TFFE 96th Banking Professional Exam: Math Solution

(9) Your exporter wants to sell a 120-day usance bill of EUR 65,000.00 to your bank. Calculate the buying exchange rate of your bank. How much does your bank have to pay to the exporter? Please use the following information:

(a) Inter-bank exchange rate: EUR 1 = USD 1.0715—1.0820, USD 1 = BDT 106.1010—107.7590 (b) Transit period 10 days (c) Profit margin BDT 0.10 per EUR (d) Your bank’s overhead charge 0.0625% (e) Interest rate 6% per annum(Assume 360 days in a year. Please show your rough calculation)

Solution:

Given:

Bill amount: EUR 65,000.00 (120-day usance)
Inter-bank rate: EUR 1 = USD 1.0715 – 1.0820
Inter-bank rate: USD 1 = BDT 106.1010 – 107.7590
Transit period: 10 days
Profit margin: BDT 0.10 per EUR
Overhead charge: 0.0625%
Interest rate: 6% per annum, 360-day year

Step 1: Cross Buying Rate (BDT per EUR)

Since the bank is buying EUR from the exporter, it uses the lower (buying) side of both quotes, going through USD:

Cross Buying Rate = EUR buying rate × USD buying rate = 1.0715 × 106.1010 = BDT 113.6873 per EUR (rounded to 4 decimals)

Step 2: Deducting Exchange Profit Margin

113.6873 − 0.10 = BDT 113.5873 per EUR

Step 3: Deducting Interest for the Usance + Transit Period

Since this is a usance bill, the bank is paying the exporter now but will only receive the actual proceeds after 120 days (usance) + 10 days (transit) = 130 days. So the bank deducts interest for 130 days at 6% per annum:

Interest = 113.5873 × 6% × (130/360) = 113.5873 × 0.06 × 0.361111 = BDT 2.4611 per EUR

Rate after interest deduction = 113.5873 − 2.4611 = BDT 111.1262 per EUR

Step 4: Deducting Overhead Charge

Overhead = 111.1262 × 0.0625% = 111.1262 × 0.000625 = BDT 0.0695 per EUR

Final Usance Buying Rate = 111.1262 − 0.0695 = BDT 111.0567 per EUR (rounded)

Step 5: Amount Payable to the Exporter

Amount = EUR 65,000 × BDT 111.0567 = BDT 72,18,684 (approximately)

So the bank’s buying rate for this 120-day usance bill works out to about BDT 111.06 per EUR, and the bank will pay the exporter roughly BDT 72,18,684 against the EUR 65,000 usance bill.

(10) Based on the following information, please calculate the buying and selling rate of Bangladesh Taka per Japanese Yen when the inter-bank market exchange rate was:

USD 1 = JPY 130.3010—132.1280, USD 1 = BDT 106.1010—107.7590

Also calculate the amount of BDT to be paid by your bank for buying 2.00 million Japanese Yen. [N.B. Please show your rough calculation]

Solution:

Step 1: Buying Rate (BDT per JPY)

Buying Rate= 106.1010 ÷ 132.1280 = BDT 0.8030 per JPY Or, = BDT 80.30 per 100 JPY

Step 2: Selling Rate (BDT per JPY)

Selling Rate= 107.7590 ÷ 130.3010= BDT 0.8270 per JPY Or, = BDT 82.70 per 100 JPY

Step 3: Amount Payable

Amount = JPY 2,000,000 × BDT 0.8030 = BDT 16,06,034 (Approx.)

Answer

Buying Rate = BDT 80.30 per 100 JPY, Selling Rate = BDT 82.70 per 100 JPY, Amount Payable = BDT 16,06,034 (Approx.)