TFFE 98th Banking Professional Exam: Math Solution

(10) Your exporter wants to sell a 120 day usance bill of EURO 85,000 to your bank. Calculate the buying exchange rate using the following information. Also calculate the amount of BDT to be paid by your bank.

(a) Inter-bank exchange rate : USD 1 = EUR 0·9266—0·9455    USD 1 = BDT 109·6508— 110·7510  (b) Transit period 15 days. (c) Profit margin 0·10 per EURO. (d) Your banks overhead charge 0·0650%. (e) Interest rate 7% per annum.

[Assume 360 days in a year. Please show your calculation.]

Solution

Step 1: Calculate EUR Buying Rate in USD:

Since the bank is buying EUR, use the higher EUR quotation.

EUR Buying Rate = 1 ÷ 0.9455 = USD 1.0576 per EUR

Step 2: Calculate Cross Buying Rate (BDT per EUR):

Cross Buying Rate = 1.0576 × 109.6508 = BDT 115.9714 per EUR

Step 3: Deduct Profit Margin:

Buying Rate after Profit Margin = 115.9714 − 0.10 = BDT 115.8714 per EUR

Step 4: Deduct Interest:

Total Period = 120 + 15= 135 days

Interest = 115.8714 × 7 × 135 ÷ (100 × 360) = BDT 3.0416 per EUR

Rate after Interest = 115.8714 − 3.0416 = BDT 112.8298 per EUR

Step 5: Deduct Overhead Charge:

Overhead = 112.8298 × 0.065% = 112.8298 × 0.00065 = BDT 0.0733 per EUR

Step 6: Calculate Final Buying Rate:

Final Buying Rate = 112.8298 − 0.0733 = BDT 112.7565 per EUR

Step 7: Calculate Amount Payable:

Amount Payable = EUR 85,000 × BDT 112.7565 = BDT 95,84,303 (Approx.)

Answer:

Buying Exchange Rate = BDT 112.7565 per EUR (≈ BDT 112.76 per EUR)

Amount Payable by the Bank = BDT 95,84,303 (Approx.)