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| What are value dates? |
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A value date for a foreign transaction is a day on which the transaction takes place.
For inter-bank the transaction dates are two types: |
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Cash: Value today
Tom: value tomorrow |
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For customers the dates are two types: |
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Spot: Settlement on second successive working day. |
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Forward: Settlement at a pre-deiced future date beyond the second successive working day. |
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| What is direct quote? |
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A direct quote is where the price of foreign currency is quotedin terms of home currency. E.g. 1 USD = 48.48 INR (Rs.) |
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| What is an indirect quote? |
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An indirect quote is where exchange rate is quoted in terms of variable units of foreign currency as equivalent to a fixed number of units of home currency. Simply a reciprocal of direct quotes. E.g. USD 2.07 = Rs. 100 |
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| What are inter-bank rates
and how are they different from market rates? |
| Inter-bank as the name suggests are buying and selling rates between any two banks. Where as market rates are inter-bank rates plus the bank margins and commissions which generally depend on the amount of the exposure. |
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| What is a TT? |
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TT or telegraphic transfer is one of the mode for inward or outward remittance. It is the fastest mode of transfer where the buyers pays the bank the amount in home currency and the bank pays the equivalent in required foreign currency to the seller’s bank by a telegraphic code. Examples of transactions where TT rate is applied include payment or receipt of demand drafts, mail transfers, Telegraphic transfers etc. drawn on the bank. TT rate is used for all transactions that do not involve handling of documents by the bank. |
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| What are TT buying and selling rates? |
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TT buying rates are applied for purchase of foreign currency by banks. It is applied to a transaction that does not involve any delay in realization of foreign exchange by the bank. The rate is calculated by deducting from the inter-bank buying rate the exchange margin. Thus, all foreign inward remittances which are made payable in India are converted by applying this rate.
TT selling rates is applied for selling foreign currency to the customer by the bank for effecting remittances outside India. This rate is calculated by adding exchange margin to the inter-bank selling rate. |
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| What is bill rate? |
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Bill buying or selling by any bank involves handling of documents by the bank. This rate is worse than the TT rate. In addition, the bank will also recover interest for the period for which the bank has lent the funds.
Bill buying rate is applied when a foreign bill is purchased/negotiated/discounted. When a bill is purchased, the proceeds will be realized by the bank after the bill is presented to the drawee at the overseas centre. In the case of a usance bill, the proceeds will be realized on the due date of the bill, which includes the transit period and the usance period of the bill.
Bill selling rate is applied for transaction involving transfer of proceeds of import bills. Even if the proceeds of import bills are remitted in foreign currency by way of DD, MT,TT,PO, the rate to be applied is the bill selling rate (and not the TT selling rate). |
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| What is Mail Transfer? |
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It is an order in writing to pay to the beneficiary the sum mentioned therein. Th instructions for mail transfer of funds are issued to correspondent bank/branch abroad and are sent by post. It is an arrangement between two banks and it is not s negotiable payment order. Though a cheaper mode of transfer, its is not as fast as TT. |
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| What is Bid/Ask and spread? |
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Bid is the inter-bank buying rate and Ask is the inter-bank selling rate. The difference between the two is spread. In periods of high volatility spread may be around 5-10 paise, where as in periods of stability spread may be 0.25-0.50 paise. |
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| What is a two-way quote? |
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A two-way quote is rate where both Bid and Ask are offered. |
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| What are FRAs? |
| Forward Rate Agreement is an agreement between two parties to buy/sell at pr determined price a pre determined rate. It is an agreement on forward contract on interest rates. |
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| What is a forward rate? |
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A forward rate is the rate offered for transaction beyond Spot date. Forward rate = Spot rate + (premium/Discount). |
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| What is LIBOR? |
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LIBOR or London inter-bank offered rate is the international inter-bank borrowing and lending rates. |
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| What are the different modes of transferring money? |
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One could transfer money through DD, TT or a Mail Transfer. |
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| What are derivatives? |
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Derivatives are hedging instruments like Option, Swaps aimed to maximize gains and minimize the risk. |
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| What is rollover? |
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In simple terms it means postponing or extending delivery. In Indian forex market jargon, rollover is simultaneous cancellation and rebooking of a contract. |
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| What are REER and NEER? |
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Nominal Effective Exchange Rate is an index of the weighted average of bilateral nominal exchange rates. Real Effective Exchange Rate is the NEER adjusted for relative inflation rates. |
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| What are Nostro and Vostro accounts? |
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A Nostro account is a account with a correspondent banks/branch abroad, in the home currency of that country. Where as, a Vostro account is a local currency account of a foreign bank/branch. Simply the Nostro account of account holder is a Vostro account for bank where it is maintained. |
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| Can a resident open a foreign currency denominated account in India? |
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Persons resident in India are permitted to maintain foreign currency accounts in India under following two Schemes: |
| EEFC Accounts –
To avoid exchange loss on conversion of foreign exchange into Indian Rupee & Rupee into foreign exchange, residents can retain upto 50% (70% in case of 100%EOUs, units in SEZs, STP or EHTP) of foreign currency remittances received from abroad in a foreign currency account, viz., EEFC account, with an authorised dealer in India. Funds held in EEFC account can be utilised for current account transactions and also for approved capital account transactions as specified by the extant Rules/Regulations/Notifications/Directives issued by the Government/RBI from time to time.
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| RFC Accounts -
Returning Indians, i.e., those Indians, who were non-residents earlier, and are returning now for permanent stay, are permitted to open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to keep their foreign currency assets. Assets held outside India at the time of return can be credited to such accounts. The funds in RFC account are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment outside India. The facility is also available to residents provided foreign exchange to be credited to such account is received out of certain specified type of funds/accounts.
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| Can a person resident in India hold assets outside India? |
| In terms of sub-section 4, of Section (6) of the Foreign Exchange Management Act, 1999, a person resident in India is free to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. |
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