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EXCHANGE RATE MECHANISM TREASURY MARKETING UNIT NEW DELHI

EXCHANGE RATE MECHANISM TREASURY MARKETING UNIT NEW DELHI. EXCHANGE RATE MECHANISM. EXCHANGE RATE IS THE CONVERSION RATE OF ONE CURRENCY IN TERMS OF OTHER CURRENCY. WHY DO WE NEED EXCHANGE RATES. INTERNATIONAL TRADE: Economic Dependencies, Economies of scale and Cost arbitrage

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EXCHANGE RATE MECHANISM TREASURY MARKETING UNIT NEW DELHI

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  1. EXCHANGE RATE MECHANISM TREASURY MARKETING UNIT NEW DELHI

  2. EXCHANGE RATE MECHANISM EXCHANGE RATE IS THE CONVERSION RATE OF ONE CURRENCY IN TERMS OF OTHER CURRENCY

  3. WHY DO WE NEED EXCHANGE RATES INTERNATIONAL TRADE: Economic Dependencies, Economies of scale and Cost arbitrage INTERNATIONAL BUSINESS REQUIRES CROSS BORDER PAYMENTS. DIFFERENT COUNTRIES HAVE DIFFERENT CURRENCIES. IMPORTER/EXPORTER REQUIRE PAYMENT IN THEIR RESPECTIVE CURRENCIES.

  4. DEMAND OF FOREX IMPORTS INVISIBLES CAPITAL OUTFLOWS FIIs LOAN REPAYMENTS SPECULATORS (FUNDAMENTAL/TECHNICALS) RBI

  5. SUPPLY OF FOREX EXPORTS INVISIBLES CAPITAL INFLOWS FIIs ECB DRAWDOWN SPECULATORS RBI

  6. DEALING ROOM BANKS HAVE TO SELL CURRENCIES BOUGHT IT ALSO HAS TO BUY BACK CURRENCIES SOLD THIS PROCESS OF MATCHING IS CALLED COVER OPERATIONS BANKS DEAL AMONGST THEMSELVES TO ADJUST MISMATCHES THIS GIVES RISE TO INTER BANK MARKET BANKS ALSO BUYS AND SELLS ON THEIR OWN ACCOUNT TRADING (CURRENCY TRADING)

  7. INTER BANK MARKET CONSISITS OF BANKS, CORPORATES AND BROKERS MARKET REMAINS OPEN ROUND THE CLOCK EXCEPT ON SATURDAYS, SUNDAYS AND LOCAL HOLIDAYS NO RATE DIFFERENCE INSPITE OF DIFFERENT GEOGRAPHICAL LOCATIONS ALL CURRENCIES ARE QUOTED AGAINST US DOLLAR ALL QUOTES ARE TWO-WAY (BID, ASK, SPREAD) MOST CURRNECIES ARE IN DIRECT MODE EXCEPT EUR,GBP,AUD AND NZD

  8. INTER BANK MARKET READY AND FORWARD RATES DISCOUNT AND PREMIUM FORWARD/SWAP POINTS LONG/SHORT/SQUARE DAYLIGHT/OVER NIGHT/STOP LOSS LIMIT ( FOR RISK MANAGEMENT) TRENDING OF QUOTES

  9. TYPE OF TRANSACTIONS SPOT TRANSACTIONS TOM TRANSACTIONS CASH TRANSACTIONS FORWARD TRANSACTIONS

  10. WHAT FACTORS AFFECT EXCHANGE RATE MOVEMENTS POLITCAL ECONOMIC SPECULATIVE

  11. POLITICAL FACTORS TYPE OF GOVERNMENT STABILITY TRACK RECORD OF THE COUNTRY CURRENT POLITICAL DEVELOPMENTS VISION OF POLITICAL LEADERSHIP

  12. ECONOMIC FACTORS GROWTH RATE OF ECONOMY INTEREST RATES BOP POSITION MOVEMENT OF CAPITAL PURCHASING POWER PARITY CENTRAL BANK INTERVENTION

  13. SPECULATIVE FACTORS BUYING/SELLING BY BANKS IN ORDER TO MAKE MONEY SPECULATIVE ACTIVITES BY CORPORATES/ INVESTEMT HOUSES MAILY IN INTERNATIONAL MARKETS

  14. OTHER FACTORS AFFECTING EXCHANGE RATE Interest Rates Terrorism Exchange Rate Inflation Capital Flows Oil Prices

  15. ROLE OF CENTRAL BANK AVOIDING EXCESS VOLATILITY VERBAL INTERVENTION ACTUAL SALE/PURCHASE

  16. CURRENCY QUOTES RIC BID ASK NAME TIME HIGH LOW INR=45.75 45.80 SBTM 12.20 45.87 45.72 JPY=118.75 118.78 BOTQ 12.21 118.90 118.50 GBP=1.7215 1.7220 NWBL 12.20 1.7250 1.7200 EUR=1.1770 1.1775 BNPP 12.22 1.1778 1.1740 AUD=.7580 .7585 CBAS 12.21 .7590 .7545 XAU=480.00 480.50 ABCL 12.18 482.00 479.00 BUY LOW SELL HIGH

  17. Inter Bank Deal SBTM: USD/INR 2 CIBY: 80/83 SBTM: MINE CIBY: OK DONE SBTM: To reconfirm at 46.83 I buy USD 2 mio My USD to SBI N York chipsuid 230542 value 09/08/10 CIBY: All agreed. My INR to my Mumbai Tx deal n bifn.

  18. USD/INR 44.80/85, USD/SGD 1.4010/15 What rate exporter in SGD can sell proceeds to get INR? 44.80/ 1.4015 = 31.9650. USD/INR 44.80/85, GBP/USD 1.5210/15 What rate importer in GBP buy GBP against INR? 44.85x 1.5215= 68.2400. Exchange Rate Arithmetic

  19. Thank You

  20. CHINA 2273 JAPAN 1052 RUSSIA 441 S ARABIA 395 TAIWAN 341 INDIA 285 S KOREA 264 HONG KONG 240 BRAZIL 235 GERMANY 184 Source: Reuters Fx Reserves ($ Bio in Sep 09)

  21. Multilateral 39,566 Bilateral 20,587 Trade Credits 14,604 Commercial Borrowings (ECB) 62,676 NRI & FC Deposits 41,554 Rupee debt 1,527 Short term debt 49,373 Total 229,887 Amounts 20% of GDP External Debt March ’09 (USD Mio)

  22. USA 14.002 14,002,000,000,000 Japan 4.992 China 4.832 Germany 3.060 France 2.499 UK 2.007 Italy 1.987 Spain 1.397 Brazil 1.268 Canada 1.229 India 1.185 World GDP (Trillion USD)

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