Transcript RTMU N DELHI EXCHANGE RATE MECHANISM TREASURY

EXCHANGE RATE MECHANISM
TREASURY MARKETING UNIT
NEW DELHI
RTMU N DELHI
RTMU N DELHI
EXCHANGE RATE MECHANISM
EXCHANGE RATE IS THE CONVERSION
RATE OF ONE CURRENCY IN TERMS OF
OTHER CURRENCY
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WHY DO WE NEED EXCHANGE RATES
INTERNATIONAL TRADE: Economic Dependencies,
Economies of scale and Cost arbitrage
•INTERNATIONAL BUSINESS REQUIRES CROSS
BORDER PAYMENTS.
•DIFFERENT COUNTRIES HAVE DIFFERENT
CURRENCIES.
•IMPORTER/EXPORTER REQUIRE PAYMENT IN THEIR
RESPECTIVE CURRENCIES.
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DEMAND OF FOREX
•IMPORTS
•INVISIBLES
•CAPITAL OUTFLOWS
•FIIs
•LOAN REPAYMENTS
•SPECULATORS
(FUNDAMENTAL/TECHNICALS)
•RBI
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SUPPLY OF FOREX
•EXPORTS
•INVISIBLES
•CAPITAL INFLOWS
•FIIs
•ECB DRAWDOWN
•SPECULATORS
•RBI
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DEALING ROOM
•BANKS HAVE TO SELL CURRENCIES BOUGHT
•IT ALSO HAS TO BUY BACK CURRENCIES SOLD
•THIS PROCESS OF MATCHING IS CALLED COVER
OPERATIONS
•BANKS DEAL AMONGST THEMSELVES TO ADJUST
MISMATCHES
•THIS GIVES RISE TO INTER BANK MARKET
•BANKS ALSO BUYS AND SELLS ON THEIR OWN
ACCOUNT TRADING (CURRENCY TRADING)
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INTER BANK MARKET
•CONSISITS OF BANKS, CORPORATES AND BROKERS
•MARKET REMAINS OPEN ROUND THE CLOCK
EXCEPT ON SATURDAYS, SUNDAYS AND LOCAL
HOLIDAYS
•NO RATE DIFFERENCE INSPITE OF DIFFERENT
GEOGRAPHICAL LOCATIONS
•ALL CURRENCIES ARE QUOTED AGAINST US
DOLLAR
•ALL QUOTES ARE TWO-WAY (BID, ASK, SPREAD)
•MOST CURRNECIES ARE IN DIRECT MODE
•EXCEPT EUR,GBP,AUD AND NZD
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INTER BANK MARKET
•READY AND FORWARD RATES
•DISCOUNT AND PREMIUM
•FORWARD/SWAP POINTS
•LONG/SHORT/SQUARE
•DAYLIGHT/OVER NIGHT/STOP LOSS LIMIT ( FOR
RISK MANAGEMENT)
•TRENDING OF QUOTES
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TYPE OF TRANSACTIONS
•SPOT TRANSACTIONS
•TOM TRANSACTIONS
•CASH TRANSACTIONS
•FORWARD TRANSACTIONS
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WHAT FACTORS AFFECT
EXCHANGE RATE MOVEMENTS
POLITCAL
ECONOMIC
SPECULATIVE
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POLITICAL FACTORS
•TYPE OF GOVERNMENT
•STABILITY
•TRACK RECORD OF THE COUNTRY
•CURRENT POLITICAL DEVELOPMENTS
•VISION OF POLITICAL LEADERSHIP
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ECONOMIC FACTORS
•GROWTH RATE OF ECONOMY
•INTEREST RATES
•BOP POSITION
•MOVEMENT OF CAPITAL
•PURCHASING POWER PARITY
•CENTRAL BANK INTERVENTION
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SPECULATIVE FACTORS
•BUYING/SELLING BY BANKS IN ORDER
TO MAKE MONEY
•SPECULATIVE ACTIVITES BY
CORPORATES/ INVESTEMT HOUSES
MAILY IN INTERNATIONAL MARKETS
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OTHER FACTORS AFFECTING EXCHANGE RATE
Interest Rates
Terrorism
Exchange Rate
Inflation
Oil Prices
Capital Flows
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ROLE OF CENTRAL BANK
•AVOIDING EXCESS VOLATILITY
•VERBAL INTERVENTION
•ACTUAL SALE/PURCHASE
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CURRENCY QUOTES
RIC
BID
INR=45.75
JPY=118.75
GBP=1.7215
EUR=1.1770
AUD=.7580
XAU=480.00
ASK NAME TIME
45.80
SBTM
12.20
118.78 BOTQ
12.21
1.7220 NWBL
12.20
1.1775 BNPP
12.22
.7585 CBAS
12.21
480.50 ABCL
12.18
HIGH LOW
45.87 45.72
118.90 118.50
1.7250 1.7200
1.1778 1.1740
.7590 .7545
482.00 479.00
BUY LOW SELL HIGH
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Inter Bank Deal
SBTM:
CIBY:
SBTM:
CIBY:
SBTM:
CIBY:
USD/INR 2
80/83
MINE
OK DONE
To reconfirm at 46.83 I buy USD 2 mio
My USD to SBI N York chipsuid 230542
value 09/08/10
All agreed. My INR to my Mumbai
Tx deal n bifn.
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Exchange Rate Arithmetic
USD/INR 44.80/85, USD/SGD 1.4010/15
What rate exporter in SGD can sell proceeds to get INR?
44.80/ 1.4015 = 31.9650.
USD/INR 44.80/85, GBP/USD 1.5210/15
What rate importer in GBP buy GBP against INR?
44.85x 1.5215= 68.2400.
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Fx Reserves ($ Bio in Sep 09)
CHINA
JAPAN
RUSSIA
S ARABIA
TAIWAN
INDIA
S KOREA
HONG KONG
BRAZIL
GERMANY
2273
1052
441
395
341
285
264
240
235
184
Source: Reuters
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External Debt March ’09 (USD Mio)
Multilateral
Bilateral
Trade Credits
Commercial Borrowings (ECB)
NRI & FC Deposits
Rupee debt
Short term debt
Total
39,566
20,587
14,604
62,676
41,554
1,527
49,373
229,887
Amounts 20% of GDP
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World GDP (Trillion USD)
USA
Japan
China
Germany
France
UK
Italy
Spain
Brazil
Canada
India
14.002
4.992
4.832
3.060
2.499
2.007
1.987
1.397
1.268
1.229
1.185
14,002,000,000,000
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