Types of Selling Rates in Foreign Exchange Markets

When a bank sells foreign exchange it receives Indian rupees from the customer and parts with foreign currency. The sale is affected by issuing a payment instrument on the correspondent bank with which it maintains the nostro account. immediately on sale, the bank buys the requisite foreign exchange from the market and gets its nostro account credited with the amount so that when the payment instrument issued buy its is presented to the corresponded bank it can be honoured by debit to the nostro account. However, depending upon the work involved, viz., whether the sale involves handling of documents by the bank or not, two types of selling rates are quoted in India, they are

1. TT Selling Rate (TT stands for Telegraphic Transfer)

This is the rate to be used for all transactions that do not involve handling of documents by the bank.

Transactions for which this rate is quoted are:

  • Issue of demand drafts, mail transfers, telegraphic transfer, etc., other than for retirement of an import bill.
  • Cancellation of foreign exchange purchased earlier. For instance, when an export bill purchased earlier is returned unpaid on its due date, the bank will apply the TT selling rate for the transaction.

2. Bills Selling Rate

This rate is to be used for all transactions which involve handling of document by the bank: for example, payment against import bills.

The bills selling rate is calculated by adding exchange margin to the TT selling rate. That means the exchange margin enters into the bills selling rate twice, once on the interbank rate and again on the TT selling rate.

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  • Mita deb

    I want the answer of buying and selling rates.

    • The buying rate is price on which the party, exposed the quotation, agrees to buy from you base currency and the selling rate is price on which the party, exposed the quotation, agrees to sell you base currency. That is concepts of buy and sale in relation to you are “inverted”. Buy and sell in this formulation not you, and the party offering to you the rate. In other words, if you are going to buy base currency of the rate, it is necessary for you to look at the sell price (ask). If you are going to sell base currency of the rate it is necessary for you to look at the buy price (bid). The difference between the bid and ask prices (right and left sides of rate) is called spread. The spread forms a basis of profit reception for the party exposing the quotation. So, spread – a source of the income for the party exposing the quotation.