On 20.10.2024, the balance in NOSTRO account with XYZ Bank in London was GBP 80000 and the balance in overbought was GBP 50000. During the day the…

CA Final · Advanced Financial Management · MTP · January 2026
On 20.10.2024, the balance in NOSTRO account with XYZ Bank in London was GBP 80000 and the balance in overbought was GBP 50000. During the day the following transactions have taken place. Events Amount (GBP) DD Purchased 25,000 Purchased a bill on London 75,000 Sold forward TT 50,000 Forward purchased contract cancelled 25,000 Remitted by TT 42,500 Draft in London cancelled 20,000 What steps would you take, if you are required to maintain a credit balance of GBP 10,000 in the NOSTRO account and keep as overbought position on GBP 32,500?

Suggested Answer and Working Notes:

Exchange Position: Particulars Purchase GBP Sale GBP Opening Balance Overbought 50,000 DD Purchased 25,000 Purchased bill on London 75,000 Forward Sales – TT 50,000 Cancellation of Forward Contract 25,000 Remitted by TT 42,500 Draft on London cancelled 20,000 1,70,000 1,17,500 Closing Balance Overbought 52,500 1,70,000 1,70,000 Cash Position (Nostro A/c) Credit Debit Opening balance (credit) 80,000 Remitted by TT 42,500 80,000 42,500 Closing balance (credit) 37,500 80,000 80,000 The Bank has to sell spot TT GBP 27,500 to decrease the balance in Nostro account to GBP 10,000. This would bring down the overbought position to GBP 25,000. Since the bank requires an overbought position of GBP 32,500, it has to buy forward GBP 7,500.

Topics: Foreign Exchange Exposure and Risk Management

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