FOREIGN EXCHANGE ARITHMETIC
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
One-liners from this chapter
Free sample — 8 of 66 rapid-fire Q&A cards.
What is the meaning of a direct quote in foreign exchange?
A direct quote expresses the price of one unit of foreign currency in terms of the home currency. For example, in India, USD 1 = INR 83.50 is a direct quote.
What is meant by the 'base currency' in a foreign exchange quote?
The currency against which another currency is quoted.
What is an indirect quote in foreign exchange?
An indirect quote expresses the price of one unit of home currency in terms of the foreign currency. For example, INR 1 = USD 0.012 is an indirect quote from an Indian perspective.
What is the 'quote currency' in a foreign exchange pair?
The currency used to express the price of the base currency.
What is the difference between the buying rate and the selling rate quoted by a bank?
The buying rate (bid) is the rate at which a bank buys foreign currency from customers, while the selling rate (ask/offer) is the rate at which it sells. The bank always buys low and sells high to earn a margin.
In the USD/INR quote of 83.50, which is the base currency?
USD is the base currency in USD/INR quote.
What is the bid-ask spread in foreign exchange?
The bid-ask spread is the difference between the bank's selling rate and buying rate for a foreign currency. It represents the bank's profit margin on foreign exchange transactions.
What is a 'pip' in foreign exchange rate terminology?
The smallest price movement in an exchange rate quote.
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