72533276 caiib super notes bank financial management module a international banking exchange rates...
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8/10/2019 72533276 CAIIB Super Notes Bank Financial Management Module a International Banking Exchange Rates and Forex Business
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CAIIB Super-Notes M S AhluwaliaSirf Business
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Exchange Rates and ForexBusinessModule A: International Banking
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CAIIB Super-Notes M S AhluwaliaSirf Business
CAIIB SUPER NOTESBank Financial Management: Exchange Rates and ForexBusiness
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ContentsCoera!e"1.Foreign Exchange Denition and Markets
!.Factors Determining Exchange Rates
".Exchange Rate Mechanism
#.Foreign Exchange Dealing Room $%erations
&.RBI'FEDAI (uidelines
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CAIIB Super-Notes M S AhluwaliaSirf Business
F$REI() E*C+A)(E DEFI)I,I$) A)DMAR-E,1.
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CAIIB Super-Notes M S AhluwaliaSirf Business
Foreign Exchange/DenitionCon0ersion o currencies rom the currenc2 o in0oice to
the home currenc2 o the ex%orters generall2 re3uiredor cross 4order trade
A For Ex ,ransaction is a contract to exchange unds inone currenc2 or unds in another currenc2 at an agreed
rate and arranged 4asis.
All claims %a2a4le a4road5 6hether consisting undsheld in oreign currenc2 6ith 4anks a4road or 4ills5checks %a2a4le a4road.
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For Ex / FEMA DenitionForeign Exchange means oreign currenc2 andincludes:i7All de%osits5 credits and 4alances %a2a4le in oreign
currenc25 and an2 drats5 tra0eler8s che3ues5 letters o creditand 4ills o exchange5 ex%ressed or dra6n in Indian currenc2and %a2a4le in an2 oreign currenc25
ii7An2 instrument %a2a4le at the o%tion o the dra6ee orholder thereo or an2 other %art2 thereto5 either in Indiancurrenc2 or in oreign currenc25 or %artl2 in one and %artl2 inother.
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CAIIB Super-Notes M S AhluwaliaSirf Business
ForEx Market 9artici%antsCentral Banks
Commercial Banks
In0estment unds'4anks
ForEx 4rokers
Cor%orations
Indi0iduals
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CAIIB Super-Notes M S AhluwaliaSirf Business
Foreign Exchange MarketsCharacteristics:!# hour market
an o0er the counter market
a glo4al market 6ith no 4arriers'no s%ecic location
su%%orts large ca%ital and trade o6s
highl2 li3uid markets
high uctuations in currenc2 rates
settlements a;ected 42 time
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CAIIB Super-Notes M S AhluwaliaSirf Business
FAC,$R DE,ERMI)I)( E*C+A)(ERA,E!.
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CAIIB Super-Notes M S AhluwaliaSirf Business
Factors DeterminingExchange Rates
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E*C+A)(E RA,E MEC+A)IM".
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CAIIB Super-Notes M S AhluwaliaSirf Business
,2%es o ,ransactions
=Date on 6hich exchange o currencies actuall2 takes %lace
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>alue date
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For6ard Margins 9remiumand DiscountsFor6ard Rate ? %ot Rate @ 9remium or / Discount79remium: For6ard >alue o Currenc2 %ot >alue
Discount: %ot >alue o Currenc2 For6ard >alue
In a %erect market5 6ith no restriction on Finance and,rade5 the interest actor is the 4asic actor in arri0ing atthe or6ard rate
For6ard %rice o a currenc2 can 4e 6orked out on the4asis o:%ot %rice o the currencies in0ol0ed
,he interest rate di;erentials or the currencies
,he term5 i.e.5 the uture %eriod or 6hich the %rice is 6orked out
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,2%e o uotes
Internationall25 all currencies other than (B95 Euro5 AD and )D are3uoted as direct rates.
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CAIIB Super-Notes M S AhluwaliaSirf Business
Cross Rateshen rates or a %articular currenc2 %air are notdirectl2 a0aila4le
Ex:D'I)R Rate is #G.1H'11
(B9'D Rate is 1.&HHH'1H
(B9'I)R Rate 6ill 4e: #G.1H x 1.&HHH'#G.11 x 1.&H1H
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CAIIB Super-Notes M S AhluwaliaSirf Business
Fixed 0s. Floating RatesFixed Rate: $cial rate set 42 the monetar2authorities or one or more currencies
Floating Rate: >alue o the currenc2 decided 42su%%l2 and demand actors
,he oating rate s2stem is %re0alent in the 6orldmarket since 1GJ". India ado%ted the same in
1GG".
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CAIIB Super-Notes M S Ahluwalia Sirf Business
Bid and $;ered RatesBid rate: Bu2ing Rate$;ered Rate: elling Rate
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,erminolog21 9er Mille: 1 %art in e0er2 thousand
>aluer Com%ensee %a2ments: here 0alue date is
same in 4oth centers
Ar4itrage:im%le'Direct Ar4itrage: Bet6een ! centers onl2
Com%ound',hree or more7 9oint Ar4itrage: here additionalcenters are in0ol0ed
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F$REI() E*C+A)(E DEAKI)( R$$M$9ERA,I$)#.
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Functions1.,o meet re3uirements o customers o other4ranches'di0isions to 4u2 or sell oreign currenc2.
!.Manage Foreign currenc2 assets and lia4ilities.
".Fund and manage )ostro accounts
#.ndertake %ro%rietar2 trading in currencies.
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CAIIB Super-Notes M S AhluwaliaSirf Business
" 9arts o a Dealing Room
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9ositions
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CAIIB Super-Notes M S Ahluwalia Sirf Business
,erminolog2
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CAIIB Super-Notes M S AhluwaliaSirf Business
MaLor Risks associated 6ith ForExDealing $%erations
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CAIIB Super-Notes M S Ahluwalia Sirf Business
RBI'FEDAI (IDEKI)E&.
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Categorisation o Authorised9ersons
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FEDAI (uidelines'Rules1.tandard transit %eriod or ex%ort 4ills
!.Cr2stallisation o 4ills in oreign currenc2 in case o dela2 inrealisation 6ithin H da2s
".ight 4ills or Im%ort KC 6ould cr2stallise on 1Hthda2 aterdate o recei%t
#.For6ard contracts to ha0e denite amounts and s%ecicdeli0er2 dates
&.Deli0er2 %eriod under o%tion contract shall not exceed onemonth
.All or6ard contracts to 4e automaticall2 cancelled on theJth6orking da2 ater maturit2 i not %icked u%
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J.All cancellation at Bank8s o%%osite ,, rates
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FEDAI (uidelines'RulesN.Interest O !P a4o0e the %rime rate o the currenc2 to 4echarged in e0ent o dela2 in %a2ment o inter4ank oreigncurrenc2 unds
G.Interest O !P a4o0e the )E MIB$R to 4e charged in e0ento dela2 in %a2ment o ru%ee settlement unds
1H.All currencies to 4e 3uoted as:9er unit o Foreign currenc2 ?I)R. Ex: Q1 ? Rs #&.J
Exce%t 9S5 Indonesian Ru%aih and -en2an chilling. ,o 4e 3uoted as1HH units o Foreign currenc2 ? I)R.FEDAI also %rescri4es code o conduct or F$RE* dealers5 as alsoguidelines 6ith regard to dealings 6ith orex 4rokers.
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RBI (uidelines(uidelines related to:$%en %ositions
(a%s
Borro6ing and Kending in Foreign currencies
Inter4ank dealings in India and o0erseas markets
+edging o 4ank8s o6n ex%osures as 6ell as that o itsresident and non/resident clients
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RBI (uidelines1.AD CA, 1 Banks allo6ed to o%en'close ru%ee accounts1.In names o o0erseas 4ranches or corres%ondents 6ithout %rior reerence toRBI
!.In names o exchange houses 6ith %rior reerence to RBI
!.AD CA, 1 Banks allo6ed to o%en'close oreign currenc2accounts a4road
".AD CA, 1 Banks can undertake in0estments in o0erseasmarkets in mone2 market instruments and'or de4t instruments5issued 42 oreign state5 maturit2 T 1 2r5 rated as %er guidelines
#.ur%lus unds in )ostro accounts can 4e used or1.(ranting Koans to resident constituents
!.Extending credit acilities to holl2 $6ned u4sidiaries'>s o Indian
com%anies a4road
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CAIIB Super-Notes M S AhluwaliaSirf Business
RBI (uidelines&.All 4orro6ings in )ostro accounts including ECB and ,em%.$0erdrat7 not adLusted 6ithin & da2s shall not exceed &HP otheir unim%aired ,ier 1 Ca%ital or D 1H million 6hiche0er ishigher
.Banks can allo6 4anks to 4ook For6ard Exchange contracts tohedge their exchange risk ex%osure/,he genuineness o the underl2ing documentar2 e0idence and ex%osuremust 4e ascertained
J.Banks can allo6 im%orters'ex%orters to 4ook F6d. Contract on
4asis o declaration o the ex%osure 6ith limit 4ased on %ast%erormance
N.ME customers ma2 4e allo6ed to 4ook or6ard contracts inalignment 6ith the credit acilities a0ailed 42 it rom the 4ank
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CAIIB Super-Notes M S AhluwaliaSirf Business
RBI (uidelinesG.Banks can allo6 resident indi0iduals to 4ook For6ardcontracts on deli0era4le 4asis 6ith tenors u% to 1 2ear u% to alimit o D Q 1HH5HHH.
1H.Banks can o;er other deri0ati0e contracts to residententities 6ho ha0e 4orro6ed oreign exchange in accordance6ith the %ro0isions o FEMA 1GGG
11.Banks can also o;er Foreign currenc2 Ru%ee 6a% toresident entities that ha0e a orex or ru%ee lia4ilit2 to hedgelong term ex%osure
1!.Banks can enter into cross currenc2 o%tions and oreigncurrenc2/ru%ee o%tions 6ith their customers on 4ack to 4ack4asis
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CAIIB Super-Notes M S Ahluwalia
Sirf Business Do 2ou ha0e
an2 3uestions or 3ueries
or some eed4ack togi0eU ust mark anemail to
su%er.msahlu6aliaO2ahoo.com
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,hank SouV
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CAIIB Super-Notes M S AhluwaliaSirf Business
For more u%er/)otes: Click +ereM Ahlu6alia5 amongst other things5is a 0isual artist5 4logger5 4logdesigner and o course an MBA andBanker rom )e6 Delhi5 India.
,o kno6 more a4out him 2ou ma2 0isit his4log/site: Estudiante De Ka >ida
http://sirfbusiness.blogspot.com/http://msahluwalia.blogspot.com/http://sirfbusiness.blogspot.com/http://sirfbusiness.blogspot.com/http://msahluwalia.blogspot.com/http://msahluwalia.blogspot.com/ -
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