EXCLUSIVE >> FAQs of STOCK MARKET by Ripples Financial Advisory
Q.What are value dates?
A. A value date is a day on which the transaction takes place. For foreign currency transaction, it takes T+2 days to settle the transaction. We have Four type of rates available with banks : Spot rate, Cash, Tom and Forward rate: Cash/Spot rate: Value today Tom/Spot rate: Value Tomorrow Spot rate: Value at T+2 Forward rate: Value beyond T+2 days
Q.What are Nostro and Vostro accounts?
A. A Nostro account is an account held in a foreign country by a domestic bank, denominated in the currency of that country. A Vostro account is a local currency account maintained by a local bank for foreign bank. Nostro and Vostro accounts are used to facilitate settlement of foreign exchange and trade transactions.
Q.What is an EEFC A/c?
A. Exchange Earners’ Foreign Currency Account (EEFC) is an account maintained in foreign currency with a bank. It is a facility provided to exporters, to credit 100 percent of their foreign exchange earnings to the account, so that the account holders do not have to convert foreign exchange into Rupees and vice versa, thereby minimizing the transaction costs. No interest is payable on EEFC accounts.
Q.What are the permissible Credits and Debit into this account?
A. Permissible Credits • Inward remittance through normal banking channels • Advance remittance received by an exporter • Payment received for export of goods and services from India • Professional earnings like consultancy fees, etc Permissible Debits • Payment outside India towards a permissible current account transaction • Payment of customs duty etc.
Q.How are forward premiums/discounts determined?
A. Forward premiums and discounts is an interest rate differential between two currency. If the difference between forward exchange rate and spot exchange rate of one currency is a positive value, it is known as forward premium and if it is a negative value it is known as forward discount. In other words, if the spot ‘futures exchange rate’ is higher than the spot exchange rate then it is known as forward premium and if it is lower than spot exchange rate then it is known as a forward discount.
Q.What determines forward premiums for the dollar against the rupee?
A. In USD/INR market forward premiums determined by two factors a. Interest rate differential and Demand and supply of currencies due to partial convertibility of rupee and immature money market in India.
Q.What is a foreign exchange contract?
A. An agreement made to convert one currency into another currency at a specific rate on a specific date. Forward contracts are used to lock in exchange rates (a forward rate) for a specific future date, or for a range of dates. Forward contracts are often used as a tool to eliminate the impact of adverse currency moments. A forward rate is calculated by taking the spot rate and adding or subtracting forward points. Forward rates are determined by the interest rate differential between the countries of the two currencies which are being exchanged.
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