QA Series No 27 - Rates in Forex - Part 2

 

The Banking Tutor

Question Answer Series 2025

S No 27                                                                    23-07-2025

Rates in Forex – Part 2

 

29. What is a Sale transaction from Bank’s point of view ? 

In a sale transaction, the Bank parts with foreign exchange.

 

30. What is Selling Rate in Forex Trading ? 

In Forex (Foreign Exchange), the selling rate (also known as the ask price) is the price at which a currency is offered to a buyer. It's the rate at which a bank or currency exchange provider will sell you foreign currency. This rate is always higher than the buying rate (bid price).

 

31. What is a Purchase transaction from Bank’s point of view ? 

In a purchase transaction the Bank receives foreign exchange.

 

32. What is Buying  Rate in Forex Trading ? 

In forex, the buying rate, also known as the bid rate, is the rate at which a currency dealer will buy a specific foreign currency from you. It's the price at which the dealer is willing to purchase the currency, and it's always lower than the selling rate (also known as the ask rate). 

 

33. What are different Selling Rates in Forex trading ? 

TT Selling ; BC Selling ; TC Selling and  Currency Note Selling (Cash Selling)

 

34. What are different Buying Rates in Forex trading ? 

TT Buying ; OD Buying ; TC Buying and Currency Note Buying (Cash Buying)

 

35. For what transactions Bank use TT Selling Rate ? 

The TT Selling rate is applicable for :

 

a) Outward remittance in foreign currency (TT/DD)

 

b) Cancellation of purchase - Bill purchased/returned unpaid ; Bill purchased/transferred to collection a/c and  Refund of inward remittances

 

c) Forward purchase contract cancellation on or after due date

 

d) Conversion of NRE deposit to FCNR/RFC deposits

 

e) Recovery of interest on PCFC/FC Loan

 

36. For what transactions Bank use BC Selling Rate ? 

The Bill Selling rate is applied for transactions involving transfer of proceeds of import bills. It is to be noted that although the transfer may take place by way of a DD/TT etc. the TT selling rate is not to be applied.

 

37. For what transactions Bank use TC Selling Rate ?

TC Selling rate is applicable for sale of foreign Traveller Cheques to the customers.

 

38. For what transactions Bank use Currency  Note  Selling Rate ? 

Currency  Note  Selling Rate is applicable for sale of foreign currencies :

 

39. For what transactions Bank use TT Buying Rate ? 

The TT buying rate is applicable for: 

a) Clean inward remittances (TT/DD) for which cover has already been credited to our Nostro account. 

b) Proceeds of export bills/cheques etc. sent for collection. 

c) Cancellation of outward TT/DD etc. 

d) Cancellation of forward sale contract on or after due date. 

e) Conversion of RFC, EEFC, FCNR(B) deposits and PCFC/FC Loan into INR

 

40. For what transactions Bank use TC Buying Rate ? 

The TC buying rate is applied for purchase of foreign currency traveller cheques. 

41. For what transactions Bank use Currency Note  Buying Rate ?

The currency buying rate is applied for purchase of foreign currency notes tendered by a customer. 

42. For what transactions Bank use OD  Buying Rate ? 

The bill buying rate is applicable for purchase/discounting of bills and other instruments. On purchasing/discounting the export bill Bank immediately parts with the Rupee equivalent, the foreign exchange will be  received on a future date after realisation of the bill. In the case of usance bill, forward rate will be applicable. However, in the case of sight bill, forward rates are not quoted even though transit period is involved, as bills are likely to be realised early. 

43. What is Fine Rate ? 

Fine Rate is the standard exchange rate offered to most customers. It's the base rate for currency conversion. 

44. What is Finer Rate? 

Finer Rate  is slightly better than the fine rate and is typically offered to customers with higher transaction volumes or those who have a good relationship with the financial institution. 

45. What is Superfine Rate? 

Super Fine Rate is the most advantageous exchange rate offered, usually to high-value customers or for large, one-off transactions. It represents the best possible rate offered by the Bank. 

46. What is Cross Rate ? 

A cross rate in foreign exchange is the exchange rate between two currencies that is calculated independently of the domestic currency (usually the US dollar). It essentially shows how much of one currency you need to exchange for another when neither currency is the USD. 

Cross rates are derived by using the exchange rates of both currencies against a common third currency, typically the US dollar. 

Example: To find the EUR/GBP cross rate:

 

EUR/USD exchange rate (e.g., 1 EUR = 1.10 USD).

 

GBP/USD exchange rate (e.g., 1 GBP = 1.25 USD).

 

Divide the EUR/USD rate by the GBP/USD rate (1.10 / 1.25 = 0.88).

 

This result (0.88) is the EUR/GBP cross rate, meaning 1 EUR = 0.88 GBP 

 

47. What is a Matching Transaction ? 

When a customer has both export and import exposure, he generally arranges his

transactions in such a way that his import transactions are matched with his export transactions. In such cases, bank need not go to interbank market for covering the export/import transaction if both the legs are of similar or matching amount. Since there is no dealing exposure for the bank on spot basis, Dealing rooms have been permitted to load concessional margins in respect of matching forex transactions. However, the transaction amount should be perfectly matching with 10% leeway e.g. inward remittance of USD 50000 can be matched with import/outward remittance of USD 45000 or vice versa. 

48.  What is Card Rate ? 

A card rate is a publicly listed price for a service or product, often used in industries like foreign exchange, credit cards, and professional services. It can refer to the exchange rate offered by a bank for foreign currency transactions, the interest rate on a credit card, or the price list for services offered by a company. Card Rates, also known as Merchant Rates (Card Rates) are the rates, which are to be applied for the forex transactions and include the exchange margin. 

49. Why Bill Buying Rate is also called as OD Buying Rate ? 

The term "OD Buying Rate" refers to the rate at which a bank buys export bills, specifically those payable on demand (on documents). It's called "OD" (On Demand) because it involves bills presented to the bank for immediate payment, unlike usance bills which are paid after a certain period. The bank essentially buys these bills from exporters, providing them with immediate rupee payment, while the foreign exchange will be realized later when the bill is collected. 

50. What is meant by TT in TT Selling Rate / TT Buying Rate ? 

In the context of TT selling rate and TT Buying Rate , TT refers Telegraphic Transfer. 

51. What is Nostro Account ? 

When a bank maintains its foreign currency account in a bank in a foreign country in the local or home currency of that country it is called a “Nostro” account. It means Our money with you. 

Nostro is a Latin word for “Ours” 

Current Account  of SBI with Citi Bank, New York in USD is a Nostro  Account to SBI. 

52. What is Vostro Account ? 

When a bank maintains a local or home currency account of a foreign bank or branch in its own country it is called a “Vostro” account. It means Your money with us. 

Vostro is a Latin word for “Yours” 

For example, if Citibank maintains an account with  SBI in India in INR, it will be a vostro account for SBI. 

An account which is Nostro for one bank is Vostro for another. 

When SBI opens a Nostro account with Citibank, it is a Vostro account for  Citibank. Similarly the Vostro account for SBI is actually a nostro account  for Citibank. 

53. What is Loro Account ? 

When a bank remits its foreign currency fund to a foreign bank for credit to an account of a third bank it is called a Loro account. It means Their money. 

“Loro” is an Italian word which literally means 'Their'. 

For example when Union Bank of India is maintaining an account  with Citi Bank in New York in USD when Bank of Baroda refers the said account in   correspondence with Union Bank, Now York  it is said Loro account. 

 

54. What are different categories of Banks in India related to Forex Transactions? 

In India, banks authorized to handle foreign exchange transactions are categorized into Authorized Dealer Category I (AD Category-I) banks, Authorized Dealers Category II (ADs Category-II), and Full Fledged Money Changers (FFMCs). 

AD Category-I banks are the most prominent, followed by ADs Category-II, and FFMCs, each with specific roles and permissions related to foreign exchange transactions. 

55. What are different types of Forex Transactions ? 

Foreign exchange (forex) transactions involve the exchange of one currency for another. Key types include spot, forward, and futures transactions, each with different characteristics and purposes. Additionally, there are swaps and options, which offer more complex exchange strategies. 

56. What are Spot Transaction in Forex Trading ? 

Spot Transaction is the most basic type, involving the immediate exchange of currencies at the current market rate. Settlement is usually within two business days. 

57. What is a Forward Transaction in Forex Trading ? 

Forward Transaction is an agreement to exchange currencies at a predetermined rate on a future date.  Settlement  occurs at a specified future date. 

58. What is a Future Transaction in Forex Trading ? 

Futures Transaction is a Standardized forward contracts traded on exchanges. Settlement  occurs at a predetermined future date and price. 

59. What is a Swap Transaction in Forex Trading ? 

Swap Transaction involve the exchange of currencies between two parties, with a simultaneous agreement to reverse the exchange at a later date. Settlement occurs in two parts: an initial exchange and a later reversal. 

60. What is an Option Transaction in Forex Trading ? 

Option Transaction gives the buyer the right, but not the obligation, to exchange currencies at a specified rate on or before a specific date. The option is exercised only if it's profitable for the buyer. 

61. What is a Non Deliverable Forward in Forex Trading ? 

Non-Deliverable Forward  (NDF) is a Forward contract settled in cash, used for currencies not freely traded or subject to capital controls. 

62. What is a Cross-Currency Swap in Forex Trading ? 

Cross-Currency Swap is similar to swap transactions, but involve the exchange of principal and interest payments in different currencies, with a later reversal. 

Next Issue  will be shared on 25^th      July 2025.

Sekhar Pariti

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