EXCHANGE POSITION - DEFINITION THE EXCHANGE POSITION, OR CURRENCY - - PowerPoint PPT Presentation

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EXCHANGE POSITION

EXCHANGE POSITION - DEFINITION

• THE EXCHANGE POSITION, OR CURRENCY POSITION

AS IT IS CALLED OF A BANK IS THE POSITION FROM ITS DAY’S PURCHASES AND SALES, BOTH READY AND FORWARD OF FOREIGN CURRENCIES.

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EXCHANGE POSITION

OVERSOLD / OVERBOUGHT POSITION

• WHEN THE SALES OF A DAY EXCEED THE PURCHASES, THE

POSITION IS KNOWN AS: ‘OVERSOLD’ OR ‘SHORT’.

• WHEN THE PURCHASES OF A DAY EXCEEDS THE SALES,

THE POSITION IS KNOWN AS: ‘OVERBOUGHT’ OR ‘LONG’. IN EITHER CASE THE POSITION IS GENERALLY TERMED OPEN.

• WHEN THE SALES AND PURCHASES EQUAL EACH OTHER,

THE POSITION IS SAID TO BE ‘SQUARE’.

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EXCHANGE POSITION

DEALING POSITION

OVERBOUGHT / OVERSOLD/SQUARE POSITION

• BANKER MUST NOT GET INVOLVED IN SPECULATIVE

OVERBUYING OR OVERSELLING.

• UNDER THE EXCHANGE CONTROL REGULATIONS BANKERS

ARE NOT PERMITTED TO INDULGE IN SPECULATIVE ACTIVITIES IN FOREIGN EXCHANGE, AND ARE REQUIRED TO MAINTAIN A SQUARE i.e. NEITHER OVERBOUGHT NOR OVERSOLD POSITION OR A NEAR SQUARE POSITION IN EACH CURRENCY IN WHICH THEY HAVE DEALING SO AS TO AVOID EXCHANGE LOSS RESULTING FROM AN ADVERSE MOVEMENT OF THE RATE OF EXCHANGE.

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EXCHANGE POSITION

COVER OPERATION

• TO AVOID HOLDING AN OPEN OR SPECULATIVE POSITION,

THE BANKER SHOULD, IMMEDIATELY COVER A FORWARD TRANSACTION BY A REVERSE SALE OR PURCHASE OF THE SAME CURRENCY.

• THE IMBALANCE IN A BANKER’S FOREIGN CURRENCY

POSITION MAY BE CORRECTED BY SALES OR PURCHASES IN INDIA OR IN THE LONDON MARKET OR IN SWAP TRANSACTIONS IN ANY PERMITTED CURRENCY .

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EXCHANGE POSITION

TRANSACTIONS WITH RESERVE BANK

• SALE/PURCHASE LIMIT: THE RESERVE BANK MAY

PURCHASE FROM AND SELL TO AUTHORIZED DEALERS FOREIGN EXCHANGE IN AMOUNTS NOT LESS THAN THE EQUIVALENT OF RS. 1 LAKH.

• SALES TO RBI: AN AUTHORIZED DEALER MAY OFFER

POUND, U.S. DOLLARS, DEUTSCHE MARKS AND YEN FOR SALE, SPOT AND FORWARD, TO THE RESERVE BANK. HE MAY ALSO OFFER TO THE RESERVE BANK THE ABOVE CURRENCIES PURCHASED FROM HIS OVERSEAS BRANCHES AND CORRESPONDENTS FOR THE PURPOSE OF FUNDING THEIR RUPEE ACCOUNTS IN INDIA.

CONT….

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EXCHANGE POSITION

TRANSACTIONS WITH RESERVE BANK

• WHEN THE TOTAL SALES TO THE RESERVE BANK ON A DAY

AGGREGATES: POUNDS 1,50,000 OR US DOLLARS 3,50,000 OR EURO 4,00,000 OR YEN 100 MILLION. THE PRIOR APPROVAL OF THE EXCHANGE CONTROL DEPARTMENT OF THE RESERVE BANK SHOULD BE OBTAINED.

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EXCHANGE POSITION

COMPONENTS OF EXCHANGE POSITION

• THE TRANSACTIONS THAT GO INTO THE COMPOSITION OF

THE EXCHANGE POSITION IN A GIVEN CURRENCY ARE THE SALES AND PURCHASES IN THAT CURRENCY FOR WHICH A FIRM RATE HAS BEEN QUOTED, IRRESPECTIVE OF WHETHER SUCH TRANSACTIONS HAVE BEEN COMPLETED OR NOT BY THE DELIVERY OF THE CURRENCY.

• IN DETERMINING THE EXCHANGE POSITION, THE SALES

AND PURCHASES ARE TO BE CLASSIFIED INTO SEPARATE GROUPS, TOGETHER WITH OVERBOUGHT OR OVERSOLD POSITION, THE RESULTANT BALANCE GIVES THE EXCHANGE POSITION.

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EXCHANGE POSITION

POSITION AND BALANCE

• THE POSITION IN A FOREIGN CURRENCY, IS THE NET

DIFFERENCE BETWEEN THE TOTAL SALES AND PURCHASES OF THAT CURRENCY ON A PARTICULAR DAY.

• BALANCE REFERS TO THE BALANCE, DEBIT OR CREDIT, OF

THE NOSTRO ACCOUNT OF A BANK IN THAT CURRENCY WITH ITS OVERSEAS BRANCH OR CORRESPONDENT.