Foreign Currency Management Pdf
Foreign Currency Management
Exchange Rate
This is the rate at which the currency of one country would change hands with currency of another country. E.g. $1 = SLR 130
Types of Exchange Rate
1. Floating Rate This rate depends on a levels of the international trade of a country and it does not interfere with the government of that country.
2. Fixed Rate This is the rate that the government of the country would set its own currency rate and it is not depending on the market rate. 3. Dirty Float This is the rate that mixed between floating rate and fixed rate system. This is where the government would allow exchange rate to float between a particular two limits. If it goes outside either of the limit, then the government would take further action.
Forex Dealings
1. Bid Price The price at which the currency is bought by the dealer. 2. Offer Price The price at which the currency is sold by the dealer. When regarding the forex dealings, Offer Price > Bid Price
Example 01: David is a UK businessman. He needs $ 400,000 to buy US equipment. Identify the amount of £ required to buy the Dollars? ($/£ 1.75 - 1.77) Answer: The amount of £ required = $ 400,000 $/£ 1.75 = £ 228571.43
Example 02: James is a US businessman. He has just received a payment of £ 150,000 from his main customer in UK. Identify the amount of $ received by James when £ 150,000 are given? (£/$ 0.61 – 0.63) Answer: The amount of $ received = £ 150,000 £/$ 0.63 = $ 238095.24
Spot Rate and Forward Rate
Spot Rate This is the rate which is applicable for the immediate delivery of currency as at now. Forward Rate This is a rate that set for the future transaction for a fixed amount of currency. The transaction would take place on the future date at this agreed rate by disregarding the market rate.
Discounts & Premiums
Discounts If the forward rate which is quoted cheaper, then it is set to be quoted at a discount. E.g. $/£ current spot is 1.8500-1.8800 and the one month forward
Exchange Rate
This is the rate at which the currency of one country would change hands with currency of another country. E.g. $1 = SLR 130
Types of Exchange Rate
1. Floating Rate This rate depends on a levels of the international trade of a country and it does not interfere with the government of that country.
2. Fixed Rate This is the rate that the government of the country would set its own currency rate and it is not depending on the market rate. 3. Dirty Float This is the rate that mixed between floating rate and fixed rate system. This is where the government would allow exchange rate to float between a particular two limits. If it goes outside either of the limit, then the government would take further action.
Forex Dealings
1. Bid Price The price at which the currency is bought by the dealer. 2. Offer Price The price at which the currency is sold by the dealer. When regarding the forex dealings, Offer Price > Bid Price
Example 01: David is a UK businessman. He needs $ 400,000 to buy US equipment. Identify the amount of £ required to buy the Dollars? ($/£ 1.75 - 1.77) Answer: The amount of £ required = $ 400,000 $/£ 1.75 = £ 228571.43
Example 02: James is a US businessman. He has just received a payment of £ 150,000 from his main customer in UK. Identify the amount of $ received by James when £ 150,000 are given? (£/$ 0.61 – 0.63) Answer: The amount of $ received = £ 150,000 £/$ 0.63 = $ 238095.24
Spot Rate and Forward Rate
Spot Rate This is the rate which is applicable for the immediate delivery of currency as at now. Forward Rate This is a rate that set for the future transaction for a fixed amount of currency. The transaction would take place on the future date at this agreed rate by disregarding the market rate.
Discounts & Premiums
Discounts If the forward rate which is quoted cheaper, then it is set to be quoted at a discount. E.g. $/£ current spot is 1.8500-1.8800 and the one month forward