You as a dealer in foreign exchange have the following position in GBP on 31 st October, 2019: GBP Balance in the Nostro A/c Credit 2,00,000 Opening…

CA Final · Advanced Financial Management · RTP · November 2024
You as a dealer in foreign exchange have the following position in GBP on 31 st October, 2019: GBP Balance in the Nostro A/c Credit 2,00,000 Opening Position Overbought 1,00,000 Purchased a bill on London 1,60,000 Sold forward TT 1,20,000 Forward purchase contract cancelled 60,000 Remitted by TT 1,50,000 Draft on London cancelled 60,000 Decide the steps would you take, if you are required to maintain a credit Balance of GBP 65,000 in the Nostro A/c and keep as oversold position on GBP 20,000?

Suggested Answer and Working Notes:

(i) Exchange Position: Particulars Purchases (GBP) Sales (GBP) Opening Balance Overbought 1,00,000 Bill on London 1,60,000 Forward Sales – TT 1,20,000 Cancellation of Forward Contract 60,000 TT Sales 1,50,000 Draft on London cancelled 60,000 3,20,000 3,30,000 Closing Balance Oversold 10,000 3,30,000 3,30,000 (ii) Cash Position (Nostro A/c) Credit Debit Opening balance credit 2,00,000 TT sales 1,50,000 2,00,000 1,50,000 Closing balance (credit) 50,000 2,00,000 2,00,000 The Bank has to buy spot TT GBP 15,000 to increase the balance in Nostro account to GBP 65,000. This would bring the overbought position on GBP to 5,000. Since the bank requires an oversold position of GBP 20,000, it has to sell forward GBP 25,000.

Topics: Foreign Exchange Exposure and Risk Management

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