Buying Foreign Exchange At Spot Rate: How Good A Deal It Would Be?

Often when you visit a foreign land, you require foreign currency of that nation and in obtaining say you are required to pay a high premium price than the spot rate available in the inter-bank OTC market. And the same is the case when exchanging forex for rupees, you get a comparatively lower amount because of the huge cost involved in the transaction.

Now in order to mitigate this and provide a sweeter deal to buyers of forex or retail customers, the RBI has mulled to create a platform whereby buyers and sellers will be able to trade in the different currencies in the inter-bank market that too at the spot rate. The platform is being sought out for small investor categories including SMEs, importers and exporters.

What’s in the offing for small foreign exchange buyers?

Small buyers of foreign exchange after the RBI have authorized the Clearing Corporation of India (CCIL) to set up a new trading platform that shall be a part of the inter-bank forex market. The investors will be able to access the trading screen via the internet and place their orders on a direct basis.

Current practice when it comes to small investors in the foreign exchange

Banks and some of the non-banking entities are allowed to provide forex. And some of these institutions based on the card rates decided during the morning will have to settle the forex transaction at that rate regardless of the spot rate. And at most of the time, the mark up for the cross currency charges with these banking and non-banking forex dealers is very unreasonable.

The new carve-out platform by the CCIL is going through the testing phase and will be live by August.

Functioning of the new forex platform for buying and selling forex at spot rate

[PO17Manipulatingcurrency] The customers will be able to track the rates offered for various forex pair and place their ask and bid quotes at the most competitive rates. For the bank services, the RBI can allow the provision to charge a mark-up value over and above the spot price.

Now the guidelines on the platform which are to be released by the end of this month will put forth the method of providing forex, either it could be loaded in the forex card or it can collected from a designated branch or branches.

Limit of transaction on forex on the new trading platform

According to the RBI discussion paper on forex trading platform for retail, the minimum transaction quantity is expected to be $1,000 and in multiples of $500 thereafter. The trades can be settled the same day, next day or on T+2 basis.

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