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1. October 27, 2025
Regional Treasury Marketing Unit, Bangalore

2. October 27, 2025
(Material for internal use of SBI only)
Role of RTMU

3. October 27, 2025
Provide advice about currency movements, forex market, and
treasury products to our customers to aid them in
Hedging/Managing their portfolios.
Facilitate our customers to make use of Money Market, Forex
and Fixed Income Products, to manage their finances.
Providing rates up to USD 0.25 directly from RTMU & assist
branches / Eligible Customers with rates for high value txns
Assistance in fixing margins and setting up FC/ Derivative Limits
RTMU : Functions & Services

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Basics of Forex Markets

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Export & Import – in term of Forex
- Thus, an exporter sells goods overseas and receives
Foreign Currency, which he sells (tenders) to a Bank and
Buys (gets) `.
- An importer does the opposite.

Local
Sourcing
F
C
I
N
R

Manufacturer

Buyer
(Importer) in
say, USA
INR

Goods
Goods
FC
Import
Sourcing FC

G
o
o
d
s
I
N
R
F
C

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Settlement Practices
 Settlement of funds to be done on T+2 basis
 Saturdays & Sundays non-working days
 Gulf works on Saturdays
 Rates to be adjusted for non T+2 days transactions

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What is a Foreign Exchange Market ?
• It’s a seamless worldwide market dealing in currencies of
different countries.
• Deals with more than 150 currencies.
(involves more than 12000 currency pairs)
Largest and most liquid financial market.
Standardized Commodity i.e. Currencies.
 Linked through telephone, telex, satellite communication
 Real Time Market – impact almost instant
 Worldwide & Round the clock Market

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Attributes of Fx Markets
• Total market size more than 4 trillion USD / day on an average.
• About 5 per cent is trade related and 95 per cent is financial and
speculative
• Official reserves of all surplus countries together are > 5 trillion
• USD related transactions about 60 to 70 per cent
• Spot transactions only 30 -40 % (75% in 1986)
• UK, USA, Japan and Singapore are major centres.
• USD is the most traded currency
• Euro, Yen and GBP are the other in order
• EUR/USD is the most traded currency pair

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DOLLAR IS THE KING

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24 Hours Market
0 1 2 3 4 5 6 7 8 9101112131415161718192021222324
Tokyo
HK
Singapore
Mumbai Los Angeles
New YorkBahrain
Frankfurt
Zurich
London
Sydney

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Major Participants
 Central Banks
 Commercial banks – Market makers
 Non-Bank Financial corporations
 Export / Import Traders and Industries

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Interbank Vs Merchant Market

 The market where banks can buy and sell forex to meet their
needs is the ‘Interbank’ market
 Buying and selling forex vis-à-vis corporates is called
‘Merchant Market’
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Overview of Exchange Rates

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What is Exchange Rate ?
Rate at which one currency is converted to another.
The need for such conversions arise as currencies are “Legal
Tender” only in their home countries.
Foreign exchange rate is the price of one unit of a Currency
measured in terms of another currency.
[Exchange Rate: USD/INR (BASE/TERMS)]
Direct Quote : 1 USD = 55.50 INR
(FC)= (x) home currency
Indirect Quote : 1 INR = 0.0180 USD
home currency = (x) FC

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A Typical Interbank Quote

Quote : USD-INR plz
55.50 – 55.51
 Approaching bank doesn’t reveal intention
 Responding bank quotes “two-way”
 Approaching bank can hit any side in standard amount
 Responding bank has to stand the quote
The practice ensures liquidity & market
discipline
55.51-55.50 = 0.01
SPREAD

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Cross Rate
USD is the main Foreign currency traded
Quotes for non-USD currency are arrived via USD,
therefore called Cross-Rates
USD/INR = 55.50/51 EUR/USD = 1.2570/75
What is 1 EUR in terms of INR?
EUR/INR = 55.50 *1.2570 = 69.7635 (Export Rate)
EUR/INR = 55.51 *1.2575 = 69.8038 (Import Rate)

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Time Line In Fex
Cash
Tom
Spot Forwards
21-12-12 26-12-12
24-12-12
Cash/tom
tom/spot
Forward premium /discount
Spot : 26-06-12 : 55.50
Cash : 22-06-12 : 55.50 – 0.06 = 55.44 (c/s : 0.06)
Tom : 25-06-12 : 55.50 – 0.04 = 55.46 (t/s : 0.04)
Cash/spot

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Card Rates
Online Rates
Dealer Rates
Inter Bank Rates
TYPES OF RATE
Order Board Concept

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Margin Concept
In Forex market, SBI earns in two ways :
-By earning Margin on each transaction – Transaction
Margin
-By “playing” in the interbank market (by coverage and
proprietary positions) – Volume Margin
Example :
An Exporter X sells USD 1.00Mio, value today (Cash)
Online Rate (Bid) : 55.50
Cash/Spot (Add swap) : (-) 0.06
Margin, as per M.M. : (-) 0.04
Net Rate : 55.40

20. October 27, 2025
What determines Exchange Rate
 Purchasing Power Principle
 Interest Rate Principle
1)Interest Rate: Higher interest rates attract foreign investment
i.e. more supply of forex, lending strength to domestic currency.
2)Inflation: Countries in the growth phase usually have higher
inflation levels, reducing the purchasing power and weakening
of the home currency.
3)Current Account deficit: If a country earns less foreign exchange
than it spends, demand for foreign currency exceeds that for
home currency, leading to weakness in the domestic unit.
4)Public debt: Large quantum of public debt, though denotes
stimulation of domestic economy, also shows a tendency
towards higher inflation, affecting the domestic currency.
Exchange rate is the inter-play of all these factors.. And more!!

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Sources of Exchange Risks
Transaction Exposure
• Arises when co. enters into a trade – export/import -
Extinguished on settlement
• Impacts Revenue / Expenditure & P&L
• Fairly easy to identify and manage

Translation Exposure
• Associated with Balance Sheet Items denominated in Fex (Asset /
Liability) i.e. Accounting exposure
• Translation of Balances (for B/S) varies with Exchange Rate
Economic Exposure
• Arising from broader operating environment, medium to long
term
• Affect the competitive positioning of the organization
• Need ‘Strategic’ response / re-positioning

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Management of Transaction & Translation
Exposure
Practices
Exposure Netting
Choose - Currency of
Invoice
Leading / Lagging
Hedging Tools
 Forward Contracts
 Futures
 Options

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Threats to Effective Hedging
Volume Mismatch
Underlying
Exposure
Hedging
Timing Mismatch
Underlying
Exposure
Hedging
Directional Mismatch
Underlying
Exposure
Hedging
Hence the Objective of a Corporate Treasury
is to Get these 3 Basic Parameters Right
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