Below is the solution of a question of foreign exchange which came in the term Nov, 2005. Can someone elaborate the treatments and make me understand the whole solution? I didn't undersand the solution.
Thank you in advance.
Question:
You as a dealer in foreign exchange have the following position in Swiss Francs on 31st October, 2004:
|
|
Swiss Francs |
|
Balance in the Nostro A/c Credit |
1,00,000 |
|
Opening Position Overbought |
50,000 |
|
Purchased a bill on Zurich |
80,000 |
|
Sold forward TT |
60,000 |
|
Forward purchase contract cancelled |
30,000 |
|
Remitted by TT |
75,000 |
|
Draft on Zurich cancelled |
30,000 |
What steps would you take, if you are required to maintain a credit Balance of Swiss Francs 30,000 in the Nostro A/c and keep as overbought position on Swiss Francs 10,000?
(7 Marks) (November, 2005)
Answer
Exchange Position/Currency Position:
|
Particulars |
Purchase Sw. Fcs. |
Sale Sw. Fcs. |
|
Opening Balance Overbought |
50,000 |
|
|
Bill on Zurich |
80,000 |
|
|
Forward Sales – TT |
|
60,000 |
|
Cancellation of Forward Contract |
|
30,000 |
|
TT Sales |
|
75,000 |
|
Draft on Zurich cancelled |
30,000 |
________ |
|
|
1,60,000 |
1,65,000 |
|
Closing Balance Oversold |
5,000 |
_______ |
|
|
1,65,000 |
1,65,000 |
|
Cash Position (Nostro A/c) |
|
|
|
|
Credit |
Debit |
|
Opening balance credit |
1,00,000 |
|
|
TT sales |
________ |
75,000 |
|
|
1,00,000 |
75,000 |
|
Closing balance (credit) |
_______ |
25,000 |
|
|
1,00,000 |
1,00,000 |
The Bank has to buy spot TT Sw. Fcs. 5,000 to increase the balance in Nostro account to Sw. Fcs. 30,000.
This would bring down the oversold position on Sw. Fcs. As Nil.
Since the bank requires an overbought position of Sw. Fcs. 10,000, it has to buy forward Sw. Fcs. 10,000.
CAclubindia
