittances:
    • Take the higher rupee from the inter-bank quote.
    • Import or outward remittance margin is added.
    • Importer’s rupee account is debited. 
• Let us do a problem:
• Today’s inter-bank quote is: 
  • 1 $ = 81.92/94
• Exporter has submitted export document for $ 500th. Margin to be loaded is 3 paise per $.
• Importer has submitted import document for $ 400th. Margin to be loaded is 4 paise per $.

Your questions:

• • What is the inter-bank export rate?
    • 1 $ = Rs. 81.92
  • What is the merchant export rate?
    • 1 $ = Rs. 81.89
  • How of rupee would be credited to the account of the exporter?
    • Rs. 81.89 x $ 5,00,000 = Rs. 4,09,45,000
  • What is the inter-bank import rate?
    • Rs. 81.94
  • What is the merchant import rate?
    • Rs. 81.98
  • How of rupee would be debited to the account of the importer?
    • Rs. 81.98 x $ 400,000 = Rs. 3,27,92,000
  • What is the total margin earned by the Bank on the above two transactions?
    • On export: 0.03 x $ 500th: Rs. 15,000/-
    • On import: 0.04 x $ 400th: Rs. 16,000/-
    • Total margin earned: Rs. 31,000/-.
  • Cross Currency:
  • What is cross currency internationally?
    • In a currency pair, $ leg will be absent. 
      • 1 Euro = 150.02 Yen.
  • What is cross currency in India?
    • In a currency pair, rupee leg will be absent.
      • 1$ = 1.3433/35 SGD = also called as direct quote.
  • Some countries, they think they are superior to $.
    • 1 Euro = 1.0746/48 $, the difference is 2 pips = Indirect quote.

Next Problem: 

• For example, Mr. X is exporter and has exported goods worth SGD 200th:
• Today’s Forex rates are:
  • 1 $ = 81.92/94
  • 1$ = 1.3433/35 SGD
  • B category branch where the exporter has got his account has securitized the export documents and it is in order.
  • Then What B Category will do:

• • Any foreign exchange rate, we have to see from Dealing Room point of view;
  • While doing exchange rate mechanism, it should be carried out from base currency perspective:

• 1 $ = 81.92 INR
• 1 $ = 1.3435 SGD
• We have to find out how rupee, the dealing room has to give to the exporter for 1 SGD.
• 1.3435 SGD = Rs. 81.92
• 1 SGD =?
• Rs. 81.92/1.3435 SGD = Rs. 60.975 or Rs. 60.98
• Less assuming a margin of:                            0.02
• Exporter Merchant Rate:                       Rs. 60.96.
• Rs. 60.96 xx SGD 200TH: Rs. 1,21,92,000 would be credited to the account of the exporter.
• Margin earned by the Bank: 0.02 x SGD 200TH: Rs. 4,000/-.

Next Problem: 

• For example, Mr. Y is importer and he is importing goods worth CAD 200th.
• Bank is loading a margin of 3 paise per CAD.
• Solution: 
• Today’s Forex rates are:
  • 1 $ = 81.92/94
  • 1$ = 1.3338/40 CAD.
  • B category branch where the importer has got his account has securitized the import documents and it is in order.
  • Then What B Category will do:

• • Any foreign exchange rate, we have to see from Dealing Room point of view;
  • While doing exchange rate mechanism, it should be carried out from base currency perspective:

• 1 $ = 81.94 INR
• 1 $ = 1.3338 CAD
• We have to find out how rupee, the dealing room has to recover from the importer for 1 CAD.
• 1.3338 CAD = Rs. 81.94
• 1 CAD =?
• Rs. 81.94/1.3338 CAD = Rs. 61.43 or Rs. 61.43
• Add assuming a margin of:                           0.03
• Exporter Merchant Rate:                      Rs. 61.46.
• Rs. 61.46 x CAD 200TH: Rs. 1,22,92,000 would be debited to the account of the importer.
• Margin earned by the Bank: 0.03 x CAD 200TH: Rs. 6,000/-.

Next Problem: 

• Today’s Forex rates are:
  • 1 $ = 81.92/94 (Direct Quote)
  • 1 GBP = 1.2571/73 $ (Indirect Quote)
  • 1 Euro = 1.0746/48 $ (Indirect Quote)
• Exporter has submitted export bill for GBP 500th and margin to be loaded is 0.05% and you have to give 4-digit quote.
  • B category branch where the exporter has got his account has securitized the export documents and it is in order.
  • Then What B Category will do:

• • Any foreign exchange rate, we have to see from Dealing Room point of view;
  • While doing exchange rate mechanism, it should be carried out from base currency perspective:
    

    Dealing Room
    Buy GBP and Sell $	1 GBP = 1.2571/73 $
    Buy $ and sell inr	1 $ = 81.92/94

• 1 $ = 81.92 INR
• 1 GBP = 1.2571 $
• We have to find out how much rupee, the dealing room has to give to the exporter for 1 GBP.
• 1 $ = Rs. 81.92
• 1.2571 $ =?
• Rs. 81.92 x 1.2571 $ = Rs.  102.9816
• Less 0.05% =                             0.0515 (102.9816 x 0.05/100)
• Exporter Merchant Rate:   102.9301                      
• Rs. 102.9301 x GBP 500th: Rs. 5,14,65,050 would be credited to the account of the exporter.
• Margin earned by the Bank: 0.0515 x GBP 500TH: Rs. 25,750/-.
  
  

Next Problem:

• Importer has submitted import bill for Euro 500th and margin to be loaded is 0.05% and you have to give 4-digit quote.
• Today’s Forex rates are:
  • 1 $ = 81.92/94 (Direct Quote)
  • 1 Euro = 1.0746/48 $ (Indirect Quote)
  • Then What B Category will do:

• Any foreign exchange rate, we have to see from Dealing Room point of view;
• While doing exchange rate mechanism, it should be carried out from base currency perspective:

• 1 $ = 81.94 INR
• 1 Euro = 1.0748 $
• We have to find out how much rupee, the dealing room has to recover from the importer for 1 Euro.
• 1 $ = Rs. 81.92
• 1.0748 $ =?
• Rs. 81.94 x 1.0748 $ = Rs.  88.0691
• Add 0.05% =                           0.0440 (88.0691 x 0.05/100)
• Exporter Merchant Rate:   88.1131                      
• Rs. 88.1131 x Euro 500th: Rs. 4,40,56,550 would be debited to the account of the importer.
• Margin earned by the Bank: 0.0440 x Euro 500TH: Rs. 22,000/-.
  • In forward contract, the rate difference arises out of interest rate differential.
  • Let us assume today’s average rate is 1 $ = Rs. 82/-
  • One year T.bill in US is available at the rate of 3%.
  • One year T.bill in India is available at the rate of 6%.
  • From the above input arrive at the year $/rupee parity.
  • Long cut:
    • (82 x 1 x 6)/ (100 x 365) = Rs. 4.92
    • (1 x 1 x 3)/ (100 x 360) = 1.03 $
    • From this, arrive at 1 $ rate: (82 + 4.92)/ (1.03)
    • 86.92/1.03 = Rs. 84.39 per $
  • Short cut: 
    • 82 x (1.06/1.03)
    • 82 x 1.0291 = Rs. 84.39 per $

Problem: 

• • Assume today is 5th May, 2023
  • One exporter wants to book a forward contract for his $ receivable on 30th April, 2024.  Assuming bank is loading a margin of 2 paise per $, what rate bank would quote for him?
  • Today’s Inter-Bank Rate: Rs. 81.71
  • Add premium for 30/04:         3.15
  • Interbank forward rate:  Rs. 84.86
  • Less Margin:                              0.02
  • Merchant Forward Rate:      84.84

Problem: 

• One importer wants to book a forward contract for his $ payable on 29th February, 2024.  Assuming bank is loading a margin of 2 paise per $, what rate bank would quote for him?
  • Today’s Inter-Bank Rate: Rs. 81.73
  • Add premium for 29/02:         2.63
  • Interbank forward rate:  Rs. 84.36
  • Add Margin:                              0.02
  • Merchant Forward Rate:      84.38

       Next Problem: Broken delivery:

• One exporter wants to book a forward contract for his $ receivable on 16th April, 2024.  Assuming bank is loading a margin of 2 paise per $, what rate bank would quote for him?
• Today’s Inter-Bank Rate: Rs. 81.71
• Add premium for 31/03:         2.88
• Add premium 16/04:               0.14
• Interbank forward rate:  Rs. 84.73
• Less Margin:                              0.02
• Merchant Forward Rate:      84.71
• Problem: 
• One importer wants to book a forward contract for his $ payable on 09th February, 2024.  Assuming bank is loading a margin of 2 paise per $, what rate bank would quote for him?

• Today’s Inter-Bank Rate: Rs. 81.73
• Add premium for 31/01:         2.36
• Add premium 09/02:               0.08
• Interbank forward rate:  Rs. 84.17
• Adds Margin:                             0.02
• Merchant Forward Rate:      84.19
• Above are called as Fixed date deliveries. In case of fixed date deliveries, on due date some problem can arise, such as strike, lock out etc.
• Exporters and importer approached FEDAI, which Self-regulatory organization.
• So, FEDAI came out with an idea of booking forward contracts with option period.
• FEDAI permits a maximum option period of 1 month.
• Examples:
  • It can be full month February, 2024
  • It can be from 15/3/2024 to 14/04/2024
  • Within one month, booking can be done as follows:
  • 1/1/2024 to 10/01/2024
    • 18/2/2024 to 25/02/2024
  • Any forward contract with option period will have two legs:
    • One is called as early delivery.
    • Another is called late delivery.
  • In case, forward contract is booked with full month option period of say, March, 2024:
  • Early delivery will be 1st March, 2024
  • Late delivery will be 31st March, 2024.
  • In case of exporters, go for early delivery and for importers go for late delivery.

Problem:

• • One exporter wants to book a forward contract for his $ receivable on Full month April, 2024.  Assuming bank is loading a margin of 2 paise per $, what rate bank would quote for him?
  • What would be the early delivery: 1/04/2024
  • Late delivery would be: 30/04/2024.
  • So, in case of exporters go for early delivery that is, 1/04/2024
  • Today’s Inter-Bank Rate: Rs. 81.71
  • Add premium for 31/03:         2.88
  • Add for 1st April                         0.01
  • Interbank forward rate:  Rs. 84.60
  • Less Margin:                              0.02
  • Merchant Forward Rate:      84.58

Problem:

• • One importer wants to book a forward contract for his $ payable on Full month April, 2024.  Assuming bank is loading a margin of 2 paise per $, what rate bank would quote for him?
  • What would be the early delivery: 1/04/2024
  • Late delivery would be: 30/04/2024.
  • So, in case of importer go for late delivery that is, 30/04/2024
  • Today’s Inter-Bank Rate: Rs. 81.73
  • Add premium for 30/04:         3.17
  • Interbank forward rate:  Rs. 84.90
  • Add Margin:                              0.02
  • Merchant Forward Rate:      84.92
  • In case of fixed date delivery, the rate is efficient but customers run the risk of non-performing.
  • In case of forward contract with option delivery, the rate is inefficient, but customers do not run the risk of cancellation of contract.