Operations
Rahul R G
Introduction
Bank Petrocommerce is one of the major market makers forming
pricing benchmarks on the Russian financial market.
The Bank performs deposit and conversion operations with a huge number
of Russian and foreign banks. Leading international and Russian banks have
established credit lines for Bank Petrocommerce thus ensuring a large volume
of interbank market operations.
For the purpose of carrying out such operations, counterparty banks have
to enter into a Master Agreement on the terms and conditions of cooperation
with Bank Petrocommerce on the Russian forex and money markets.
Interbank loans may be made available, and conversion operations may
be performed within the limit of the opened credit line or the secured limit.
Transposing Quotations
EUR/AUD 1.6755-65
Reverse the bid & offer prices - EUR/AUD 1.6765-55
Invert - AUD/EURO 0.5965-68[7]
Originally, the dealer would give (sell) 1.6755 AUD to buy 1 EURO. Thus 1.6755
AUD is the offer for 1 EUR. Hence, if the dealer was to buy AUD (AUD/EUR) the
offer is 0.5968 EUR for 1 AUD. Originally, the dealer would sell 1 EUR to get (buy)
1.6765 AUD. Thus 1.6765 AUD is what the dealer gets (buys) for 1 EURO. The
dealer bids 1.6765 for 1 EURO which is AUD/EUR 0.5965.
To put it simply, the original bid refers to the rate at which the dealer would buy the
base currency and sell the terms currency. Thus the original bid is the offer rate when
the original terms currency is transposed to become the base currency.
Cross Rates
All currencies are quoted against the USD. Direct quotes are when the USD is
the base currency & indirect quotes are when theUSD is the terms currency. When
FX transactions take place between 2 currencies, with neither being USD, a cross
rate is calculated. E.g. can calculate EUR/JPY with EUR/USD & JPY/USD
Direct Foreign Exchange Quotations
Book Method
Personal Method
Transpose one of the direct quotations (whilst aligning the correct base currency to
what is required) to get a direct and an indirect quotation. Then you can simply
multiply bid with bid and offer with offer.
Divide the terms currency bid rate into the base currency offer rate = offer rate
Personal Method
Transpose one of the indirect quotations (the exact one depends on the question - you
must make sure the base currency is first). Then multiply bid with bid and offer with
offer
The forward exchange rate varies from the spot rate owing to interest rate parity.
Interest rate parity is the principle that exchange rates will adjust to reflect interest rate
differentials between countries. Forward exchange rates are quoted as forward points
either above or below the spot rate. Forward points represent the forward exchange
rate variation to a spot rate base.
If forward points are rising, add them to the spot rate
The base currency is at a forward premium as its interest rate is lower
If forward points are falling, deduct them from the spot rate
The base currency is at a forward discount as its interest rate is higher
This following 2 examples demonstrate the knowledge required for this course