Module: | MODULE A: INTERNATIONAL BANKING
Q19: Consider the following statements regarding the foundational rules Authorized Dealers must follow when applying exchange margins to base interbank rates. Identify the correct combination.
Statement 1. The primary objective of an Authorized Dealer in foreign exchange is to buy foreign currency at the lowest possible rate and sell it at the highest possible rate to maximize their gross profit spread.
Statement 2. To compute a final merchant buying rate for an exporter, the Authorized Dealer must strictly add their targeted profit margin to the base interbank spot buying rate.
Statement 3. To compute a final merchant selling rate for an importer, the Authorized Dealer must strictly add their targeted profit margin to the base interbank spot selling rate.
Statement 2. To compute a final merchant buying rate for an exporter, the Authorized Dealer must strictly add their targeted profit margin to the base interbank spot buying rate.
Statement 3. To compute a final merchant selling rate for an importer, the Authorized Dealer must strictly add their targeted profit margin to the base interbank spot selling rate.
✅ Correct Answer: C
🎯 Quick Answer:
Option C is correct because Statement II violates the fundamental buy low principle of merchant arithmetic.Its application depends entirely on whether the bank is receiving, meaning buying, or remitting, meaning selling, the foreign currency.
Structural Breakdown: Statement I is correct.
This is the universal law of trading.
A bank acts as a principal, not an agent.
It buys low from exporters and sells high to importers.
Statement II is incorrect.
To buy at the lowest possible rate, the bank must deduct its exchange margin from the base interbank buying rate.
Adding the margin would give the exporter more Rupees, causing a financial loss to the bank.
Statement III is correct.
To sell at the highest possible rate, the bank must add its exchange margin to the base interbank selling rate.
This forces the importer to pay more Rupees for the same amount of foreign currency, securing the bank profit.