Question

10 3.2 Calculate spread percentage, and the amount financial institution will pay to an exporter/charge an importer based on the information given below: USD/INR rate quoted in the interbank market 71.1025/71.1550 Profit margin on interbank rate 0.05 per USD Value of export transaction USD 300,000 Value of import transaction USD 450,000 . . ..al t iniandi bin maleat? Tint out the

Answer 1

From the given information,

Bid price = 71.1025

Ask price = 71.1550

Calculation of Spread Percentage:

Spread = (Ask Price – BidPrice) 2* 100 Ask Price

Spread = (71.1550 - 71.1025) 71.1550 -* 100

0.0525 Spread = 71.1550 *

Spread = 0.000738 * 100

So, the Spread = 0.0738%

Calculation of amount, financial institution will pay to an exporter:

The exporter will get the money in US Dollars. So, the exporter will have to sell those dollars to the financial institution and receives INR, which is a local currency.

Bid price - refers to the highest price that a currency trader (financial institution) is willing to buy units of the currency for.

So, here we have use the Bid price to calculate the amount.

Bid price = 71.1025

Export transaction value = USD 300,000

Profit margin on inter-bank rate = 0.05 per USD

Particulars	Amount (INR)
Exchange value (USD 300,000 * 71.1025)	21,330,750
Profit margin (USD 300,000 * 0.05)	15,000
Net amount paid after deducting the profit margin	21,315,750

So, the net amount paid to the exporter = INR 21,315,750

Calculation of amount, financial institution will receive from an importer:

The importer will have to pay the money in US Dollars. So, the importer will have to buy those dollars from the financial institution.

Ask price - refers to the lowest price that a currency dealer (financial institution) is willing to sell units of the currency for.

So, here we have use the Ask price to calculate the amount.

Ask price = 71.1550

Import transaction value = USD 450,000

Profit margin on inter-bank rate = 0.05 per USD

Particulars	Amount (INR)
Exchange value (USD 450,000 * 71.1550)	32,019,750
Profit margin (USD 450,000 * 0.05)	22,500
Net amount received including the profit margin	32,042,250

So, the net amount received from an importer = INR 32,042,250

Summary:

Spread Percentage = 0.0738%

Net amount paid to the exporter = INR 21,315,750

Net amount received from an importer = INR 32,042,250