abhishreshthaa
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1. Bid rate: The bid rate denotes the number of units of a currency a bank is willing to pay when it buys another currency.
2. Offer rate: The offer rate denotes the number of units of a currency a bank will want to be paid when it sells a currency
3. Bid offer spread: The difference between the ask and bid rates. E.g. [(DEM/USD)ask – (DEM/USD)bid]
4. Value date: The settlement of a transaction takes place by transfers of deposits between two parties. The day on which these transfers are effected is called the Settlement Date or the Value Date.
5. Swap transaction: A swap transaction in the foreign exchange market is combination of a spot and a forward in the opposite direction.
Thus a bank will buy DEM spot against USD and simultaneously enter into a forward transaction with the same counter party to sell DEM against USD against the mark coupled with a 60- day forward sale of USD against the mark.
As the term ‘swap’ implies, it is a temporary exchange of one currency for another with an obligation to reverse it at a specific future date.
a) European quotes: The quotes are given as number of units of a currency per USD. Thus DEM1.5675/USD is a European quote.
b) American quotes: American quotes are given as number of dollars per unit of a currency. Thus USD0.4575/DEM is an American quote
c) Direct quotes: In a country, direct quotes are those that give unit of the currency of that country per unit of a foreign currency. Thus INR 35.00/USD is a direct quote in India.
d) Indirect quotes: Indirect or Reciprocal Quotes are stated as number of units of a foreign currency per unit of the home currency. Thus USD 3.9560/INR 100 is an indirect quote in India.