forex markets finance

8/9/2019 Forex Markets Finance

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FOREX MARKETS

Indian Forex Market is a 3 Tier structure headed by the Reserve Bank of India - the CentralBank of the country.

Forex Market

Reserve Bank of India Tier I

Authorised Dealers Tier II(Commercial Banks; Financial Institutions)

Money Changers -

FFMCs, RMCs

Customers Tier III

(Exporters, Importers, Remitters, External

Commercial Borrowers, Tourists, etc. etc.)

Foreign branches of Indian Banks, Branches of

Foreign Banks & Correspondents Tier IV

The RBI acts as controller of foreign exchange operations of Authorized Dealers while

Authorized Dealers handle customers' export/import business, inward/outward remittance and

provide the required foreign exchange.

Institutions authorized to deal in foreign exchange, in exchange control parlance are called"Authorized Dealers". ADs are usually banks and other financial institutions who have been

given permission/authorization- in the form of licenses by the RBI to deal in foreign exchange

under FEMA,1999. Once a licence is issued to operate as an AD, it holds good for ever, unless

it is revoked by RBI.

ADs are of three types:

Category A Can maintain independent foreign currency accounts -

NOSTRO/VOSTRO in its own name; creates market giving buy and

sell quotes of a foreign currency; takes currency positions.

Category B Handles all types of forex transactions by operating through the

accounts of category A brs.

Category C Can transact forex business through category A / B brs.


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How ADs make forex services available?

The banks deal among themselves from their dealing rooms - a centralized establishment,

offering a two way dealing price for different currencies at all times even when do not wish to

deal, but all during prescribed business hours, directly or through Brokers for transacting in

different foreign currencies vis-a-vis Indian Rupees either on behalf of their customers orthemselves/their branches in major forex market centres viz. Mumbai, Ahmedabad, Chennai,

Delhi and Calcutta.

Money Changers

To facilitate exchange of foreign currency into Indian currency and vice versa by the members

of public or tourists visiting India, RBI has granted licenses to various firms and individuals to

undertake money exchange business at sea/airports and places of tourists interest in India.

There are two kinds of money changers:

Full - Hedged

Restricted MCs

MCs Can buy and sell foreign currency subject to directions issued to

them

by RBI from time to time; They can dispose of their surplus holdings

by sale to others or to ADs.

Can only purchase foreign currency TCs and coins. subject to their

surrendering such collections to ADs or full-fledged money changers

Services offered by ADs:

financing exporters:

Preshipment credit in Rs./Foreign currency

Inland Guarantees for procurement of raw material

Bid bonds and other guarantees connected with project exports

Post shipment credit-


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FBP/FBD and rediscounting of foreign currency bills

negotiation of LCs

Collection of export bills

Adding confirmations to LCs

Forward Purchase contracts

financing Importers

Opening of LCsGuarantees

Collection of Bills

Remittances for direct import bills

forward Sale contracts

Hedging products:

Forward rate agreements

forward contracts for all types of liabilities other than imports / exports

Range/ Ratio range forwards

Currency/ interest rate Swaps

Cross Currency options and forwards

Foreign Currency loans

f CNR (B) Loans

Short/Long/Medium Term Loans

Syndicated Lending under ECB Scheme

Remittances and misc. services

Issuing Drafts/TTs/MTs in foreign currency against Indian rupees

Payment of foreign currency, Drafts/TTs/MTs in Indian rupees

Issuing foreign currency notes/travellers' cheques for persons going abroad as

tourists/for medical check up/business development etc.

Issuing exchange permits for students going abroad and releasing foreign currency

Advising corporates on currency price movements, hedging etc.

Facilitating Forfeiting transactions

ADs while offering their services should bear in mind that they are responsible for

observance of Exchange Control regulations and changes made therein from time to time

both by themselves and their constituents.


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EXCHANGE ARITHMETIC - BASICS

The Spaniards coming into the West Indies, had many commodities of the country

which they needed, brought unto them by the inhabitants, to who when they offered

them money, goodly pieces of gold coin, the Indians, taking the money, would put it into

their mouths, and spit it out to the Spaniards again, signifying that they could not eat it,

or make use of it, and therefore would not part with their commodities for money, unless

they had such other commodities as would serve their use._____________________________

-Edward Leigh (1671)

Foreign Exchange is nothing but the claims on and/or of the residents of a country to foreign currency

payable/ recoverable abroad. It could also be said as a method of conversion of one currency into

another. Obviously, in all such conversions, foreign currency is simply treated as a commodity to be

traded with the purchasing power of home currency. But then how/why such a need for

conversion/exchange arises at all. Let us now look at the following instances:

Why Foreign Exchange?

a resident Indian intending to visit USA has to obviously pay for hotel expenses, etc. in that

country's currency, whereas, his stock of money is in rupees;

a non-resident remits dollars to his brother in India and this being foreign currency, his brother

cannot use it for his local purchases;

L&T Co. exported earthmoving machinery to USA. Payment is received in dollars i.e.

currency of the importer. But L&T needs rupees for its local disbursals.

Don't you think in situations like 2 & 3, the recipient of the foreign currency has to perforce convert it

into rupees, (as otherwise, they , like West Indies may have to spit it out) while in the case of former,

the resident has to convert his stock of Rupees into dollars before embarking on his journey to USA?

Where do such people go?

Forex Markets are the obvious destination for such people to either sell or buy foreign currency. Forex

Markets are, in fact, an abstract concept for there is no such single location say like an exchange pit,

where people can come and exchange their currencies. It is merely an over the counter market. In fact,

It is the commercial banks, who predominantly offer such conversion facilities besides certain notified

money changers. A commercial bank, as a dealer, trading in foreign exchange may, therefore -

stock currency notes and coins of foreign countries;

stock travelers cheques denominated in foreign currencies;

maintain accounts in foreign currencies in foreign countries(Nostro Accounts);

maintain accounts in home currency of banks established in other countries (Vostro

Accounts).


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How these transactions are put through?

The commercial banks cater to these conversion needs by various means:-

By selling actual currency notes, coins, travelers cheques, demand drafts/international money

orders denominated in foreign currency against payment in home currency (for international

travelers).

Direct payment abroad in foreign currency on behalf of the resident by transferring balances in

nostro account against recovery of equivalent home currency plus charges from the remitter Payments against remittance from abroad may be made locally in home currency by debiting

vostro account of remitting bank.

Payments may be made in the home currency against reimbursement received in foreign

currency by credit to a nostro account maintained abroad.

Cheques, drafts, etc., including travelers cheques payable abroad are collected through banks in

the country of payment by way of credit to nostro accounts.

Cheques, drafts, etc., denominated in local currency are paid locally against credit to a nostro

account or authorization to debit vostro account.

To undertake such transactions, the commercial banks maintain correspondent

relationships/arrangements with various banks located abroad.

Any restrictions on such currency movements/transactions?

Under the regulations, a license granted by RBI is necessary for transacting in foreign

exchange. Such license holders are known as -

Authorized Dealers - only commercial banks; can under take any

type of transaction.

Full-fledged Money Changers - travel agents, hoteliers, reputeddepartmental stores, etc.; only permitted to

buy and sell foreign currency - notes,

coins; foreign currency traveller's Cheques;

Restricted Money Changers - same as above but only authorized to buy

foreign notes, coins and traveller's cheques.

(Both" the types of money changers have to route their final foreign exchange transactions

through ADs only)


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Transactions at what rate?

Foreign exchange transactions - buying or selling - involve payment in home currency against

reimbursement in foreign currency or vice versa. The rates, at which these conversions are

effected by Authorized Dealers/Money Changers, are called "Exchange Rates".

How Exchange Rates quoted?

There are two ways in which these exchange rates are quoted:

Direct Quote/Home Currency Quote:

Unit of foreign currency is kept constant against the amount of home currency to be exchanged for

it.

It otherwise mean how much of home currency is worth of one unit of foreign currency.

Example: US $ 1 = INR 39.30 GBP

2 - INR 76.50

Since 2.8.1993, Indian Markets are using Direct Quote.

Indirect Quote/ Foreign Currency Quote:

It is just opposite of Direct Quote i.e. number of units of foreign currency which will be exchanged

for a fixed number of home currency units.

Example: INR 100 = US $ 2.50

However, this method of distinguishing rates, on the basis of home currency relationship, may not

always hold good say for example:

when neither is a home currency;

when global markets quote their rates as equivalent of US $ (which is a well-established tradition) it

looks indirect quotation in US while in other countries it sounds as a direct quotation.

It may, therefore, be sensible to differentiate the direct and indirect quotes:-based on

currency, which is dealt in i.e.

direct quote - when currency dealt in is expressed as fixed unit e.g.

EUR 1 = 1.4470 USD

which means deals are done in Euro terms and parties

contract to huw or sell Euro?


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indirect quote - currency dealt in is the. one whose quantity is variable

i.e. just reverse to direct quote

e.g. USD 1=0.6910 EUR

A dealer would always quote both the prices at which he is willing to buy and sell foreign

currency, which in usual parlance known as two way quote/bid and offer rate.

w hue offering a two way quote, tracer win always ensure some profit margin by fixing buying

and selling prices differently.

It is needless to say that a dealer, while quoting a bid and offer rate, would always work on it

from bank's point of view i.e. desires to give less units of home currency while purchasing

foreign currency and give less units of foreign currency while selling it against rupees.

So in a direct quotation, the market dictum would be buy low, sell high or give less take more.

Where Quotes available?

The commercial banks offer these quotes through their Dealers from Dealing Rooms, mostly

over phones, telexes, computer, etc.

The dealers maintain several means of communication including Reuters Dealing System and

hot lines to keep in touch with other players in the market i.e. Dealing Rooms of other

commercial banks, brokers, their clientele, etc. Dealers, being market makers, offer a two-way quote i.e. bid and offer rates for each currency

and are available on Reuters screen - a 24 hour international computerized electronic messaging

system, besides responding on phone.

How Rates are arrived?

Ever since (01.03.1993) Rupee became convertible on Current account, exchange rates became

market determined. So, a Dealer in Mumbai now starts his day with a look at New York closing

prices of major currencies like Dollar, Euro, etc. of the previous day and opening rates in Tokyo,

Hong Kong and Singapore. He would then inquire with local dealing rooms / brokers about the

current rates, their momentum, market mood, etc. and also looks at his own position and makes

up his mind as to what should be his quote. Simultaneously a Dealer would be looking for a rate at which he can remain "squared". Here

"Squared" means covering every large purchase with a matching sale in every currency so that

no gaps are left that are vulnerable for rate fluctuations. Such disposals are usually made at the

ruling inter-bank spot rate that gives no profit or loss. Such a rate is known as "cover rate".

Now, based on the inter-bank spot rate/cover rate and adding a little cushion to the cover rate for

remaining on safer side, a Dealer arrives at his base rate.

To make it more explicit, let us look at this -

An export customer of your bank called on you for selling his export proceeds that are in

dollars.


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Say, inter-bank US dollar INR spot rate is 39.30/35, It means that there are Banks/Dealers, who

are prepared to buy dollars at Rs.39.30 per dollar and sell at Rs.39.35. These rates at which the

Dealers are in a position to square their currencies are known as "Cover Rates".

Since we have to quote a rate for purchasing dollars from the customer, we have to base our

quote on the cover rate i.e. the rate at which other banks are willing to buy dollars from us, since

our cover transactions being sale of dollar (purchase from the customer) in the wholesale

market.

However, as Rupee is freely floating in inter-market, a Dealer would always wish to, of coursedepending on the market trend/mood, add a little cushion to these cover rates so as to guard

himself from adverse movement in rates, while formulating his base rates/quotes to his

customers.

We have thus seen two kinds of rates in the forex market: One meant for wholesale transactions

known as inter-bank spot rate and the other known as base rate for working out rates for retail

market.

Is base rate available for merchant transactions?

No, base rates are meant for inter-bank transactions alone. Transactions relating to non-bank

customers involve additional work.

Say for example, a customer calls on you for a DD in US $ 300. Similarly, an importer calls on

you for arranging payment of his import bills designated in dollars. No doubt, these two are

foreign currency sale transaction, but work involved for the Dealer is different i.e. issuing DD is

a simple transaction of recovering equivalent rupees from a customer and issue a DD in foreign

currency. Secondly, rupee equivalent is received from the customer while issuing DD itself and

the same remained with the Dealer till DD is actually encashed abroad.

Whereas, in case of import bill, work involved is not that simple for the bill has to be

scrutinized on receipt of documents, recorded; acknowledged; presented to the drawee;followed up for payment; etc. Hence, a Dealer naturally likes* to be compensated for the

additional work being undertaken by him.

So, he sells the currency a little costlier i.e. at a worse rate to the importer-customer as

compared to the remittance-customer.

Thus, Dealers quote different kinds of rates for undertaking different kinds of transactions of

their non-bank customers by loading different rates of profit margins and such rates are known

as Merchant Rates.


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Merchant Rates

These are the rates quoted by a Dealer to his non-bank customers for carrying out different

types of transactions. These rates are arrived at by adding varying exchange margins to the base

rate.

Member banks are now free to load exchange margins at their discretion for the transactions,

subject to compliance of maximum spreads and other provisions relating to calculation of

exchange rates as prescribed by FEDAI from time to time.

Are these margins mandatory?

A dealer uses his discretion to load margins on various quotes, keeping in view :

size of transaction - a sale of 1 lac dollars would be at a finer rate

than the sale of 100 dollars;

customer relationship - a regular customer, giving large volumes,

obviously commands finer margins.

customer awareness - customer knowing as to what is happeningacross the Dealing Rooms, both domestic and

overseas, obviously enjoys a better rate

Merchant Rates Vis-a-vis Value Date:

Every forex transaction involves exchange of two currencies by the counter parties to the

transaction. Say for example, Bank of India receiving dollars in New York and paying rupees in

Mumbai.

Principle of "Valeur Compensee" - requires the currencies to change hands at the same point of

time. However, it is not practicable because of time differences. To take care of

. these constraints, usage of value date i.e. exchange of currencies on a prescribed day visa-vis therate quoted has come into vogue internationally.

' Exchange of currencies on the very date of deal. Cash/Ready

Rates

^ Exchange of currencies on the next workingday i.e. tomorrow.

Tom Rates

Exchange of currencies on the second

working day after the date of deal.

Spot Rate

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Exchange of currencies after spot date. Forward Rate

How forward rates are quoted?

Forward Rates are generally quoted by indicating spot rates and forward

differentials/margins.

Forward differential/margin is nothing but the difference between the spot rate and forward rate

and the same can be in premium or discount.

Example: Spot EUR 1 - USD 1.4470/75

1 month Forward = 1 2 - 1 0

2 months Forward = 22 - 17

3 months Forward = 32 -27

In the cited example - we can buy EURO 1 month Forward at -

Spot EUR = USD 1.4475

Subtract swap points 0.0010USD 1.4465 '

Forward Premium: Indicates the costliness of currency vis-a-vis spot rate for a future date delivery.

Premium is added to both selling and buying spot rates (under direct quotes).

Forward Discount: Indicates the, cheapness of currency vis-a-vis spot rate for a future delivery.

The discounts are subtracted from both selling and buying spot rates.

Forward Exchange Rates - what are they?

We have already seen that forward rates afford the facility for exchange of currencies on a date

beyond the spot date. It consists of two components:

Spot Rate plus

Forward points reflecting the interest differentials adjustment for different settlement dates.

Forward points are determined by the factors like :-

supply and demand for currency for the settlement date;

market view;

interest rate differential between the countries of respective currencies.

- Calculation of Forward Points :

Spot rate x interest rate differential x forward period100 x

No. of days in the year (usually 360)

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First figure in the Forward Points being lower than the second figure, indicates that the base

currency is at a premium in forwards.

Reverse indicates that base currency is at a discount in forwards.

Did markets offer quotes for all currencies?

No, all currencies may not always be quoted in all markets. For instance, we do not get a quote

for EURO/INR in our inter-bank market. We only get a US $/TNR quotation. However, EURO-

USD quotations are freely available outside Indian Markets (say in Tokyo/London).

In instances of this nature, the parity between EURO/INR is obtained by using the intermediaiy

currency i.e. US $ and the rate so obtained is called a cross rate and the principle applied for

obtaining cross rate is known as chain rule.

What is Chain Rule? Let us try to understand the concept of Chain Rule by

taking an example -

Suppose a customer calls on us to purchase EURO against payment in Indian Rupees,

To meet his requirement

we have to first buy US Dollars in the local market against rupees; and

then sell them in London/outside markets to purchase EURO

But then how to quote a rate to customer?

let us say the local market quotes for USD/INR as :

US$ 1 =Rs39.30/35and

London quotes 1 EURO = USD 1.4470/75

Now, by using this relationship, we can build up the chain rule as under -

Step 1 -. Write the question to be answered i.e

how many Rs. = EUR 1

Step 2 - The second equation begins with currency in which first equation

ended i.e.

if EUR 1 = 1.4475 USD

The third equation begins with the currency in which the second

equation ended i.e.

US$ 1 =Rs. 39.35

Therefore, EUR 1 = 39.35 X 1.4475 = 56.9591 = SAY 56.96

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Step 3


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add your own margins and quote different rates for different transactions.

Are there different Merchant Rates?

Yes. There are different rates meant for different transactions viz. -

Merchant TTBuying Rates It is meant for -

purchase of TT/MT/DD for which cover has already been credited to AD's nostra

account:

converting proceeds of bills/cheques under collection as soon as nostro account is

credited;

cancellation of a outward TT/MT/DD/PO etc.;

cancellation of forward sale contract (forward rate to be used when delivery is in

future).

For all conversions where nostro account is credited, TT buying rate is applied.

The rate is quoted -

= Base Rate - Exchange Margin-

Select appropriate Base Rate (market buying rate). Ex.

US$ 1 =Rs.39.30/39.35

Deduct appropriate exchange margin Rs.39.30

' . ~ - Rs. 0.05

Rs.39.25

Merchant Bill Buying Rate

It is meant for -

purchasing/discounting/negotiating of Export Bills;

as it involves extra labour by way of handling the documents, etc., cost of handling is

loaded to the base rate;


Select appropriate Base Rate;

' Add/deduct on-going forward premium / discount depending upon the transit period,

tenor of the bill such as sight, usance and grace period, etc.;

Deduct appropriate exchange margin;

. And resultant"rate rounded off as per FEDAI Guidelines.

Merchant Forward Bill Buying Rate

It is meant for -

Purchase of export bills with usance by determining the notional due date;


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NDD = Normal transit period + usance period + grace period, if applicable

' The rate is quoted -

Choose an appropriate Base Rate;

o Add/deduct on-going forward premium / discount depending upon the deliver}' period of

the bill, transit period, tenor of the bill such as sight, usance and grace period, etc.

Deduct appropriate exchange margin.

Recovery of interest on bill transactions at the time of purchase:

The Rupee equivalent of the foreign currency bill amount shall be payable to the

customer on the basis of the rate arrived at as above. Simultaneously, interest shall be

recovered on the Rupee amount, from the customer by applying the appropriate interest

rate as applicable to export credit.

The procedure to be followed shall be as under :

Arrive at the Rupee equivalent of the foreign currency amount at the appropriate buying

rate;

Credit the Rupee amount to the customer's account; Simultaneously recover the interest amount and credit it to "interest on Export Bills Account";

Overdue interest, where applicable, shall be recovered separately.

NOTE: In case of payment to a party, not being a customer of the payee bank, only

the net amount shall be payable. Full details of the interest and other deductions shall be

advised.

Purchase of Rupee Bills

In the case of Rupee bill purchases the entire bill amount shall be first payable to the

customer. Simultaneously interest shall be recovered on the Rupee amount from the

customer by applying the appropriate interest factor.

Merchant TTSelling Rate:

It is meant for -

Remitting foreign currency in the form of DD/TT/MT/PO etc.;

' Paying import bills received by importer directly;

Cancelling purchases already made; Ex. Bills purchased earlier returned unpaid; Bills

purchased earlier transferred to collection account;

- Cancelling forward purchase contract (forward rate to be used when delivery is in

future);

Generally, TT Selling Rate is applied to all clean remittances i.e. no documents are tobe handed by the bank.


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= Base Rate + Exchange Margin * Choose an appropriate

Base Rate; (Market Selling Rate)

Ex. US$ 1 = Rs.39.30/35

Add margin say 5 paise

is. 39.35

+ Rs. 0.05

Rs.39.40

Rounded off upto two digits in multiples of 1 paise. Rs.39.40

Merchant Bill Selling Rate

It is meant for - Remittance of Import Bills proceeds.(received through banks)

Tire rate is quoted -

= TT Selling Rate + Exchange Margin

Arrive at Merchant TT Sale Rate (as determined above);

Rs.39.40

Add appropriate exchange margin say 5 paise;

Rs 39.40

Rs. 0.05 Rs

39.45

Merchant Forward Sale Rate -

It is meant forWriting forward sale contracts and rates are arrived at as under:

Forward TT Selling Rate = Inter- bank spot selling rate

_.,.. . " - Forward discount/+Premium as applicable for the

Forward Period

+ Exchange margin

Forward Bill Selling Rate = Forward TT Selling Rate

+ Exchange Margin for Bill Selling

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How Traveller's cheques in foreign currency purchased/sold?

Buying - bank's first month forward rate of the currency of travelers cheques is taken as

base rate and crossed with appropriate dollar/currency rates abroad. From this crossed rate,

an all inclusive margin not exceeding 1% is deducted to arrive at the amount in rupees to be

paid for every unit of foreign currency. The resultant rate is rounded up to the nearest 5

paise.

Selling - Clean TT Selling Rate is 1 unit of the base rate. To this, 0.5% margin is added

at the option of ADs.

A commission not exceeding 1 % may be charged on the rupee equivalent of the value of

foreign currency cheques sold to the customer.

The resultant rate rounded off to the nearest 5 paise.

How Foreign Currency Notes bought/sold?

Buying - TC Buying Rate less 0.5%

Selling - TC Selling Rate plus 0.5%

NOTE: All Authorized Dealers shall keep a record of:

a) The BASE RATE for the purpose of arriving at the merchant rates; and

b) Any changes made in the BASE RATES during the day. Such record shall be made available

for audit.

The time of executing all merchant transactions shall be recorded so as to establish theapplication of the correct prevalent rates.

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DEALING ROOM OPERATIONS - AN OVERVIEW

Forex market is an over the counter market in which currencies are bought and sold against eachother. The global forex market is one of the largest in the world, the daily turnover beingaround a trillion US dollars. In India it is just around 2.5 to 3 billion US dollars per day.

2. There are, however, no individual physical market places like say Mumbai Stock

Exchange, where traders could meet and exchange currencies. The traders in the forex market,mostly from commercial banks, sit in their offices popularly called as dealing room and carry

out transactions either on behalf of their customers or themselves on phone, telexes, computer

terminals, etc.

3. Dealing Room - What its all about?

Dealing Room is a centralized establishment, usually of a commercial bank, which is willing to

make/offer a two way dealing price for different currencies at all times even when they may

not wish to deal, but all during prescribed business hours. It is a common practice amongst

Dealers to quote only the last 2 points of the rate as every dealer is expected to know the full

price. A Dealer tries to make profit while quoting his rate rather than attempting it from the

quote made to him. Usually, dealer call other dealing rooms for a quotation rather than for

quoting his own rate. In the event of a Dealer not being enthusiastic of trading in a given

context/currency tends to quote his spread in such a way that it itself expresses his unwillingness

to carry out the deal. At times, the Dealer also prefers to qualify his quote with words like

"good for standard lots", "choice price", etc. To sum up, the whole range of transactions in

forex market are carried out through the Dealing Rooms of participating banks.

Banks trading actively in the forex market and offering variety of products usually segregate

their trading activities/Dealing Room into:-

Front officeMid Office

Back Office

Dealing RoomRisk Management, Accounting Policies and MIS

Settlement, Reconciliation and Accounting


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Dealing Rooms/Front Offices are equipped with Electronic Data Processing Systems

matching with volumes of business undertaken. These systems ensure automatic recording

of trading date, time and transaction serial number with no scope for the Dealers to alter.

These systems usually are of multi-user type so that consolidation of various dealers

positions and results can be obtained. The Chief Dealer enjoys the facility of logging in to

any part of the system to see overall totals.

A large Dealing Room will be controlled by a Chief Dealer, who may or may not actually

deal himself. He would be responsible to implement management policies. He leadsmorning discussions with his junior Dealers on forecasts and strategies for the day, before

dealing begins. Usually, he would be responsible to assess the effectiveness of Dealers

working under him as also to guide them in their day-to-day business transactions. Under

the Chief Dealer, there can be Senior Dealers being individually responsible for a group of

currencies/a major currency/ spot/forward trades.

Dealer is supposed to be endowed with traits viz-

survival instincts

being good at understanding the changing nature of markets;

quick to react to new opportunities and situations; quick in reversing a previous stance;

overcomes the natural tendency to salvage something from a loss

making situation;

hunches as to what market will do next rather than sticking with his

own view; and

able to work under stress;

To be effective, a Dealer has to be trusted in the forex market. He can very quickly gain a

reputation as a good or bad Dealer. Forex market is one place where Dealer needs all the

friends that one can get.

Dealers are freed from undertaking accounting work of any kind as otherwise they would notbe able to concentrate on the market. Dealers maintain "deal slips" indicating the name of

the broker, if any, the counter-party bank, currency, amount, time, rate and due date under

his signature as soon as the deal is struck with and pass- on to back office for further

processing. However, in an automatic system, separate "deal slips" are redundant.

Some Dealing Rooms do maintain gadgets like voice recorders, etc., to record the Dealing

Room conversations for such taped conversations hastens resolution of differences.

The Accounting Department i.e. Mid Office/Back Office of a Dealing Room plays an

equally important role by providing operational support for the Dealing Room. It undertakes

:-

obtention of confirmation of contracts for all deals from counter-parties

;checking contents of contracts and signatures thereon rectification of defects on

the same day;

obtention of stamped agreements from the counter-parties and keep on record

wherever computer generated confirmation slips are forthcoming;

monthly evaluation of profit and loss;

Submission of daily currency position;

maintenance of position and funds registers;

preparation of rate-scan reports and enquires into wide variations, if any, in the

deals struck from the on-going market rates;


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Objectives ofDealing Room Operations

To give the best possible service to customers -

through adequate number of well attended phones and the telexes, sound

counsel about economic development, competitive rates and capability to

transact the entire amount of currency deal requested by the customer.

To manage the bank's position so that inventory in each foreign

currency is kept at the desired level - , .through matching the inflows and outflows of various currencies with

matching deployment.

To produce profits for the bank while accomplishing the first two objectives

through exchange rate differentials etc

Who knocks on the Dealing Rooms & why?

Corporates/

Firms/

Individuals

For payments towards Imports, conversion of export receipts,

hedging of receivables & payables, payment of interest and

principal of foreign currency loans.Giant multinationals of course do take speculative positions

purely for profit generation through their own .well-

established Treasury/Dealing room.

Commercial

Banks

90% of world Forex Trade is accounted for by inter bank

transactions;

Trade in currencies to meet client requirements;

Buy and sell on their own account and carry inventory ofcurrencies for speculative purposes since foreign Exchange

trading profits have become an important source of revenue

for commercial banks.

Central Banks Intervene to move exchange rates in a particular direction as

desired by the local government.

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Currencies: Multinational banks deal, in large number of currencies -

* Major currencies: US Dollar, EURO, Yen, Pound Sterling,Swiss Franc.

*

Minor currencies: Hong Kong Dollars,Singapore Dollars.

Exotic currencies: Norwegian Kroner

* Widening domestic forex market is slowly catapulting

leading banks, particularly of Mumbai, trading in all major

currencies.

In the Dealing parlance, major

in abbreviatinnc-

EUR EUR

US$ US Dollar GBP British PoundCHF Swiss Franc

HKD Hong Kong Dollar

INR Indian Rupee

SGD Singapore Dollar

AUD Australian Dollar JPY Japanese Yen

Quotes: A Dealer, upon enquiry for a price between a pair of currencies,

offers a two-way quote either as a direct or indirect quote. This

helps enquirer in not specifying whether he wants to sell or buy.

Market Maker - Major commercial banks act as 'Market Makers' in most of

the major currencies by offering "two-way" quotes and be

prepared to take either side of the transaction.

In a normal two-way market, a Dealer expects "to be hit" on

both sides of his quotes in roughly equal amounts. But, it is

always not necessary. He may suddenly find "being hit" on

one side of his quote, much more often than the other side. It

means that he is either buying many more dollars than he is

selling or vice versa. This leads to the trader building up "aposition" -

If he has sold more$ than he has bought, he is said to

have a "short position";

If he has bought more $ than he has sold, then he is

said to have a "long position".

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In a highly volatile forex market, a long/short position for too

long can be risky.

For instance, net short position may lead to a loss if it is to be

covered at an appreciated price or gain if currency

depreciated.

Similarly, a net long position may lead to loss if it is to be

covered at a lower price or a gain if it is to be covered at ahigher price.

Therefore a Dealer, realising that he has build up an

undesirable net position, quickly adjusts his bid offer quote

in such a manner that it discourages one type of deal (which

has already landed him in a over bought/sold, position) and

encourages the opposite deal.

Act as middlemen between two market-users

They provide information to market-making banks about

prices at which there are firm buyers and sellers in a pair of

currencies.

carry out bank's instructions to buy or sell a specific amount

of currency at specified rate and collects commission on

conclusion of deal.

Banks also use brokers to acquire information about general

state of the market.

In the Indian context -

brokers are prohibited from acting as principals and

maintaining positions in foreign currencies;

brokers' notes should be received promptly by the

dealers before close of the day's business;

nomination of brokers for deals not done through

them is not permitted;

desirable to have panel of brokers and fair-shuffling

of business among them;

dealers to be separated from maintaining broker-wise

record and payment of brokerage claims, etc.

1 millions US $ (In Indian Market)

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Mechanics of trading:

Inter-bank market deals are done on the Telephone/ (RMDS) Reuters

Monitor Dealing System/Telex/through Broker.

o A trader in bank A, needing GBP against Dollars, calls his counterpart inBank B and ask for a quotation.

If the price is acceptable, deal is struck and both will enter the details -amount bought/sold, the price, identity of the counter party etc., in theircomputerised record systems.

Written confirmations will be sent subsequently.

On the day of settlement, bank "A" will transfer Dollars to Bank B and 13'

will transfer GBP to A.

Non-bank customer transactions are entertained during normal banking

business hours while interbank transactions are carried-out upto 4 P..M.

Dealing Room Terminology

Some of the oft repeated expressions in the forex market and their accepted meaning are

as under -

Offered at; Comes at; I give at; I sell at; I offer at =

Sellers or lender of currency.

I bid at; I pay at; I Take at; I buy at =

Buyers or borrower of currency

Bid, Wanted, Firm, Strong =

Currency in question is appreciating/in demand/buyers pre-dominant

Offered, Weak =

Currency in question is depreciating/sellers pre-dominant

Value today =

Same day value

Value tomorrow -

Next working/business day

End/end =

Forward swaps intended for maturity on the last working day of the

appropriate future month are described as End/end.

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w

w ^

^

w Short dates =

Deals for a broken number of days upto one week

Broken/Odd Date =

Value date which is not the regular forward date.

Overnight - Today/Tomorrow =

Currency deposit transaction/simultaneous purchase and sale of currency

for value today against the next working day.

Tomorrow/Next; Tom/Next =

Currency deposit transaction/swap for value the next working dayagainst the spot value.

Spot/Next =

Currency deposit transaction/swap for the spot value date against next

working day.

Weekend =

Currency deposit transaction/swap for value the last working day of the

week, normally Friday against the first working day of the followingweek, normally Monday.

Outright/outright =

Purchase or sale of currency for delivery for any day other than spot not

being a swap transaction.

Par =Forward price is same as the spot.

Parity or same =

No proposition on the rates quoted by the other party. It does not imply

that the party using this expression is ready to do a deal at the rates

quoted.

For indication/information = Quotes not firm \^

~J' Details =

Needs of a Dealer regarding rate and dates following a transaction.

-

-

Mine =

Dealer takes the spot/forward/deposit whichever has been quoted from

the counter party.

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It is dangerous to use the expression unless amounts have been qualifiedfirst.

Yours =

Opposite of Mine.

Point/pip =

Last decimal place of a quotation.

Mio =

One million

Billion/Milliard =

One thousand millions.

At your risk =

Quote is subject to change.

Types of transaction:

Outright-Cash / ready

Same day value

TOM (Tomorrow)

Spot

Forward

Swap

Information

Systems: Real time on line prices

Information affecting and likely to affect currency prices;

Analysis of information

Available through - Reuter Monitor services - a million

individual quotes are flashed on the screen/12 weeks.

Tele rate

Knight rider

2000-2 - besides being a dealing system it also acts as an

electronic broker, wherever it can match the quoted rates of the

subscribing banks. Trading is not confined to local markets

Next working/business day

Settlement made two working or business days from

today.

All deals over two working/business days from today,

fixed at the time of dealing.

The simultaneous purchase and sale of identical

amounts of a currency for different value dates.


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alone. A fellow in London trades with Banks in Frankfurt, New

York, etc., and even with places in different time zones. Some

dealers are provided with dealing systems even in bed rooms.

11. Payment - Once a deal is done, the dealers will specify where they want the

Systems: currencies to be delivered. For example, in a $-EURO

transaction, the buyer of the $ may want $ to be credited to his

account with New York Bank whereas the receiver of EUR may

want it to be credited to his account in a bank located inFrankfurt/Dussel Dorf.

To cope up with such mind boggling volumes, the banks have

given up traditional settlement style through cheques and instead

developed electronic inter-bank funds transfer systems. Best

known of them are CHIPS in New York and CHAPS in London.

"Netting" inter-bank payments arising out of Forex transactions

is another development - FXNET.

--,. SWIFT - to transmit messages in standardised format.

12. Risks in Dealing Room Operations:

With the fast changing Exchange Control Regulations and the concomitant rise in volumes, the

need for risk identification in Dealing Room operations and its management has become quite

imperative.

Managements therefore, formulate policy- guidelines and control mechanism for smooth

functioning of the Dealing Room, perhaps covering broad parameters viz..

business strategies for trading in different product groups;

markets;

limits for counter parties;

procedures for measuring, analyzing, monitoring and managing risks;

ceilings for risk position;

Procedures for reacting to situation like over-shooting of limits and market

extremities;

functions and responsibilities of front, middle and back office;

internal accounting and reporting;

internal control and monitoring systems;

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Frustrating the deals.

12.6 Operational

RisksOmissions/commissions in operational procedures viz.

-Dealing & Accounting functions Follow up of

dealings and contract confirmation. Settlement

of funds. Pipeline transactions Overdue bills

and contracts.

12.7 Sovereign

Risk

Likely to result in losses.

Risk of Externalization Basicallypolitical hi nature generally for banksin other countries.

13. How to overcome/reduce risks:

Banks, assessing the risk involved in trading and non-trading activities, usually come up

with a well-drafted risk management procedure that could be well understood by

Dealers, Back Office staff etc. Such a mechanism shall assist in limiting andmonitoring risk prone activities across the Dealing Room.

Some of such time-tested mechanisms are :-

13.1 Open

RiskPosition Since these positions are taken at a particular rate, any

adverse movement in the rate leads to loss.

''Day light Limit

* Overnight Limit

* Cut-loss Limit

Dealer cannot take a position of more than day light limit

prescribed by the Bank.

Fixes overnight limit for a open position in each currency

-usually lesser than daylight limits - Global limit for ail thecurrencies put together is also fixed.

While undertaking transactions, if the rate goes on moving

against the bank, one never knows, where the loss would

end. Hence, banks fix a cut-loss-limit. Irrespective of the

Dealer's view, if the rate moves so adversely that the

resultant loss is equivalent to the limit, the dealer has to

liquidate the position and book loss.

All deals done in a day should be accounted for against the corresponding limits.

The limits when exceeded should be promptly reported to the SeniorManagement and got it approved.

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In Indian context, pipeline transactions and operations in foreign currency notes

needs to be specially attended to.

People not connected with Dealing Room operations should constantly monitor

compliance to these limits through timely, accurate and comprehensive MIS.

13.2 Maturity Mis- - Individual Gap Limit (IGL)

match RiskLimit put on mismatch in the currency bought and sold for a

particular month.

Aggregate Gap Limit (AGL)

Aggregate of gap limits for particular currency all the O/B &

O/S positions for various months.

Total Aggregate Gap Limit

Aggregate of all the AGLs in all currencies.

13.3 Credit Risk - Banks impose exposure limits on customers as well as on

other Banks. In general, separate limits are fixed for spot

and forward, the latter being lower than the spot. In case of

Forwards, the limits imposed, maximum level of the net

outstanding Forward contracts.

13.4 Operational - Dealings and execution functions are separated for early

Risks discovery of any transgressions of the imposed limits -

by dividing dealing room into front office solely

concentrating on dealings and back office for recording the

transactions and pursuing settlements, etc

Further confirmations are obtained.

Prompt follow-up for execution of funds transfer

instructions.

Monitor export bills and forward contracts for their delivery

in accordance with the tenor.

13.5 * Legal Risk - - To obviate the risk involved in enforcing compliance with

Contractual obligations/securities, banks usually enter into

following master agreements with counter party

banks/clients:

Spot & Forward Exchange- International foreign Exchange Master

Agreement.

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Foreign Exchange Options- International Currency Options MarketAgreement.

All others - International Swap Dealers' Association Master

Agreement.

Banks also obtain Board Resolutions from their

Corporate Clients, specifically authorizing their officials

to deal and execute contracts.

Banks also obtain specific confirmation for eachtransaction with full details regarding amount, rate, valuedate, etc.. duly signed by the authorized signatories.

13.6 Sovereign Risks - Limits are fixed to overseas parties taking country risks too

into consideration.

14. Reconciliation of Nostro Balances

Reconciliation of Nostro Account Balances is quite essential for ensuring that everytransaction undertaken through Nostro Account is correctly executed.

Reconciliation is undertaken through Bank Statements and Mirror Account.

Unreconciled entries must be followed up on an on-going basis else, computerised accounting

system and micro filming procedures practised by overseas/correspondent branches/banks may

pose problems for back references.

No set off of debit and credit items or write off/appropriation to P&L of unreconciled

entries is attempted, unless permitted by Exchange Control Regulations and authorized by the

Bank.

15. Management of Risks in Vostro Account

Exchange Control Regulations commands close monitoring of funds flow in vostro

accounts with a view to averting hot money flows/speculative dealings on Rupee. Similarly,

sudden variations in operations say unusually large operation in an otherwise inactive account

demands closer scrutiny for assessing genuineness of operation.

The amount of credit risk arising from drawings on branches can be immeasurable

unless flow of information regarding paid drafts etc., from drawee branches to account

maintaining office is prompt and accurate.

These risks are minimized by -

reducing number of branches on whom drafts can be drawn;

imposing drawing limits per day;

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securing draft advices directly from the correspondents/telex messages of

large payments from paying branches;

> prompt value dating.

Monitoring of vostro accounts further ensures discipline in the usage of credit linesextended to correspondent banks identification of concealed overdrafts and interest recovery

there against etc.

Balance confirmation letters are mailed to the overseas banks maintaining vostro

accounts and confirmations are obtained.

16. Evaluation of Foreign Exchange Profits & Losses

Profits and Losses of foreign exchange transactions are calculated at the end of each

month, using uniform standard accounting procedure prescribed by FEDAI.

17. To sum up, Forex Trading has in fact become an important source of earning for banks

and volumes are likely to double or quadruple in the coming days due to on-going reforms.Driven by this enthusiasm, Dealers, may often go all out, but should not forget Hanis Law:

"Dealers never know why prices are moving because they are too busy moving prices."

The name of the game being money making, no dealer should forget the basic tenets of good

trading -

Cut losses

Cut losses

Cut losses

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DEALING ETHICS AND COPE OF BEHAVIOUR

Should only enter into transactions that he feels are prudent under existing market conditions.

He should not assume positions even with management approval, that in good conscience he

knows are of such high risk as to jeopardize the capital of his bank or the funds of its

depositors.

Should make sure that he complies with his management's prescribed policies and limitations

and conforms to all legal and administrative constraints.

Will not spread rumors that could be injurious to the market or any competitor.

Will offer assistance to competitor banks provided he does not jeopardize his own institution.

Will not agree to "washing names' for any reason.

Will stand by his word in all dealings directly between or through intermediates.

Will conduct his business in the market place in accordance with established procedure, both as to

definitive practices and intent of such practices.

Will maintain the confidentiality of all foreign exchange transactions, whether concluded or not.

Will not permit brokers to deal for their own account.

Will not take advantage of an obvious misquote by any counter-party.

Will always make sure that the dealers in his dealing room are properly instructed in the workings

of the market and their responsibilities and obligations before being placed in positions of actuallydealing in foreign currency.

Shall do all in his power to discourage improper conduct in the market by others.

Must remember that his responsibility is to his bank and any irregularity by others within his own

dealing room should report to the Management of Bank Auditors.

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THE PSYCHOLOGY OF THE INDIVIDUAL

Summary

l. Taking responsibility of your capital

2. Cut your losses early and let your Profits Run

3. Discipline4. Too much information

5. Do not marry your trades

6. Do not bet the farm

1. Taking responsibility of your capital

It is interesting how many people are happy to place their savings and funds in other peoples hands,

accept the losses as its easier to blame someone else than to take responsibility of those funds

ourselves.

The first step as an individual is believing in yourself and your own abilities. One of the most startlingdiscoveries when you start trading or may have observed from the stock market is how many experts

get it so wrong so often. This is a real confidence booster when you begin to understand that with a

solid background and knowledge, discipline and a well defined trading plan that you will often

outperform many professionals.

You will be in a market place that moves several times faster than any other market and with leverage,

the rewards and losses compound many times. The best way to overcome the thought of using your

own money and the volumes you will be trading is to forget about money and talk in terms of points.

So rather than calculate your profit and losses in terms of dollars talk in terms of gains and losses in

points. If you adopt this at a very early stage it will feel the same if you are trading a demo, a mini or

10 contacts of a full account.

Every trader that any member of Team Forex knows talks in terms of gains and losses in points. We

don't refer to the money as the bench mark of our own performance. We equate to other traders in the

terms or losses and gains in points, and measure our performance against this.

When trading a demo account most people do very well. They trade without fear. As soon as its real

money, even on mini account they suddenly find themselves trading in a manner where they miss many

opportunities and accumulate many losses. They quite simply loose their nerve and give into fear and

greed. This can happen also when you may go from a mini account to a full account or from trading-

single contracts to trading multiple contracts.

Try and trade without the thought of how much money you may gain or loose. Trade thinking ofpoints, no matter how many contracts you are trading or even if you is trading a demo account.

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2. Cut your losses early and let your Profits Run

This simple concept is one of the most difficult to implement and is the cause of most traders demise.

Most traders violate their predetermined plan and take their profits before reaching their profit target

because they feel uncomfortable sitting on a profitable position. These same people will easily sit on

losing positions, allowing the market to move against them for hundreds of points in hopes that the

market will come back. In addition, traders who have had their stops hit a few times only to see the

market go back in their favor once they are out, are quick to remove stops from their trading on thebelief that this will always be the case. Stops are there to be hit, and to stop you from losing more then a

predetermined amount! The mistaken belief is that every trade should be profitable. If you can get 3 out

of 6 trades to be profitable then you are doing well. How then do you make money with only half of

your trades being winners? You simply allow your profits on the winners to run and make sure that your

losses are minimal.

Another good strategy is to move stop losses (the point the trade will be sold if it goes the wrong way)

behind the trade to a level where a pullback can be accommodated but a reversal will lock in at least

some profit.

3. Discipline

Trade with a disciplined Plan. The problem with many traders is that they take shopping more seriously

then trading,. The average shopper would not spend $400 without serious research and examination of

the product he is about to purchase, yet the average trader would make a trade that could easily cost him

$400 based on little more than a "feeling" or "hunch." Be sure that you have a plan in place before you

start to trade. The plan must include stop and limit levels for the trade, as your analysis should

encompass the expected downside as well as the expected upside.

3. Too much information

As with many endeavors it is important to keep your trading simple. Many traders start out with a

simple strategy that is successful but find themselves chopping and changing trying to find a bettersystem. They also allow themselves to be influenced by other opinions and too much fundamentals. It is

not too different from going to a race track where everyone has a sure thing or the information available

becomes so confusing you can no longer see the wood from the trees. Trading the stock market is often

similar in this regard. A good exercise is to teach a child or teenager a simple trading strategy or set of

rules to follow and allow them to trade a demo account. Many traders who have done this have been

surprised that their children can actually trade well, consistently and often with spectacular results. The

lesson is that they don't stray from the rules, and are-not influenced by the media or fundamentals. Many

traders pay no attention to fundamentals at all and trade successfully. The rule here is to keep it simple

don't allow yourself to become confused with too much information and if you're not sure or not in the

right emotional frame of mind, don't trade.


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4. Do not marry your trades

The reason trading with a plan is so important is because most objective analysis is done before the trad

is executed. Once a trader is in a position they tend to analyze the market differently in the "hopes" tha

the market will move in a favorable direction rather than objectively looking at the changing factors tha

may have turned against your original analysis. This is especially true of losses. Traders with a losing

position tend to marry their position, which causes them to disregard the fact that all signs point toward

continued losses. Don't take more trades in the hope that the market will turn in your favour; it wionly accelerate your losses.

5 Do not bet the farm

Do not over trade. One of the most common mistakes that traders make is leveraging their account too

high by trading much larger sizes than their account should prudently trade. Leverage is a double-edged

sword. Just because one lot (100,000 units) of currency only requires $ 1000 as a minimum margin

deposit, it does not mean that a trader with $5000 in his account should be able to trade 5 lots. One lot is

$100,000 and should be treated as a $100,000 investment and not the $1000 put up as margin. Most

traders analyze the charts correctly and place sensible trades, yet they tend to over leverage themselves.

As a consequence of this, they are often forced to exit a position at the wrong time. A good rule of thumb

is to trade with 1-10 leverage or never use more than 5% of your account at any given time. Tradingcurrencies is not easy, (if it was, everyone would be a millionaire!)


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THE SPOT MARKET

Summary

1. Introduction2. Currency pairs and the rate of exchange

3. Buying equals selling

4. Practical spot trading

5. Worked examples

6. Controlling risk

7. Screen-based spot trading

8. Fundamental and technical analysis

9. Tips for aspiring spot

traders Appendix A

1. Introduction

The spot market accounts for nearly a third of global foreign exchange turnover. It can be

broadly divided into two tiers:

The interbank market where currency is bought and sold for delivery and settlement within

two days, with the banks acting as wholesalers or market makers

* The retail market made up of private traders, who deal over the telephone or the internet

through intermediaries (brokers).

The forex market has no centralized exchanges. All trades are over-the-counter deals, agreed and

settled by individual counterparties known to one another. The forex market is truly global and

operates 24 hours a day, Monday to Friday. Daily trading commences in Wellington, New

Zealand and follows the sun to (inter alia) Sydney, Tokyo, Hong Kong, Singapore, Bahrain,

Frankfurt, Geneva, Zurich, Paris, London, New York, Chicago and Los Angeles before starting

again.

2. Currency pairs and the rate of exchange

Every foreign exchange transaction is an exchange between a pair of currencies. Each currency is

denoted by a unique three-character International Standardization Organization (ISO) code (e.g.

GBP represent sterling and USD the US dollar). Currency pairings are expressed as two ISOcodes separated by a division symbol (e.g. GBP/USD), the first representing the "base currency"

and the other the "secondary currency".

The rate of exchange is simply the price of one currency in terms of another. For example

GBP/USD = 1.9445 denotes that one unit of sterling (the base currency) can be exchanged for

1.9445 US dollars (the secondary currency). The base currency is the one that you are buying or


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selling. This elementary point is often lost on beginners.

Exchange rates are usually written to four decimal places, with the exception of Japanese yen

which is written to two decimal places. The rate to two (out of four) decimal places is known as

the "big figure" while the third and fourth decimal places together measure the "points" or "pips".

For instance, in GBP/USD = 1.9445 the "big figure" is 1.94 while the 45 (i.e. the third and fourth

decimal places) represents the points.

2.1. Bid offer spread

As with other financial commodities, there is a buying price ("offer" or "ask" price) and a selling

price ("bid" price). The difference is known as the "bid-offer spread" or "the spread".

The spread is written in a particular format, best demonstrated by way of an example. GBP/USD

= 1.9445/50 means that the bid price of GBP is 1.9445 USD and the offer price is 1.9450 USD.

The spread in this case is 5 points.

2.2. The major pairings

All pairings with the US dollar are known as the "majors". The "big four" majors are: -

EUR/USD denoting euro/US dollar

GBP/USD denoting sterling/US dollar (known as

"cable") USD/JPY denoting US dollar /Japanese yen

USD/CHF denoting US dollar/Swiss franc

2.3. Cross rates

Pairings of non-US dollar currencies are known as "crosses". We can derive cross exchange rates

for GPB, EUR, JPY and CHF from the aforementioned major pairs. Exchange rates must be

consistent across all currencies, or else it will be possible to "round trip" and make risk less

profits. An illustration of how cross rates are computed is given in Appendix A.

3. Buying equals selling

Every purchase of the base currency implies a reciprocal sale of the secondary currency.

Likewise, sale of the base currency implies the simultaneous purchase of the secondary

currency.

For example, when I sell 1 GBP, I am simultaneously buying 1.9445 USD. Likewise, when I buy

1 GBP, I am simultaneously selling 1.9450 USD.

We can express this equivalence by inverting the GBP/USD exchange rate and rotating the bid

and offer reciprocals, to derive the USD/GBP rate i.e.

USD/GBP = (1/1.9450) bid; (1/1.9445) offer = 0.5141/0.5143


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