The meaning of Foreign Exchange

Foreign Exchange is the system or process of converting one national currency into another and of transferring the ownership of money from one country to another country

What is the meaning of Exchange Rate?

The rates applied by the Bank for converting foreign currency into Indian rupees and vice versa are known as exchange rates. In other words, exchange rate is the rate at which one currency can be exchanged for another.

What are the systems of quoting Exchange Rates?

There are two systems of quoting exchange rates:
i.Direct Quotation: Where the price of foreign currency is quoted in terms of home or local currency. In this system variable units of home currency equivalent to a fixed unit of foreign currency is quoted

For Example US Dollar 1 = Rs 43.50

ii. Indirect Quotation: Where exchange rates are quoted in terms of variable units of foreign currency as equivalent to a fixed number of units of home currency.
For Example US Dollar 2.30 = Rs. 100

Till 01.08.1993 banks in India were required to quote all the rates on indirect basis. From 02.08.1993 banks are quoting rates on direct basis only

Purchase and Sale Transaction – How it Arise?

Its important to have a very clear idea about purchase and sale transaction and how they arise. From the Banks point of view conversion of foreign currency on behalf of an exporter into Indian Rupees would involve a Purchase and conversion of domestic currency into foreign currency on behalf of an importer would be a Sale.