Module: | MODULE A: INTERNATIONAL BANKING
Q7: An Indian corporate entity, Alpha Exports Limited, has successfully shipped textiles to a buyer in New York and has received a remittance of 5,00,000 US Dollars. The company approaches its Authorized Dealer bank in Mumbai to convert these dollars into Indian Rupees to pay its local suppliers. On that day, the interbank market is quoting the US Dollar to Indian Rupee rate as 83.10 Bid and 83.25 Ask. Assuming the bank charges zero margin for this specific premier client, calculate the exact Rupee amount Alpha Exports Limited will receive in its current account.
✅ Correct Answer: B
🎯 Quick Answer:
The exporter will receive exactly 4,15,50,000 Indian Rupees.
Concept Definition: This scenario tests the application of the Bid Ask spread from the perspective of the bank.The rule to remember is that the bank always acts in its own favor.Structural Breakdown: 1. Identify the transaction flow.The exporter possesses US Dollars and needs Indian Rupees.Therefore, the exporter must sell US Dollars. 2. Identify the bank role.If the exporter is selling, the bank is buying the US Dollars. 3. Select the correct rate.A two-way quote is written as Bid and Ask.The quote is 83.10 Bid and 83.25 Ask.The bank buys at the Bid rate, which is the lower rate, and sells at the Ask rate, which is the higher rate.The bank will buy the exporter dollars at 83.10. 4. Calculation is 5,00,000 US Dollars multiplied by the Bid rate of 83.10 equals 4,15,50,000 Indian Rupees.This is read as Four Crores, Fifteen Lakhs, and Fifty Thousand Rupees.Option A is incorrect because it mistakenly uses the Ask rate of 83.25 to calculate the inward remittance, which would result in a loss for the bank. The exporter will receive exactly 4,15,50,000 Indian Rupees.