Difference Between Overbought and Oversold
Overbought and Oversold Overbought means that a bank’s assets and purchases of a particular foreign currency exceed its liabilities and sales of that currency. Where oversold means that a bank’s…
Difference Between Interest rate and Exchange rate
Interest rates and Exchange rates The question of interest rate arises when currencies are borrowed or lent; whereas exchange rates are involved when different currencies are being bought or sold.…
Difference Between Hedging and Speculating
Hedging & speculating: Hedging means avoiding or covering foreign exchange risk. The need for hedging arises because exchange rates fluctuate continuously. Accordingly, individuals, companies and banks who expect to make…
Difference between Pips and Points
Pips & points: A point is a unit of decimal, the fourth place to the right of the decimal () whereas a pip is the fifth place to the right…
Risks inherent in Spot and Forward transactions
In spot transactions, settlements are effected within two working days of striking the deal. Although both payments are to be made simultaneously, because of geographical distance, the differing timing zones…
Correspondent Bank
Correspondent Banking The term “correspondent banking” is defined as informal arrangement whereby a smaller bank maintains deposit balances with larger banks in nearby cities and looks to them for a…
Types of Letter of Credit
Standby Letter of Credit Standby letter of credit is a guarantee and is mainly used in USA where according to local laws American Banks are not permitted to issue guarantees.…
Difference between Financial Documents and Commercial Documents
Differentiate between “Financial Documents” and “Commercial Documents” Financial documents Financial documents mean bills of exchange, promissory notes, checks or other similar instruments used for obtaining the payment of money. Commercial…
Cross Rate
What is Cross Rate? The exchange rate of major international currencies are quoted with reference to their base currencies in London with reference to Pound sterling and in New York…
Foreign Exchange
What is Foreign Exchange? The foreign exchange is defined in different ways, Webster Dictionary as “transferring of funds to settle accounts with firms or residents in a foreign currency.”Encyclopedia Britannica:…
Performance Guarantee or Performance Bond
Performance Guarantee or Performance Bond Article 2 of ICC publications 325 defines “Performance Guarantee” as an undertaking given by bank (guarantor) at the request of a supplier of goods or…
Bid Bond
Tender Guarantee or Bid Bonds The Uniform Rules for Contract Guarantee, Article two states that for the purpose of these rules, a “tender guarantee” means an undertaking given by bank…
Shipping Guarantee
Shipping Guarantee The need for such a guarantee arises when the goods have arrived destination before document of the title to goods Bill of Landing, Air waybill etc. Therefor in…
Role of Bond
Role of Guarantees/bonds in international trade A bank guarantee is an irrevocable obligation of a bank to pay a sum of money to the beneficiary in the event of non-performance…
Difference Between Spot Deal and Forward Deal
Spot Deal A spot deal is one where foreign exchange is sold or purchased for immediate delivery or latest delivery within two days. the rate at which such deals are…