NAME ROLL NO.

MAYUR GADA 17
CLEON MENEZES 33
SUJITH NAIR 35
MANJUNATH TARADI 56
MEANING
Importers and Exporters and others who are required to
buy or sell foreign exchange are popularly known as
Merchants.
The Exchange rates quoted by Authorised Dealers in
India ,for transaction with merchants are known
Merchant Rates.
The rates quoted by banks for dealing in Inter Bank
markets are known as Interbank Rates.

MODES OF REMITTANCE
Telegraphic Transfer (TT)
Mail Transfer (MT)
Demand Draft (DD)
TELEGRAPHIC TRANSFER (TT)
Telegraphic Transfer (TT)of funds from one centre to another centre
is done by way of instructions through telex or telegram or SWIFT
(Society for Worldwide Interbank Financial Telecommunication)
The authenticity of a message is established by means of a private
check signal code and thereby the probability of message being fake
is reduced and is almost negotiable.
The use of TT is, however, restricted to banks having correspondent
relationship.

MAIL TRANSFER (MT)

Mail Transfer (MT) of funds from one centre to another centre is
done by way of instructions sent by mail.
A mail transfer is an order in writing on the correspondent/ branch
abroad to pay the beneficiary the sum mentioned therein.
A mail transfer is an arrangement between two banks (offices) and
the instrument is not a negotiable pay order.
A mail transfer is not quick as TT but it is a cheaper mode as
compared to TT.


DEMAND DRAFT (DD)
A demand draft is an order in writing on the correspondent/ branch
abroad to pay the beneficiary the sum mentioned therein.
The party which wants to remit funds through DD, pays to the bank
necessary amount.
The bank issues a demand draft and the same is handed over to the
party and the party sends it abroad.
The DD is paid by the correspondent bank/ overseas branch of the
bank upon presentation.
FEDAI RULES/ RGULATION FOR MERCHANT QUOTATION
CURRENCY TO BE QUOTED AGAINST
ONE UNIT OF FOREIGN
CURRENCIES:
CURRENCY TO BE QUOTED AGAINST
100 UNITS OF FOREIGN CURRENCIES:
Australian Dollar
Bahrain Dinar
Austrian Schilling
Canadian Dollar
European Currency Unit
French Francs
Qatar Rial
Singapore Dollar
US Dollar
Sterling Pound
Belgian Franc
Indonesian Rupiah
Italian Lira
Japanese Yen
Kenyan Shilling
Spanish Peseta

ASIAN CLEARING UNION CURRENCIES
Bangladeshi Taka; Burmese Kyat; Iranian Riyal; Pakistani Rupee; Sri Lanka
Rupee
TYPES OF MERCHANT RATES TRANSACTION
TT (Buying)
BILL (Buying)
TT (Selling)
BILL ( Selling)


TT (Buying) RATE BILL (Buying) RATE
Clean Inward remittance TT, MT,
DD for which cover has already
been provided by credit to the
Nostro Account of the bank.
Conversion of proceeds of
instruments sent on collection
basis.
Cancellation of outward TT, MT,
DD, etc.
Cancellation of forward sale
contract.

Purchase/ discount/
negotiation of export bill


TT (Selling) RATE
BILL (Selling) RATE
Clean outward remittance in foreign
currency by TT, MT, DD.
Cancellation of Purchase i.e.
Bill purchased earlier is returned
unpaid
Bill purchased earlier transferred to
collection account.
Inward remittance returned to
remitting bank
Cancellation of forward purchase
contract.
Import documents received directly by
the importer.


Clean outward remittance in foreign
currency by TT, MT, DD.
Cancellation of Purchase i.e.
Bill purchased earlier is returned
unpaid
Bill purchased earlier transferred to
collection account.
Inward remittance returned to
remitting bank
Cancellation of forward purchase
contract
GUIDELINES FOR COMPUTING MERCHANT RATES
1. BASE RATE
The base rate selected by Authorised Dealer (AD), should be in line with the ongoing
merchant rate.
Eg. US$1 Rs. 40.5300 40.6300, the base rate should be around this level only.

2. Earlier, the FEDAI had prescribed profit margins to be loaded by the Ads. Now Ads
are free to charge profit margin as per their discretion.

The earlier exchange (profit) margins prescribed by FEDAI were as follows:

TYPE OF RATE PROFIT MARGING RANGE
1. TT (Buying) 0.025% to 0.080%
2. BILL (Buying) 0.125% to 0.150%
3. TT (Selling) 0.125% to 0.150%
4. BILL (Selling) 0.175% to 0.200%


3. SPREAD
The FEDAI had prescribed maximum spread for various currencies which is as under:

The spread is defined as

Spread = TT (S) TT (B)
TT (S) + TT (B)
2
The Spread should not exceed:

CURRENCY SPREAD (%)
US$ 1
GBP, DEM, FRF, CHF 2
(Major Currencies)
All Other currencies No limit, bank can on their own


4. ROUNDING OFF:
The rate offered to the merchants should be
quoted in four decimal places and last two digits
should be rounded off in the multiple of 25.
COMPUTATION OF EXCHANGE RATE
TT Buying Rate
Step 1: Select appropriate base rate (market buying rate)
Step 2: Deduct exchange margin as per FEDAI or as per
the banks internal guidelines.
Step 3: Round off the rate as per FEDAI guidelines i.e.,
quote to be in four decimal places and last two
digits in the multiple of 25.

If the interbank exchange rate for US$ are as under:
Spot: US$ 1 = Rs. 42.8825 42.8975
Step 1: Cover rate Rs. 42.8825
Deduction cushion -0.0100
Base rate Rs. 42.8725

Step 2: Base rate Rs. 42.8725
Less Exchange margin
As per FEDAI @0.080% or bank -0.0342
Bank is giving Rs., gives minimum Rs. 42.8383

Step 3: Round off rate as per FEDAI Rs. 42.8400
TT Selling Rate
Step 1: Select appropriate base rate (market buying rate)
Step 2: Add exchange margin as per FEDAI or as per
the banks internal guidelines.
Step 3: Round off the rate as per FEDAI guidelines i.e.,
quote to be in four decimal places and last two
digits in the multiple of 25.


If the interbank exchange rate for US$ are as under:
Spot: US$ 1 = Rs. 42.8825 42.8975
Step 1: Cover rate Rs. 42.8825
Add cushion +0.0200
Base rate Rs. 42.9175

Step 2: Base rate Rs. 42.9175
Add Exchange margin
As per FEDAI @0.15% or bank +0.0643
Bank is taking Rs., takes maximum Rs. 42.9818

Step 3: Round off rate as per FEDAI
TT Selling Rate US$ 1 = Rs. 42.9825

BILL Selling Rate
Step 1: Select appropriate base rate (market buying rate)
Step 2: Add exchange margin as per FEDAI or as per the banks
internal guidelines.
Step 3: Arrive at TT Selling Rate
Step 4: Add exchange margin again in TT selling rate as per FEDAI
Step 5: Round off the rate as per FEDAI guidelines i.e., quote to be in
four decimal places and last two digits in the multiple of 25.



If the interbank exchange rate for US$ are as under:
Spot: US$ 1 = Rs. 42.8825 42.8975

Step 1: Cover rate Rs. 42.8825
Add cushion +0.0200
Base rate Rs. 42.9175

Step 2: Base rate Rs. 42.9175
Add Exchange margin
As per FEDAI @0.015% or bank +0.0643
Rs. 42.9818

Step 3: Round off rate as per FEDAI Rs. 42.9825
(TT Selling Rate US$ 1 = Rs. 42.9825)

Step 4: TT Selling Rate US$ 1 Rs. 42.9825
Add Exchange margin
As per FEDAI @0.2% or bank +0.0859
Bank is taking Rs., takes maximum. Rs. 43.0684

Step 5: Round off rate as per FEDAI
Bill Selling Rate US$ 1 = Rs. 43.0675


BILL Buying Rate
Step 1: Select appropriate base rate (market buying rate)
Step 2: Load (Add premium/ Deduct discount) forward period.
Step 3: Deduct exchange margin as per FEDAI or as per
the banks internal guidelines
Step 4: Round off the rate as per FEDAI guidelines i.e.,
quote to be in four decimal places and last two
digits in the multiple of 25.



Suppose Mumbai interbank market quotes as follows:
Spot: US$ 1 = Rs. 40.8825 40.8975
Forwards: Spot/May 2500/2700
Spot/June 5200/5500
Spot/July 7700/8200
If an export customer is to receive his US$ amount on July 31, the Authorized Dealer will compute
the bill buying rate as follows:

Step 1: Cover rate Rs. 40.8825
Deduction cushion -0.0100
Base rate USS$ 1 = Rs. 40.8725

Step 2: Base rate Rs. 40.8725
Add premium for 31 July +0.7700
Rs. 41.6425

Step 3: Forward rate Rs. 41.6425
Less Exchange margin
As per FEDAI @0.150% or bank -0.0624
Bank is giving Rs., gives minimum Rs. 41.5801

Step 4: Round off rate as per FEDAI Rs. 41.5800


NOTIONAL DUE DATE (NDD)
When the bank enters into a forward contract with an exporter, the exporter agrees to
tender export documents to the bank and the documents such as bill of exchange, etc.
entitle the bank to receive foreign exchange in future.
Therefore, the bank will receive foreign exchange as per the tenor of the bill of exchange.
For the bank to quote a rate is necessary to either know the value date or fix the same on
notional basis.
In the documents where a reference date like, date of bill of exchange or date of bill of
lading, etc., is not given only Usance of the bill of exchange is given, a due date is fixed
on notional basis and the same is known as Notional Due Date

Notional Due Date (NDD) = Normal Transit Period (NTP) + Usance Period + Grace Period
APPLICABILITY OF GRACE DAYS
COUNTRIES WHERE GRACE
PERIOD IS APPLICABLE
COUNTRIES WHERE GRACE
PERIOD ID NOT APPLICABLE
Australia
Burma
Canada
Hongkong
India
Malaysia
New Zealand
Sri Lanka
Abu Dhabi
Argentina
Bahrain
Mexico
South Africa
UK
USA
France
FEDAI has prescribed Normal Transit Period for direct bill and indirect bill for
different countries

DIRECT BILL:
Bill drawn payable in the currency of the country where it is
drawn payable is called Direct Bill.

INDIRECT BILL:
A bill drawn on a currency other than the currency of the
country on which it is drawn payable, is called Indirect Bill.
CRYSTALLISATION OF OVERDUE
EXPORT BILL:

As per FEDAI guidelines an export bill remains overdue,
then on 30
th
day from the NDD or due date, the foreign
exchange liability has to be crystallized into rupees.
Crystallisation will be done at TT selling rate.
Subsequently, when the bill is realised, foreign exchange
will be purchased at TT buying rate.
CRYSTALLISATION OF IMPORT BILLS
All the foreign currency import bills drawn under
letters of credit are required to be crystallised into
rupee liability on 10
th
day from the date of receipt of
the document a