Exchange Rate in Banks

Currency is treated as commodity.

The selling rate is the rate at which bank sells foreign currency to customer and buying rate is the rate at which bank purchases foreign currency from the customer. The difference between a bank’s buying rate and selling rate constitute its “dealing spread” or the exchange profit or exchange gain.

The basic rate is the TT rate and this rate does not involve any loss of interest profit. All other rates ate quoted based on TT rate, depending on the nature of transaction and its ancillary costs associated with the transaction, for the purpose of conducting its business of buying and selling of foreign currency.

The rate of exchange between two currencies is quoted in two ways :

1) Direct Quotation (Pence rate)

2) Indirect Quotation (Currency rate)

1) Direct Quotation : Direct  Pence rate is the rate where the unit of foreign currency is kept constant and home/local currency is varied.

2) Indirect Quotation  Rate:   Indirect  Currency Rate is the rate where the home currency is kept constant and foreign currency is varied.

 Maxim of Rate

Direct  / Pence Rate  :Buy low-sell high.

Indirect / Currency Rate : Buy high-sell low.

Selling Rate

1.  T. T. & O. D. (Clean Sale)
2.  B. C. Sale

1.    T.T & O.D ( Telegraphic Transfer and On Demand ) Rate

Overview

Telegraphic Transfer (TT) and On Demand (OD) are forms of remittance that  Bank provides in order to conveniently aid your personal and business payments.

Telegraphic Transfer (TT)

Be it paying for an overseas purchase or sending money to a studying child, Telegraphic Transfer is the perfect tool to send foreign currency overseas in a timely and secure manner. The benefits of TT are:

• Fast and safe way, as it goes from one bank to another and directly into an account
• Easily traced if it gets lost

On Demand (OD)

On Demand rate are applied when purchasing or selling of demand draft, foreign cheque and etc. It is a cheaper method for payments made overseas and funds are cleared through our correspondents in major cities around the world.

 B. C. ( Bills for Collection ) Selling Rate

B.C. selling rate is applied against import which required some extra work for bank to handle of the import documents. The extra work arises from scrutiny of documents and collection of bills. So bank quotes slightly higher rate for sale of foreign currency against imports, regardless whether it is covered by a letter of credit or not. The rate used for this purpose is known as B.C. rate (Bills for collection rate). B.C. selling rate is applied for sale transactions against import documents, irrespective of whether the remittance is effected by TT , Draft or Bill of exchange.

 Buying Rate

TT Buying Rate
(i) TT Clean
(ii)TT (DOC)

OD Buying Rate

a) OD (Sight) export bills
b) OD (Transfer)

i) TT Clean rate :This rate is applicable for purchase of TTS or any other clean  instrument where no interest  profit factor is involved i.e. DD, MT against  which fund has already been covered by the issuing  bank.

ii) TT (DOC)  This rate is applicable for the instruction to pay a sum of  money to a certain person on presentation of some documents ( invoice, bill of lading, bill of exchange etc. ), which makes a documentary transaction.

Due to handling of some documents, banks recover handling charge on the transaction.

OD type

iii) OD (Sight) export bills: This rate is applies to purchase or negotiate sight export bills. Since there is time gap between the payment to the exporter and receipt of foreign currency in the NOSTRO account, the banker deducts transit margin from TT rates. So, this rate is lower than TT clean buying rate.

  iv) OD (Transfer)

OD buying rates are quoted for the transaction of purchase of personal cheque, PO, Draft, TC etc. In purchasing a draft of this nature, the bank makes the payment immediately, but is reimbursed at the foreign centre after some days where draft documents are paid by the drawee.

Long Rate:

Long rate is used for purchase of usance bill  long bills. In our country, the transactions usually involved, purchase of Export Bills payable 30, 60, 120 and 180 days after sight i.e. incase of discounting the bills.

Telquel Rate  Long bills presenting for discounting of which a part of usance  have already run and in this case premium  discount is taken into account only for the remaining period of maturity of the bill i.e. the rate quoted for the bill with broken period of usance are called Telquel rate. For example a 90 days bill is presented for discounting 50 days after acceptance.