In following question,why ask rate(42.85) and bid rate ( 7.5880) is taken simultaneously??
You sold Hong Kong Dollar 1,00,00,000 value spot to your customer at ` 5.70 & covered
yourself in London market on the same day, when the exchange rates were
US$ 1 = H.K.$ 7.5880/ 7.5920
Local inter bank market rates for US$ were
Spot US$ 1 = ` 42.70/ 42.85
Calculate cover rate and ascertain the profit or loss in the transaction. Ignore brokerage.
Answer
The bank (Dealer) covers itself by buying from the market at market selling rate.
Rupee – Dollar selling rate = ` 42.85
Dollar – Hong Kong Dollar = HK $ 7.5880
Rupee – Hong Kong cross rate = ` 42.85 / 7.5880
= ` 5.6471
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Replies (1)
For Covering you have to buy 10m HKD
For buying you will have to convert your INR to USD. Since you will have to purchase from Bank you will use Ask Rate
USD so purchased will have to be converted to HKD.
So Bank will Buy From You For that it will use Buying Rate.
For buying you will have to convert your INR to USD. Since you will have to purchase from Bank you will use Ask Rate
USD so purchased will have to be converted to HKD.
So Bank will Buy From You For that it will use Buying Rate.
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