Importance of Innovation Strategies in Organizations

Modern Management Concepts

Concept of National Innovation Systems

International Business

Case Study: Henry Ford’s Contributions to Organizational Behavior and Leadership

Management Case Studies

De Bono’s Six Thinking Hats: A Creative and Critical Thinking Model

Human Resource Management

What Is a Contact Center and Its Role in the Customer Journey?

General Business Articles

RBI as the Exchange Control Authority

One of the important central banking functions of the Reserve Bank of India (RBI) is the maintenance of the external value of the rupee. As such it has been given the custody of foreign exchange reserves and sole agency for the administration of exchange controls in India. All receipts and payments in and out of India require general or special permission of the RBI. The dealings in foreign exchange and foreign securities in India, payments to person resident outside India and export and import of currency notes, bullion or precious stones etc., are subject to general or special permission of RBI or are prohibited.

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Importance of Profit and Loss Account

The Profit and Loss Account is a Financial Statement which summarizes a company’s revenue and expenditure for a specific period of time, usually prepared annually or quarterly. These statements provide information that shows the ability of a company to generate profits by increasing its revenues and reducing costs. The Profit and Loss Account is also known as a “Statement of Profit and Loss”, an “Income Statement” or an “Income and Expense Statement”.

Importance of Profit and Loss Account

Profit and Loss Account represents a company’s ability to generate income through their business operations. Many times businesses will need financing to help create the facilities for their operations.… Read the rest

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Put Option

An option is a contract, which gives the buyer the right to buy or sell foreign currency at a specific price, on or before a specific date. For this, the buyer has to pay to the seller some money, which is called as premium. There is no obligation on the buyer to complete the transaction if the price is not favorable to him.

Whenever a person has an intention to sell foreign currency by paying a premium amount immediately and settling the same on a later date, it is known as a Put Option. Put Option has two parties, one a buyer of a Put Option and other a seller of a Put Option.

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Call Option

Option Trading confers the right on the holder/buyer to buy/sell a specified asset (here foreign currency) on a specific price on or before a specific date but he has no obligation to buy/sell. Seller/Writer has an obligation to fulfill the contract if buyer/holder exercises the option. Whenever a person has an intention to buy foreign currency by paying a premium amount immediately, and settling the same on a later date, it is known as a Call option. Call option has two parties, one a buyer of a Call option and other a seller of a Call option.

Example:

Mr. A is interested in buying a US dollar.

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Calculation of Exchange Rates for Forward Contracts

When computing exchange rates for merchant transactions, the cover or the base rate at which the cover transaction can be undertaken in the Forex market is first computed, thereafter the profit margin as allowed by the Foreign Exchange Dealer’s Association of India (FEDAI) is taken and the rate rounded off as per FEDAI Rule. In case of forward contracts, the procedure is similar except that while computing the base rate, the forward margin has to be appropriately taken.

The forward margin is the extent to which the forward rate for a currency differs from its spot rate against a second currency.

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Scenario of Exchange Rates in India

India is following the direct rate in Forex markets, i.e. foreign currency is fixed and home currency is varying. When we go to a shop and ask for the price of a product he tells us only one rate for the product, because the trader is only selling the product to consumers. He is not buying from consumers. Whatever rate the seller tells is implied as his selling price for the product. Even though the consumer is buying a product, what he pays to the trader is the selling price of the trader. Foreign Exchange market is different from this market in the sense that the authorized dealer buys as well as sells the foreign currency.

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