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.