International-Business-Dr-R-Chandran-E-book

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International Business- Dr. R. Chandran
• The transaction is always talked of from the banks point of
view.
• The item referred to is the foreign currency.
When we say “Purchase” we mean (buying rate):
• The bank has purchased and
• It has purchased foreign currency.
Similarly, “Sale” means (selling rate):
• The bank has sold and
• It has sold foreign currency.
Direct Quotation: A given number of units of domestic currency
per unit of foreign currency, e.g., $1 = Rs.40.00. With effect from 2 nd
August 1993 direct quotations are being used in India.
Indirect Quotation: A given number of foreign currency per unit
local (domestic) currency, e.g., Rs.100 = $2.5.
Two-Way Quotation
The foreign exchange quotation by the bank has two rates- one at
which quoting bank is willing to buy and the other at which it is
willing to sell. For example US $1 = Rs.45 – Rs.45.20.
Here, the bank will enter into purchase transaction at Rs.45.00
and sell transaction at Rs.45.20. Hence the principle in case of direct
quotation is BUY LOW & SELL HIGH. From the Ads point of view,
conversion of foreign currency on behalf of an exporter into Indian
Rupees would be a purchase transaction, and conversion of domestic
currency into foreign currency on behalf of an importer would be a
sale transaction. Likewise, outward remittance would involve sale of
foreign currency while inward remittance would involve purchase of
foreign currency. In case of Indirect Rate Quotation the principle is
BUY HIGH & SELL LOW.
Types of Exchange Rates
Only for Private Circulation