Learn · Treasury and FX
FX dealing in India: quotes, value dates and forwards.
FX dealing is buying and selling one currency for another, for a customer or for the bank’s own book, at a rate agreed now for settlement on a stated day. In India most of a bank dealing room’s volume is USD/INR. A dealer quotes two-way prices, agrees a value date, and then covers or manages the position the deal leaves behind.
How a USD/INR quote works
USD/INR is quoted as rupees per one US dollar, for example 95.4000 / 95.4100 (an illustrative rate, not today’s). The first figure is the bid: the rate at which the quoting bank buys dollars. The second is the offer (or ask): the rate at which it sells dollars. The gap between them is the spread, which pays the bank for the risk of holding the position until it can cover it.
A rule that saves many interview answers: the customer always gets the worse side. An exporter selling dollars receives the bid; an importer buying dollars pays the offer. For customer deals banks publish card rates such as the TT buying and TT selling rates, built from the interbank rate plus a margin.
Value dates: cash, tom and spot
The value date is the day both currencies actually move. Three short dates matter in the Indian market:
- Cash (value today, T+0)
- Tom (value tomorrow, T+1)
- Spot (T+2), two good business days after the trade date
Weekends and holidays are skipped, never counted. A USD/INR spot deal done on a Friday normally settles on Tuesday. The value date must be a working day for both currencies, so a US holiday can move a USD/INR settlement even though dealing in Mumbai goes on that day. The interbank conventions for dates and holidays in India are set out in FEDAI’s rules.
Forwards and the forward premium
A forward fixes today the rate for a value date further out, such as one, three or six months after spot. The forward rate is the spot rate adjusted by forward points. The points come from the interest rate difference between the two currencies: when rupee interest rates are higher than dollar rates, the dollar trades at a forward premium against the rupee, so the forward rate is above spot. A dealer who gets this backwards prices a forward on the wrong side of the market.
A worked example: an exporter books a three-month forward
An exporter will receive USD 1 million in three months and wants certainty in rupees today. The virtual bank’s dealer quotes (illustrative rates):
| Step | Figure |
|---|---|
| Spot USD/INR, bid / offer | 95.4000 / 95.4100 |
| Three-month forward points (premium) | 0.6000 / 0.6200 |
| Forward bid for the exporter (spot bid + bid points) | 96.0000 |
| Rupees the exporter will receive (1,000,000 × 96.0000) | 9.60 crore rupees |
The exporter is selling dollars, so the bank buys at its bid, and because the dollar is at a premium the points are added. The bank now holds a long forward dollar position. The dealer covers it, for example by selling dollars forward in the interbank market, so the bank keeps the spread and not the currency risk. The deal then flows through the back office: confirmation, settlement through the nostro account on the value date, and accounting.
Key terms
- Base and quote currency: In USD/INR the dollar is the base (one unit) and the rupee is the quote.
- Two-way quote: A bid and an offer given together, so the other side can deal either way.
- Position: The net amount of a currency the bank is long (has bought) or short (has sold).
- Cover deal: The interbank deal a dealer does to offset a customer deal.
- Nostro account: The bank’s own account in a foreign currency, held with a bank abroad, through which FX deals settle.
- Reference rate: The daily USD/INR benchmark published by FBIL, used for valuations and some contracts.
Practise it in TrezCap
Reading is the start. In TrezCap you do the job in FinTreasury Bank, our virtual bank: the platform calculates every figure, you take the decision and see the consequence. Free to try.
The FX Dealing Desk
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Open in TrezCap →Run Complete Treasury Day
Follow deals from the dealing room through settlement and the day’s accounts.
Open in TrezCap →Questions
What is the spot date for USD/INR?
Spot is two good business days after the trade date (T+2). Weekends and holidays are skipped, and the value date must be a working day for both currencies, so a Friday deal normally settles on Tuesday.
What is the difference between cash, tom and spot?
They are value dates. Cash settles on the trade date (T+0), tom on the next business day (T+1) and spot two business days after the trade (T+2).
Why is the USD/INR forward rate higher than spot?
Because rupee interest rates have been higher than dollar interest rates. The forward points reflect that difference, so the dollar trades at a forward premium and the forward rate sits above spot.
Does an exporter get the bid or the offer?
The bid. The exporter sells dollars and the bank buys them at its bid rate. An importer buys dollars and pays the bank's offer rate.
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