Q. No.

1
• Convert the direct quotes into
indirect quotes:
• 1$ = Rs. 40.00/40.05
• 1£ = Rs. 82.00/82.07
• 1 Euro = Rs. 56.00/56.18
• Answer
• $1 = Rs. 40.00 – 40.05.
• Re.1 = 1/40.05 – 1/40.00
• = $ 0.02496879 – 0.02500000
• 1£ = Rs. 82.00/82.07
• Re. 1 = 1/82.07 – 1/82.00
• = £ 0.0121847 – 0.01219512
• 1 Euro = Rs. 56.00 – 56.18
• 1 Re. = Euro 1/56.18 – 1/56.00
• = Euro 0.01779993 – 0.01785714
• Q.No.2
• Calculate how many rupees Shri Ras bihari Ji Ltd., a
New Delhi based firm, will receive or pay for its
following four foreign currency transactions:
• The firm receives dividend amounting to Euro 1,12,000
from its French Associate Company.
• The firm pays interest amounting to 2,00,000 Yens for
its borrowings from a Japanese Bank.
• The firm exported goods to USA and has just received
USD 3,00,000.
• The firm has imported goods from Singapore
amounting to Singapore Dollars (SGD) 4,00,000.
• Given: 1$ = Rs. 40.00/40.05 1 Euro = Rs. 56.00/56.04
1 SGD = Rs. 24.98/25.00 100 Yens = Rs. 44.00/44.10
• Answer:
• Foreign Exchange rate: 1 Euro = Rs. 56.00/56.04
• The firm shall be selling Euros; the bank shall be buying the
Euros @ Rs. 56.00. The firm will receive 1,12,000 x 56 i.e.,
Rs. 62,72,000.
• Foreign Exchange rate: 1 yen = Re. 0.4400/0.4410
• The firm shall be buying the yens; the bank shall be selling
the yens @ Re. 0.4410. The firm will pay 2,00,000 x 0.4410
i.e., Rs. 88,200.
• Foreign Exchange rate: 1$ Euro = Rs. 40.00/40.05
• The firm shall be selling $; the bank shall be buying the $ @
Rs. 40.00. The firm will receive 3,00,000 x 40 i.e., Rs.
1,20,00,000.
• Foreign Exchange rate: 1 SGD = Rs. 24.98/25.00
• The firm shall be buying the SGD; the bank shall be selling
the SGD @ Rs. 25.00. The firm will pay 4,00,000 x 25.00 i.e.,
Rs. 1,00,00,000
Q3 Calculate how many British pounds a London
based firm will receive or pay for its following
four foreign currency transactions:
• The firm receives dividend amounting to Euro
1,20,000 from its French Associate Company.
• The firm pays interest amounting to 2,00,000
Yens for its borrowings from a Japanese bank.
• The firm exported goods to USA and has just
received USD 3,00,000.
• The firm has imported goods from Singapore
amounting to Singapore Dollars (SGD) 4,00,000.
• Given: 1$ = £0.50/0.51 1 Euro = £0.60/0.61
• 1 SGD = £0.39/0.40 1 Yen = £0.0049/0.0050
• Answer
• Foreign Exchange Rate: 1 Euro = £0.60/0.61
• The firm shall be selling Euros; the bank shall be buying the
euro @ £0.60. The firm will receive 1,20,000 x 0.60 i.e.,
£72,000.
• Foreign Exchange Rate: 1 Yen = £0.0049/0.0050
• The firm shall be buying the Yens; the bank shall be selling
the yens @ £0.0050. The firm will pay 2,00,000 x 0.0050
i.e., £ 1,000
• Foreign Exchange Rate: 1 4 = £0.50/0.51
• The firm shall be selling $; the bank shall be buying the $ @
£0.50. The firm will receive 3,00,000 x 0.50 i.e., £ 1,50,000.
• Foreign Exchange Rate: 1 SGD = £0.39/0.40
• The firm shall be buying the SGD; the bank shall be selling
the SGD @ 0.40. The firm will pay 4,00,000 x 0.4000 i.e., £
1,60,000.
• Q. No4
• Calculate how many US$ a New York based firm will receive
or pay for its following four foreign currency transactions:
• The firm receives dividend amounting to Euro 1,20,000
from its French Associate Company.
• The firm pays interest amounting to 3,00,000 Yens for its
borrowings from a Japanese bank.
• The firm exported goods to UK and has received £3,00,000.
• The firm has imported goods fr1om Singapore amounting
to Singapore Dollars (SGD) 4,00,000.
• Given: 1 £ = $ 2.00/2.01
• 1 Euro = $ 1.20/1.21
• 1 SGD = $ 0.49/0.50
• 100 Yens = $ 0.89/0.90
• Answer
• Foreign Exchange Rate (FER): 1 Euro = $
1.20/1.21
• The firm selling Euro 1,20,000. The bank will be
buying the Euros. The bank buys Euros @ $ 1.20.
Hence, the firm receives $1,44,000.
• FER: 1 Yen = $ 0.0089/0.0090. The firm will be
buying the Yens; the bank will be selling 3,00,000
Yens $ @ $0.0090. The firm pays $ 2,700.
• FER = 1 £ = $ 2.00/2.01. The firm will be selling
£3,00,000 @ $2. The firm receives $ 6,00,000.
• FER: 1 SGD = $ 0.49/0.50. The firm will be buying
SGD 4,00,000 @ 0.50. The firm shall be paying $
2,00,000.
• Calculate how many USD a New York based firm will
receive or pay for its following four foreign currency
transactions:
• The firm receives dividend amounting to Euro 1,20,000
from its French Associate Company.
• The firm pays interest amounting to 2,70,000 Yens for its
borrowings from a Japanese Bank.
• The firm exported goods to UK and has just received
£3,00,000.
• The firm has imported goods from Singapore amounting to
Singapore Dollars (SGD) 4,00,000.
• Given:
• 1$ = Euro 0.7937/0.8000
• 1$ = Yens 135/136
• 1$ = Pound 1.99/2.00
• 1$ = SGD 1.60/1.61
• Answer
• 1 Euro = $ 1/0.8000 – 1/0.7937
• 1 Yen = $ 1/136 – 1/135
• 1 £ = $ 1 /2.00 – 1/1.99
• 1 SGD = $ 1/1.61 – 1/1.60
• The bank buys Euro 1,20,000 x 1/0.80 = $1,50,000
•
• The firm receives $1,50,000.
• The bank sells Yens 2,70,000 for 2,70,000 x 1/135 = $ 2,000
• The firm pays $2,000.
• The bank buys £ 3,00,000 for 3,00,000 x 1 /2.00 = $ 1,50,000.
• The firm receives $1,50,000.
• The bank sells SGD 4,00,000 for 4,00,000 x 1/1.60 = $ 2,50,000
• The firm pays $2,50,000.
• Three Types of Quotes
• Direct quote: In this case there is one unit of foreign currency and
corresponding units of home currency. Examples of direct quotes in India:
• 1$ = Rs. 40 1£ = Rs. 82 1 Euro = Rs. 54
• Indirect quote: In this case there is one unit of home currency
and corresponding units of foreign currency. Examples of indirect quotes in
India:
• Re.1 = $ 0.0250 Re.1 = £ 0.0122 Re. 1 = Euro 0.0185
• Direct quote = 1/indirect quote Indirect quote = 1/direct quote
•
• International Quotes(also known as cross currency quotes)
• In this case, both the currencies are foreign currencies. Examples of
international quotes in India: 1$ = £ 0.5488 1£ = $ 1.8222 1 Euro = $ 1.2000
• In practical life, there are two rates in a foreign exchange quote. The first
rate of the quote (known as bid) is the rate at which the bank buys left hand
currency, the second rate of the quote (known as ask) is the rate at which
the bank sells the left hand currency. The difference between the two rates
is the profit for the bank.
• Example 6
• Spot 1 $ = Rs. 40.00/40.10
• 1 month forward 0.10/0.11
• 2 months forward 0.12/0.13
• 3 months forward 0.14/0.15
• Calculate 1 month, 2 months and 3 months
forward rates.
• 1 month forward 1 $ Rs.
40.10/40.21
• 2 months forward 1 $ Rs.
40.12/46.23
• 3 months forward 1 $ Rs.
40.14/40.25
Q. 7 Spot 1 $ Rs. 40.10/40.20
1 month forward 0.10/0.09
2 months forward 0.15/0.14
3 months forward 0.20/0.18
Calculate 1 month, 2 months and 3 months forward
rates.

• Answer
• 1 month forward 1 $ Rs. 40.00/40.11
• 2 months forward 1 $ Rs. 39.95/40.06
• 3 months forward 1 $ Rs. 39.90/40.02
Answer
• Spot 1 $ = Rs. 40.50/40.60 2 months forward 0.10/0.20, 3 months forward
0.20/0.10 4 months forward0.25/0.30
• 2 m forward rate: 1$ = Rs. 40.60/40.80 3 m forward rate: 1$ = Rs. 40.30/40.50
• 4 m forward rate: 1$ = Rs. 40.75/40.90
• FER 1$ = Rs. 40.50/40.60
• You are buying $. The bank is selling $. The applicable rate is Rs. 40.60 Amount
payable in Rupees = 5,00,000/40.60 = Rs 2,03,00,000.
• FER 1$ = Rs. 40.50/40.60 You are selling $. The bank is buying $. The applicable
rate is Rs. 40.50 Amt. payable in $. = 12,345.70
• (i) You are buying $. Spot rate: 1$ = Rs. 40.50/40.60 3 m forward rate: 1$ = Rs.
40.30/40.50. % discount of $ (3 months) = 40.50 – 40.60/40.60 * 100 = 0.2463%
• You are buying $: Spot rate: 1$ = Rs. 40.50/40.60 4 m forward rate : 1$ = Rs.
40.50/40.60 4 m forward rate : 1$ = Rs. 40.75/40.90 % Premium of $ (4 months) =
40.90 – 40.60/40.60 * 100 = 0.7389%
• You are selling $: Spot Rate: 1$ = Rs. 40.50/40.60 3 m forward rate: 1$ = rs.
40.30/40.50 % Discount of $ (3 months) = 40.30 – 40.50/40.50 * 100 = 0.4938%
• You are selling $: Spot Rate: 1$ = Rs. 40.50/40.60
• 4 m forward rate: 1$ = Rs. 40.75/40.90 % Premium of $ (4 months) = 40.75 –
40.50/40.50 * 100 = 0.6173%
• Q. No. 9
• Calculate how many rupees a New Delhi based firm will receive or
pay for its following four foreign currency transactions:
• Purchasing $ 1,00,000 on 2 months forward basis.
• Selling 70,000 Canadian Dollars on 3 months forward basis.
• Purchasing 8,25,000 Japanese Yens on 1 month forward basis.

Spot 1 month forward 2 months 3 months forward

1 $= Rs. 40.00/40.10 5/6 p 11/10 p 10/11 p
1 CD= Rs. 34.90/35.00 0.10/0.20 0.11/0.12 0.10/0.11
100 Yens = Rs. 33.00/33.10 0.11/0.10 0.12/0.13
0.14/0.15
Answer
a) In two months forward market, the $ is at discount. The
discount is in paisa while the rate of $ is in Rupees. Converting
the discount in Rupees, we get 11/100 – 10/100 i.e., Re.
0.011/0.10. Hence, two months forward rate: 1 $ = Rs. 39.89 –
40.00
b) The New Delhi based firm will pay : Rs. 40 x 1,00,000 i.e., Rs.
40,00,000. In three months forward market, the CD is at
premium. The premium in terms of CD. Hence, three months
forward rate: 1 CD = Rs. 35.00 = Rs. 35.00 – 35.11. The New
Delhi based firm will receive : Rs. 35 x 70,000 i.e., Rs. 24,50,000.
c) In one month forward market, the Yen is at discount. This
discount is in terms of Rupees. One months forward rate: 100
Yens = Rs. 32.89 – 33.00 The New Delhi based firm will pay: Re.
0.33 x 8,25,000 i.e., 2,72,250.
Q. No.10: The following foreign currency rates, per Pound,
are being quoted in London Market:
Spot 3 months forward 4 months forward
$ 1.6200/1.6220 0.30/0.40c 0.40/0.30c
C.D 1.9000/1.9010 0.40/0.50c 0.50/0.40c
J. Y 200/205 1/2 2/1
How many Pounds a person will pay for purchasing
(i) 1,00,000 USD on spot
(ii) 1,00,000 Canadian Dollars on 3 months forward and
(iii) 1,00,000 Japanese Yens on 4 months forward?
Answer
a) 1 £ = $ 1.6200/1.6220 Bank is purchasing £. The applicable rate :
1 £ = $ 1.62 The person has to pay £(1,00,000/1.62) i.e.,
£61,728.40
b) Spot rate: 1£= CD 1.9000/1.9010
Swap points = 0.40/0.50 cents = 0.0040/0.0050 CD
3 months forward rate: 1£= CD 1.9040/1.9060
Bank is buying £. Applicable rate 1£ = CD 1.9040
The customer has to pay = £ (1,00,000/1.0940) = £ 52,521
C) Spot rate: 1£ = 200/205 Yens
4 months Swap points = 2/1 Yens
4 months forward rate: 1£ = JY 198/204
Bank is buying £. Applicable rate 1£ = JY 198
The customer has to pay: £(1,00,000/198) = £ 505.05
Q. No. 11
A French firm exported certain cosmetic goods
to a New York firm, the invoice being
$4,00,000, credit terms 30 days. Spot
exchange rate: 1 $ = 0.80 Euro.
Find the gain/loss to the exporter if Euro
strengthens by 5% over the 30 days period.
What if Euro weakens by 5% during the
period. Make calculations in terms of euro per
$. Attempt the question by (a) direct quote (b)
indirect quote.
Answer
(a) 1 $ = 0.80 Euro
(i) If Euro strengthens by 5% Euro premium 1/20 $ discount
is 1/21
1 $ = [0.80 Euro – (1/21)(0.80 Euro) ] = 0.761904 Euro
Statement showing gain/loss if Euro strengthens by 5%
Euro receivables on the date of export (400000 x 80) = 3,20,000
Actual receipt (4,00,000 x 0.761904) = 3,04,762
Loss = 15238 EURO
(ii) If Euro weakens by 5%Euro discount 1/20 $ premium is 1/19
1 $ = [0.80 Euro + (1/19)(0.80 Euro) ] = 0.842105 Euro
Statement showing gain/loss if euro strengthens by 5%
Euro Receivables on date of export (400000 x 80)= 3,20,000 Euro
Actual receipt (4,00,000 x 0.842105) = 3,36,842 Euro
Gain = 16,842 Euro
(b) Spot rate: 1 Euro = $ 1/0.80 = $ 1.25
If euro strengthens by 5% :
1 Euro = $ 1.25 (1.05) = $ 1.3125
If Euro weakens by 5%:
1 Euro = $ 1.25(0.95) = $ 1.1875
Statement showing gain/loss if euro strengthens by 5%
Euro Receivables on the date of export (400000 x .80) = 3,20,000
Actual receipt (4,00,000/1.3125) = 3,04,762 Loss = 15238 Euro
Statement showing gain/loss if Euro weakens by 5%
Euro Receivables on the date of export (400000 x 80) = 3,20,000
Actual receipt (4,00,000/1.1875) Gain = 16,842 EURO
Q. No. 12 (i) Rs./£ : 74.00 – 74.50 (ii) Rs./CHF 26.00 –
26.60. Find CHF/£
Answer
a) 1 £ = Rs. 74.00 – 74.50 (It is Rs. /£)
b) 1 Re. = £0.01342 – 0.01351 (It is £/Rs.)
c) 1 CHF = Rs. 26.00 – 26.60 (It is Rs./CHF)
d) 1 Re. = CHF 0.03759 – 0.03846 (It is CHF/Rs.)
(CHF/£) bid = [(CHF/Rs.) bid] x [(Rs./£) bid]
= 0.03759 x 74 = 2.7817
(CHF/£)ask = [(CHF/Rs.)ask] x [(Rs./£) ask]
= 0.3846 x 74.50 = 2.8653
Hence, CHF/£ = 2.7817 – 2.8653
Q.13: An Indian firm is interested in
purchasing 5milion Chinese Yuan. The
following quotations have been given by
two different banks:
Bank A : 1 Pound = Rs. 79.89/80.00
1 Pound = CY 12.50/12.60
Bank B: 1 CY = $0.1598 – 0.1600
1 $ = Rs. 40.00/40.05 Advice the Indian
firm.
Answer Two Alternatives:
a)5 million CY can be purchased for
50,00,000/12.50 i.e., £ 4,00,000. This amount
of £ can be purchased for 4,00,000 x 80 i.e.,
Rs. 3,20,00,000
b)5 million CY can be purchased for 50,0,000 x
0.1600 i.e. $ 8,00,000 This amount of $ can
be purchased for 8,00,000 x 40.05 i.e. Rs.
3,20,40,000.
• First alternative is recommended.
Q.No.14: Given the following rates, find ‘bid’ and ‘ask’ rates for
CY in terms of rupees :
1 USD = 5.7040 – 5.7090 CY
1 USD = 40.30 – 40.50 Rupees
Answer
1$ = CY 5.7040/5.7090 (it is CY/$),
1$ = Rs. 40.30/40.50 (It is Rs./$)
1 CY = $(1/5.7090)/(1/5.7040) (it is $/CY)
1 Re. = $(1/40.50)/(1/40.30) (it is $/Rs.)
We have to find Rs./CY. Rs./CY = Rs./$ x $/CY
• Rs./CY (bid) = (40.30) x (1/5.7090) = 7.0590
• Rs./Cy (ask) = (40.50) x (1/5.7040) = 7.1003
• Rs./CY = 7.0590/Rs. 7.1003
• Q. No. 15 An exporter customer requests a
bank to sell 25,00,000 Singapore Dollar (SGD).
The inter-bank market rates are as follows:
• Bombay US$ 1 = Rs. 45.85/45.90
• London Pound 1 = USD 1.7840/1.7850
Pound 1 = SGD 3.1575/3.1590
The bank wishes to retain an exchange margin
of 0.125%. (Calculate rate in multiples
of .0001). How many Rupees the exporter will
receive?
Answer
1$ = Rs. 45.85/45.90 (It is Rs./$)
1 Re. = $ (1/45.90)/(1/45.85) (It is $/Re.)
1£ = $ 1.7840/1.7850 (it is $/£)
1$ =£ (1/1.7850)/(1/1.7840) (It is £/$)
1£ = SGD 3.1575/3.1590 (It is SGD/£)
1 SGD = £ (1/3.1590) / (1/3.1575) (it is £/SGD)
Computation of SGD rate i.e. Rs./SGD. (The bank will be
purchasing SGD, hence we have to calculate ‘bid’ rate.)
RS/SGD = Rs./$ x $/£ x £/SGD
Rs./SGD (bid) = 45.85 x 1.7840 x (1/3.1590) = Rs. 25.8931307375
Taking bank margin into consideration bid rate per SGD Rs.
25.8931307375(1 – 0.00125) i.e. Rs. 25.860764324.
Total receipt = 6,46,51,911