1. TELEGRAPHIC TRANSFER (TT) BUYING RATE & BILL BUYING RATE AND FEW PROBLEMS BASED ON IT ASKED IN EXAMINATIONS
T T BUYING RATE :
THE BANKS QUOTE A VARIETY OF EXCHANGE RATES. ONE OF THEM IS THE T T BUYING RATE .
T T RATES ARE APPLICABLE FOR CLEAN INWARD OR OUTWARD REMITTANCES WHERE THE BANKS UNDERTAKE ONLY THE JOB OF MONEY TRANSFER AND DO NOT HAVE TO PERFORM ANY OTHER FUNCTION , SUCH AS HANDLING DOCUMENTS.
BILL BUYING RATE :
EXPORTERS FREQUENTLY DRAW BILLS OF EXCHANGE ON THEIR FOREIGN CUSTOMERS.
THEN THEY SELL THESE BILLS TO AN AUTHORISED DEALER IN FOREIGN CURRENCY. THE AUTHORISED DEALER BUYS THE BILL AND THEN COLLECTS THE PAYMENT FROM THE IMPORTER.
SINCE, THERE IS DELAY BETWEEN THE AD PAYING THE EXPORTER AND ITSELF GETTING PAID, VARIOUS MARGINS ARE SUBSTRACTED FROM THE BASE RATE TO COMPUTE THE BILL BUYING RATE. SO,
FORMULA:
BILL BUYING RATE = THE TT BASE RATE - EXCHANGE MARGIN - FORWARD DISCOUNT.