Module: | MODULE A: INTERNATIONAL BANKING
Q13: Evaluate the following statements regarding the Foreign Exchange Dealers Association of India guidelines governing merchant rates and customer transactions. Identify the incorrect statements.
Statement 1. When quoting a final merchant rate to a customer, the Authorized Dealer must round off the calculated Rupee equivalent rate to the nearest multiple of 0.0025.
Statement 2. Authorized Dealers base their merchant quotations on the prevailing interbank rate, and then apply an exchange margin to cover administrative costs and generate a profit.
Statement 3. The Foreign Exchange Dealers Association of India strictly dictates the exact uniform exchange margin percentage that every bank must charge its corporate customers, completely eliminating price competition between banks.
Statement 2. Authorized Dealers base their merchant quotations on the prevailing interbank rate, and then apply an exchange margin to cover administrative costs and generate a profit.
Statement 3. The Foreign Exchange Dealers Association of India strictly dictates the exact uniform exchange margin percentage that every bank must charge its corporate customers, completely eliminating price competition between banks.
✅ Correct Answer: C
🎯 Quick Answer:
Statement III is the only incorrect statement, making Option C the right choice.Structural Breakdown: Statement I is correct.
The Foreign Exchange Dealers Association of India Rule 7 mandates that all exchange rates for merchant transactions shall be quoted up to four decimals and rounded off to the nearest multiple of 0.0025.
Statement II is correct.
A bank buys foreign currency in the wholesale interbank market at the base rate.
It then adds a markup or subtracts a markdown called the exchange margin before passing the rate to the customer.
Statement III is incorrect.
The Foreign Exchange Dealers Association of India no longer fixes uniform exchange margins.
In the spirit of a deregulated market, banks are free to determine their own exchange margins based on their internal board approved policies, the customer creditworthiness, and the volume of the business.
This fosters healthy price competition among Authorized Dealers.