Custom Exchange Rates

Custom Exchange Rates

31 Jan 2019 04:22 PM

What is Custom Exchange Rate?

It's a price of domestic currency in the terms of foreign currency. In exchange rates there are two components in the exchange rates one is domestic currency and other is foreign currency. Exchange rates are quoted in direct or indirect. When a one unit value of foreign currency is quoted in domestic currency is known as direct quote and if one unit value of domestic currency is quoted in foreign currency it is known as indirect quote. Usually quotes are given in Dollar terms, there can also be quoted in other foreign currency which is known as cross currency.

Banks quotes two types of rates for the customer - Sell rate and buy rate, sell rate is quoted by the bank when it wants to sell the foreign currency in the exchange to the local currency, it is also called ask rate. Whereas buy rate is quoted by the bank when it wants to buy the foreign currency from the customer, also known as the bid rate. Most countries of the world have their own currencies: the US Dollar, the Euro in Europe, the Pound in UK, the Japanese Yen, the Brazilian Real, the Chinese Yuan, and the Indian Rupee just to name a few. Through foreign exchange market, trading of currencies and banks deposits is possible.

The exchange rate is the rate of one country’s currency in terms of another currency. Thereby an exchange rate has two components, the domestic currency, and foreign currency.  When the currency of your country appreciates relative to a foreign country, your country’s goods prices increase abroad and foreign goods prices decrease in your country.

Exchange rate reduces uncertainty with regard to cross border trade in both goods and assets. Factors that cause the supply and demand schedules of currencies to change are:

  • Productivity, real interest rate, government trade policies, inflation rate, consumer preferences are the economic variables
  • The general market expectation about the future through the fundamental economic factors along with the trader’s opinion on the future exchange rate .
  • Due to interest rate arbitrage, there are transfers of assets – Real interest rate differences
  • Interim: cyclical factors, Fluctuations in economic activity
  • Flows of goods, services, and investment capital.

An import is a process of goods brought into a country, especially across a national border, from an external source. Goods received by a country are imports whereas the same goods are an export for the sending country. Importation and exportation are the financial transactions of international trade.

Custom exchange rate is also classified according to the period of the transactions. Cash rate is quoted if the transaction is settled same day, whereas Tom Rate is quoted if the transaction is settled the next day. Spot rate or interbank rate is quoted if the transaction is settled after two working days. Interbank bank rate is constantly fluctuating and banks add margin on interbank rate for customers.

Import export are the regular activities for a trading company, when goods exported to a country its invoice will be quoted in foreign currency, this invoiced amount must be converted into the respective countries currency. Thus the exchange rates become very important. The exchange rates in India are decided by the RBI( Reserve bank of India), The main factor that determines the Custom Exchange rate is Demand and Supply and managed or free float currency. In countries like USA, the currency is free float so the exchange rate will move according to the demand and supply whereas countries like China it is pegged and managed but most of the countries like India are partially managed. Usually the exchange rate is determined by the macroeconomy of the country but developing countries like India need to have partially managed currency.

The central bank of India RBI (Reserve bank of India) intervenes time to time to curb excessive volatility, but the intervention will only be organized to get the particular range or outcome in the rates. The exchange rates are determined by the timing of the transaction, for example, there is cash, tom, spot, and forward rates. The cash rate is used overnight conversion of the bills, Tom rate is used for T+1 days conversion whereas, Spot rate is used for T+2 days conversion and Forward rates are used for determining for future date conversion and it is determined by that day's spot rate and the difference in the interest rates of the currency. The exchange rate is calculated based on the market supply and demand for a particular currency pair.

US dollar is the most easily available currency and most popular currency in the world. It is one of the most exchanged currencies in India. Most of the currencies that are traded in international markets are quoted by the number of units of foreign currency per USD. If you are pondering what today’s dollar rate is, it is vital to note that there is no fixed rate as these rates fluctuate real time.  Most websites, currency exchange providers, banks and forex dealers keep a high margin from your pockets in order to avoid any losses on account of USD fluctuation, these are the customized exchange rates and not the actual real-time rates.

The demand to find a better USD or INR exchange rate has always been high, but it is extremely difficult to find the best USD exchange rates today until Myforexeye came into the picture. We at Myforexeye have obtained transparency into the exchange rate market. The exchange rate trend between the USD and INR is very volatile these days. The nature of fluctuation is so dynamic that a slight variation would cost you heavily.

Currency exchange rates depend upon factor like demand and supply, interest rates, inflation and changes in critical exports, but few exchange rates are pegged, in this process the central bank intervenes in the market, causing artificial demand or supply and tries to keep the currency in the fixed predetermined band.

We at Myforexeye Fintech, India’s first all in one forex services provider, developed a feature in Myforexeye App called Rate check where customer can check the bank rates with the live market rates, including bank margins. Not only the spot rate can be checked but also the forward rates which are mostly not available through the internet can be verified with. This provides transparency in the rate which the bank provides to the customer. The App also lets encourages the user to set Rate Alerts which alarms when the set target rate is reached in the currency market. When the main business of the client requires more focus, the Rate Alert option comes handy and lets one stay tuned to the market at all times. Forex pulse helps to stay tuned to India centric forex world and give not only forex news but also research and analysis on the major currencies across the globe.

Read more about export exchange rate

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