Settlement Location The respective home Currency Dealing Location Location where other currency is handled other than

home currency. Settlement Settlement can happen only through turnover of deposits. Rate of Quotations Different types of quotations are available. Spot & Forward Market Spot = T + 2 I.e When the rate is fixed today it should be delivered or closed within 2 business days. And the countries with same time zone will have one business days. If the settlement location is an holiday the transaction happens next day. Value of Forward Market The rate is fixed today and the transaction happens over a period of time. For Eg. Rate is fixed on June 18 then the transaction happens as follows, June 18 + 2 + One calendar Month = July 20th Roll Forward is not possible and roll back is possible. European Quote No of units of other currency for One USD. 59.96 1 USD American Quote No of USD for Per unit of other currencies.

$2.12 100 INR Direct Quote No of units of foreign currency for One USD 45.16 INR 1 USD Indirect Quote No of dollars for One unit of Foreign Currency. 2.12 USD 100 INR Inter Bank Quotes Are presented by Swift Codes, first three letters of the country represents the swift code. Bid Dealer willing to buy one unit of base currency Ask Dealer willing to sell one unit of Base currency. 59.55/59.60 USD / INR Dealer willing to buy 1 USD @ 59.55 Dealer willing to sell 1 USD @ 59.60 Cross Rate Linking transaction between two currencies other than US dollars. Quote Representation 1.5060 last 2 decimal are said to be PIP Short Position Bought and sold immediately. Long Position Only buying and no selling happen. Ware Housing Buying and stocking with belief of making profit

Spot Market Spread = Ask Bid Transaction Cost It is used to calculate the transaction fee charge of the bank. Percent Spread = (Ask Bid)/Ask * 100 Currency Arbitrage When the rates differ from one market to another market we can see the opportunity of arbitrage. Arbitrage can happen with Gain / Loss. Buying less in one international market and selling high in another international market Forward Market An agreement between a bank and a customer to deliver a specified amount of currency with another currency at a specified date at specified fixed exchange rate of today. Hedging It is defined as the act of reducing the risk of fixed exchange rate. Marginal Market Hedging with Foreign Exchange Future Letter of Credit

Settlement Location The respective home currency Dealing Location Location where other currency are handled other than home currency. Settlement Settlement happens only through a turnover of deposits. Rate of Quotations Different types of quotations available. Spot & Forward Market Spot = T + 2 The rate is fixed for today and the transaction completes in 2 business days If the two countries fall in the same time line the transaction gets completed in 1 Business day All settlement location can be a dealing location but all dealing location may not be a settlement location

Value of Forward Market The rate is fixed for today and the delivery happen over a period of time. For Eg. June 18th rate is fixed. Delivery happens June 18th + 2 + one Calendar Month = July 20th Rollback is possible and Roll Forward is not possible. European Quote No. of Units of other country currency for 1 USD 59.16 = 1 USd American Quote No of dollars per unit of other currency 2.12 USD = 100 INR

Direct Quote Units of the currency of the countries per unit of foreign currency. 45.16 INR = 1 USD Indirect Quote Number of units of the foreign currency per units of home currency 2.16 USd = 100 INR Inter Bank Quotes Bank uses Swift Codes for transactions and they are separated by / For Eg. USD / INR 1ST Currency base currency 2nd currency quote currency. BID / Ask Bid is to buy and Ask is to sell Bid Price - Prepared to buy one unit of base currency Ask - Prepared to sell one unit of base currency.

Cross Rate Linking of two currencies other than USD Quote Representation 1.5060 Last 2 decimal is pip Short Position Selling and buying without possession Long Position Only buying and no selling Ware Housing Buying and stocking with the eye on the future to see profit

Spot Market SPOT = Ask BID Transaction Cost This is used to calculate the transaction fee charged by the bank. Currency Arbitrage When cross rates differs from one finance center to another finance center profit opportunity exists. Buy less form one international market and sell high in another market Forward Market An agreement between a bank and a customer to deliver a specific amount of one currency against another currency at specified future date and at a fixed exchange rate of today. Hedging It can also be defined as the act of reducing the risk of exchange rate. Marginal Market Hedging with Foreign Exchange Future Letter of Credit

Settlement Location Dealing Location Settlement

Rate of Quotations Spot & Forward Market

Value of Forward Market European Quote American Quote Direct Quote Indirect Quote Inter Bank Quotes Cross Rate Quote Representation 1.5060 Short Position Long Position Ware Housing Spot Market

Transaction Cost

Currency Arbitrage

Forward Market Hedging Marginal Market Hedging with Foreign Exchange Future Letter of Credit The LC contains a certain set of terms and condition which will be defined by both the seller and buyer through phone calls / faxes / email and various other models of communication Various departments from both side come into contacts. Bank do not deal in merchandise, payment will be done if the terms and condition of the L/C is full filled. An L/C once opened cannot be changed. Types of L/C Import Export Standby L/C A substitution of banks for the credit of the buyer. L/C Can be raised by Importer / Beneficiary. To create an L/C there must be 4 parties. o Buyer o Seller o Buyers Bank o Sellers Bank Buyer will always create an LC through his Issuing Bank

Essentials of L/C Beneficiary Amount Validity Sellers Bank Type of Payment Desired Document Notification Address Description of Goods Order Confirmation

Buyer and seller agrees upon terms including means of transport, period of credit, last date of shipment International Commercial terms be used. Buyer applies to the bank to issue L/C, bank will evaluate buyers credit standing and may require cash cover or reduction of other leading limits Issuing banks send the L/c to Advising bank by Airmail or Swift Code Advising bank establishes the authenticity of letter of credit using signature book or test code then inform seller. Advising bank may confirm L/C adding its own payment undertaking Seller should check the L/C whether it matches all the commercial agreement and that all its terms and condition can be satisfied, if the seller feels that anything may cause problem an amendment should be requested. Seller ships the goods and assembles the document like Invoice / Transport document, before presenting it to the bank the seller should check and verify the document for discrepancies with L/c and correct the document if it is necessary. The document are presented to the bank most of the time Advising bank, the advising verifies the document and send it the issuing bank. The issuing banks checks the document by itself and if the documents are in order it reimburses the sellers bank immediately. The issuing banks debits the buyer and releases the document so that the buyer can claim the goods from the carrier. Types of Letter of Credit.