RATES

Introduction:

Rate is a exchange value of a thing. It is a measure of a thing against other and it gives ratio between two related quantities.

Different Types of Rates:

• —Transaction Date or Trade Date is when the deal is struck.
• —When rate is quoted for the Settlement/ Delivery to be on the same day, it is called CASH
• —When rate is quoted for Settlement/Delivery to be the next day (T+1), it is called TOM
• —When settlement/delivery is on T+2 days, it is called SPOT

Forward Rates:

• —When delivery is to be beyond T+2, it is called a forward rate.
• —It is generally given for 1 month, 2 month, 3 month … upto 6 months.
• —The rate of exchange may not be the same after 1 month, 2 month, 3 month etc.
• —If the rate is higher, then the currency is at a premium, if it lower, currency is said to be at discount and if there is no variation, it is at par.
• —Forward rates are arrived at as follows:

—Spot + Premium = Fwd Rate

—                   Spot – Discount = Fwd Rate

• —In market quotes, premium or discount is also quoted two ways.

—USD 1 = Rs.61.65 – 61.80

1 m pre        0.60 – 0.65

2 m pre        0.80 – 0.85

3 m pre        1.10   – 1.15

• —If currency is at premium, the premium shown such as 0.60 – 0.65 will be in ascending order
• —If currency is at discount, the discount will be 0.35 – 0.30, that is, in descending order.
• —Add or deduct the two way forward quote to the Spot rate; you will get the forward rate.
• —The rule is Ascending Add, Descending Deduct.
• —Market quotations very often give the premium or discount as points.
• —USDINR  Bid Ask:     62.000  62.150

—1 month fwd  2782.000  9082.000

—3 month fwd  12636.000  19336.000

—6 month fwd    246.50    251.50

• —Here the fwd margins are given in points.
• —Divide them by 10000 and add to the spot rate.
• —1 month fwd will be 62.2782  63.0582

Conclusion:

Rate is an important term in everybody life. In current scenario each and every thing have some rate. Hence it has more value and also plays a very vital role.

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