Details

Technical Note

Exchange Rates (A)

Naheed Kirmani

INDUSTRY : Financial Instruments

AREA : Business Government/International Economy

ORGANIZATION :

LENGTH : 14

LUMS No : 16-286-88-2

PUBLICATION YEAR : 1988

KEYWORDS:

Exchange Rates,Business Governement,International Economy,Sitara Chemicals,Limited,Financial Instruments

DESCRIPTION:

An exchange rate is the amount of one currency unit that can be exchanged for another currency. Just as the interest rate is the price of capital and the wage rate is the price of labor, so also the exchange rate of a country is the price of foreign money. A direct quote is the number of units of a local currency exchangeable for one unit of foreign currency. For example, a direct quote in Karachi of Rs 17.5 = U.S. $1 means that 17.5 Pakistani rupees are exchangeable for one dollar. Exchange rate quotations depend on whether the purpose is to buy or sell foreign currency; posted buying and selling rates are from the viewpoint of the bank as the buyer or seller. A spot transaction is an exchange at the spot rate which takes place within two working days after the transaction is agreed upon. The differences between spot buying and selling rates (the latter are always higher than the former) are relatively narrow and represent transaction costs and commissions of banks.

LEARNING OBJECTIVES:

N/A

SUBJECTS COVERED:

Business Government, International Economy