In CAIIB, the BFM exam foreign exchange question is asked frequently. The concepts to solve this foreign exchange numerical are discussed in detail in this lesson. To solve numerical on foreign exchange problems, the following concepts should be clear. Now we will discuss one of the common question asked in BFM EXAM, foreign exchange numerical which covers all these concepts related to foreign exchange. You can expect 5 marks from this lesson. The 13 important topics of foreign exchange basics are discussed.
1)Buying rate, Selling rate, Bid vs Offer rate
2)TT Buying, TT Selling, Nostro, Vostro, Inflow of $ TT
3)GBP, USD, JPY, SGD currencies deals with BFM - CAIIB
4)TOM, SPOT, FORWARD, FUTURES
5)FORWARD MARGIN, DISCOUNT, PREMIUM,
6)Direct and Indirect
7)Fixed vs Floating rates
8)Interbank transactions on futures rate
9)Value date, concessional rate of interest, crystallization
10)Cancellation of forward contracts and sight bills
11)Spot, less margin, less premium, commission
12)Transit period
Problem 1
BFM FOREX: Concepts covered are Cross rate, Forward rate, Interbank rate, which involves Indian rupees, Singapore SGD & USD $, Forward discount, Premium, Transit period, Exchange margin, Interest calculation for the normal transit period.
QUESTION 1. An exporter from Singapore wants to remit SGD 10,000 to India What is the amount credited in Indian rupees to the exporter's current account?
The interbank transaction, India spot rate: USD 1 $ = 74.10/20 Rupees. And Forward rate at the time of the contract
| 1 MONTH | 0.15/0.10 |
| 2 MONTH | 0.25/0.20 |
| 3 MONTH | 0.45/0.30 |
Singapore spot rate: USD 1 $ = 1.35/36 SGD and Forward rate at the time of contract
| 1 MONTH | 0.03/04 |
| 2 MONTH | 0.04/05 |
| 3 MONTH | 0.05/06 |
Exchange Margin is .15%,
The interest rate is 5%,
The transit period is 25 Days.
The rate of interest is 8%
Solution :
To solve this foreign exchange numerical BFM Concept, we have to identify the keyword Export or Import. We have to solve this using the principle of Cross rate. We need to find 1 SGD =? RUPEES and then multiply with SGD 10,000.
| Export | Import |
| Premium ADD | Premium Subtract |
| Discount Subtract | Discount Add |
| Margin Subtract | Margin Add |
Note 1: Margin should be Calculated only for Interbank transactions.
Note 2: If the transit period is given 25 Days Consider 1 Month For Buy and Sell transaction.
Step 1: Calculation of USD TO RUPEE interbank.
74.14 - 0.10 ( 1M forward discount) - .15% (Margin) =73.92
Step 2: Calculation of USD TO SGD
1.36 + 0.04 (1M premium) =1.40
Step 3: Cross rate will get 1SGD = _ Rupees (73.92/1.40=52.8)
Step 4: Multiply with a given amount of 10,000 SGD = 52.8*10,000 =5,28,000 Will be credited to the Exporter account.
Step 5: After interest deduction i.e at 8% for 25 days = 528000*.08*25/365 =2893
528000-2893 = 525107 Rupees with interest deducted if asked in the question to calculate after interest the amount to be credited to Exporter's current account.
So, 525107 Rupees will be credited to the Exporter in Singapore.
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