FACTORS AFFECTING PREMIUM / DISCOUNT

[sunandaC]

Forward differentials are relatively but are not constant and therefore, vary from time to time. The following factors affect forward differentials:

1) Supply and demand for the currency for a settlement date.
If for a currency for a particular settlement date, there are more buyers than sellers the forward differential will go up. Similarly, if a Currency for a particular settlement date, there are more sellers and buyers the forward differential will go down. This is all the more true when there is restriction of capital flows.

2) Market expectations.
Market expectations about the development in interest differentials and exchange rates of the currencies on account of various factors.

3) Interest rate differentials
Interest rate differentials between the currencies exchanged. In fact, this is the only factor, which affects the forward differentials provided capital flows are free from restrictions.

MERCHANT RATES

The exchange rates quoted by Authorized Dealers in India, for transactions with merchants are known as ‘Merchant Rates’. The rates quoted by banks for dealing in inter bank market are known as ‘Inter bank rates’.

There are four types of merchant rates are used in India..
 TT (Buying) Rate

 TT (Selling) Rate

 Bill (Buying) Rate

 Bill (Selling) Rate.

 

[rosemarry2]

Forward differentials are relatively but are not constant and therefore, vary from time to time. The following factors affect forward differentials:

1) Supply and demand for the currency for a settlement date.
If for a currency for a particular settlement date, there are more buyers than sellers the forward differential will go up. Similarly, if a Currency for a particular settlement date, there are more sellers and buyers the forward differential will go down. This is all the more true when there is restriction of capital flows.

2) Market expectations.
Market expectations about the development in interest differentials and exchange rates of the currencies on account of various factors.

3) Interest rate differentials
Interest rate differentials between the currencies exchanged. In fact, this is the only factor, which affects the forward differentials provided capital flows are free from restrictions.

MERCHANT RATES

The exchange rates quoted by Authorized Dealers in India, for transactions with merchants are known as ‘Merchant Rates’. The rates quoted by banks for dealing in inter bank market are known as ‘Inter bank rates’.

There are four types of merchant rates are used in India..
 TT (Buying) Rate

 TT (Selling) Rate

 Bill (Buying) Rate

 Bill (Selling) Rate.

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