Exchange Rates: Quotations, Forward Margins, and Cross Rates, Study notes of Business Administration

Download Exchange Rates: Quotations, Forward Margins, and Cross Rates and more Study notes Business Administration in PDF only on Docsity! Ready Rates Based on Cross Rates The exchange rates for other currencies are quoted to customers based on the rates for the currency concerned prevailing in international foreign exchange markets like London, Singapore and Hong Kong. There rates are available in terms of US dollar. They have to be converted into rupee terms before quoting to the customers. We shall first examine how exchange rate are quoted in international markets and then we shall see how these rates are used for quoting rates for currencies other then US dollar in India. Exchange quotations in International Markets In International markets, barring few exceptions, all rates are quoted in term of US dollar. For instance, at Singapore Swiss franc may be quoted at 1.5425/5440 and Japanese yen at 104.67/70. This should be understood as; USD 1 = CHF 1.5425 – 1.5440 USD 1 = JPY 104.67 – 104.70 In interpreting an international market quotation, we may approach from the variable currency or the base currency, viz., the dollar. For instance we may take a transaction in which Swiss franc are received in exchange for dollars as (a) Purchase of Swiss francs against Dollar (b) Sale of Dollar against Swiss francs. The quotation for Swiss franc is CHF 1.5425 and CHF 1.5440 per Dollar. While buying dollar the quoting bank would part with fewer francs per dollar and while selling dollars would require as many francs as possible. Thus, CHF 1.5425 is the dollar buying rate and DEM 1.5440 is the dollar selling rate. It may be observed that when viewed from dollar, the exchange quotation partakes the character of a direct quotation and the maxim ‗Buy low: Sell high‘ is applicable. Forward Margin/Swap Points. Dollar/ Foreign Currency Quotation At Singapore market dollar may be quoted against Deutsche mark and French franc as follows: