IIBF Forex Formula Sheet
Ten formulas, what each one is for, and a worked example.
Forex Operations questions are mostly about quoting the right rate: converting between quote styles, building cross rates, loading forward premiums and applying the bank's margin. These ten formulas cover them.
A worked cross-rate and forward-premium example follows the table.
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The 10 Formulas
1
Formula
Indirect quote from direct
Expression
Indirect = 1 ÷ Direct
Use it for
Converting ₹ per USD into USD per ₹, and back.
2
Formula
Spread
Expression
Spread = Ask (offer) − Bid
Use it for
The dealer's margin on a two-way quote.
3
Formula
Cross rate
Expression
EUR/INR = EUR/USD × USD/INR
Use it for
Rupee rate for a currency quoted against the dollar.
4
Formula
Forward rate
Expression
Forward = Spot + Premium (or − Discount)
Use it for
Outright forward rate from the spot and the swap points.
5
Formula
Annualised forward premium
Expression
(Forward − Spot) ÷ Spot × 12 ÷ Months × 100
Use it for
Comparing forward premiums with interest-rate differentials.
6
Formula
Forward rate by interest parity
Expression
F = S × (1 + r_INR × t) ÷ (1 + r_USD × t)
Use it for
Theoretical forward rate from spot and interest rates.
7
Formula
TT buying rate
Expression
Interbank buying rate − Exchange margin
Use it for
Inward remittances and clean credits to the customer.
8
Formula
Bill buying rate
Expression
Interbank rate (with forward points for the transit period) − Margin
Use it for
Purchasing or negotiating export bills.
9
Formula
TT selling rate
Expression
Interbank selling rate + Exchange margin
Use it for
Outward remittances not involving documents.
10
Formula
Bill selling rate
Expression
TT selling rate + Additional margin for handling documents
Use it for
Import bills, where the bank handles documents.
| # | Formula | Expression | Use it for |
|---|---|---|---|
| 1 | Indirect quote from direct | Indirect = 1 ÷ Direct | Converting ₹ per USD into USD per ₹, and back. |
| 2 | Spread | Spread = Ask (offer) − Bid | The dealer's margin on a two-way quote. |
| 3 | Cross rate | EUR/INR = EUR/USD × USD/INR | Rupee rate for a currency quoted against the dollar. |
| 4 | Forward rate | Forward = Spot + Premium (or − Discount) | Outright forward rate from the spot and the swap points. |
| 5 | Annualised forward premium | (Forward − Spot) ÷ Spot × 12 ÷ Months × 100 | Comparing forward premiums with interest-rate differentials. |
| 6 | Forward rate by interest parity | F = S × (1 + r_INR × t) ÷ (1 + r_USD × t) | Theoretical forward rate from spot and interest rates. |
| 7 | TT buying rate | Interbank buying rate − Exchange margin | Inward remittances and clean credits to the customer. |
| 8 | Bill buying rate | Interbank rate (with forward points for the transit period) − Margin | Purchasing or negotiating export bills. |
| 9 | TT selling rate | Interbank selling rate + Exchange margin | Outward remittances not involving documents. |
| 10 | Bill selling rate | TT selling rate + Additional margin for handling documents | Import bills, where the bank handles documents. |
What the Symbols Mean
- Direct quote
- Rupees per unit of foreign currency, such as ₹84.20 per USD. This is the convention in India.
- Margin
- The bank's exchange margin. FEDAI no longer prescribes it; each bank sets its own.
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Buying or Selling Is From the Bank's Side
"Buying rate" means the bank buys foreign currency from the customer, as with an exporter or inward remittance. Read every rate question from the bank's side first, then decide whether the margin is added or deducted.
FAQs
Why is the bill buying rate lower than the TT buying rate?expand_more
With a bill, the bank pays the exporter before it is paid and handles documents. It allows for the transit period and charges more margin.
Does FEDAI set exchange margins?expand_more
Not any more. Banks set their own margins. FEDAI rules still govern how transactions are handled.
Is a forward premium always added?expand_more
A premium is added to spot and a discount is deducted. In India the dollar usually trades at a forward premium against the rupee.
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