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Understanding Telegraphic Transfer (TT) Buying/Selling Rate & Bills Buying/Selling Rate
TT Buying/Selling Rate & Bills Buying/Selling Rate are rather called as Merchant exchange rate.
Merchant rates are lower than the spot rate definitely and somewhat around the interbank rate which is one of the lowest rate in the market. At merchant rate high volume export import transaction take place, because the volume of transaction of the exporter importers may be millions of dollar, and they get a comparable rate generally favourable to them. So, authorized dealer those who are providing exchange rate to merchant compete among each other to give what is called a low, lowest rate to the merchant. And the authorized dealers charge very low profit for merchant transaction because the transaction is huge, any marginal level of profit can give them huge amount of profit.
The types of merchant rates are telegraphic transfer rate, what you called TT rates, and bills rate.
There are two types of T Rates - one is called TT buying rate, another is called TT selling rate. When as a customer, I go to a bank and ask to remit some money to a person in US, I purchase what is called TT selling, I sale a TT. When as a exporter, I got export transaction in the form of foreign currency, I want to convert the foreign currency into domestic currency, the rate applicable to is called TT buying rate. So, TT selling rate is nothing but outward transaction, TT buying rate nothing but inward remittances.
TT Buying Rate
If you want to convert the foreign currency into domestic money, you have to buy a TT, the TT buying rate inward remittances applicable to them. Telegraphic transfer, money transfer, demand draft, which are generally denominated in foreign currency converted into Indian currency or domestic currency. So, we have to purchase what is called TT buying. Conversion of proceeds of instrument, many export oriented instruments, many foreign bills, those who are denominated in foreign currency converts into domestic currency through TT buying rate.
Similarly, if you want to cancel outward remittances, suppose you have booked a foreign DD, foreign currency DD, but you want to convert into Indian currency or cancel it, then you have to purchase what is called a TT buying rate. So, TT buying rates applicable to inward remittances, foreign currency demand draft, foreign currency money transfer, conversion of proceeds of foreign currency denominated instrument, cancellation of outward remittances in the form of DD, TT, MT.
TT selling rate
If you want to send foreign currency to outside that is from domestic economy, the foreign currencies are going outward to other country, then you have to sale a TT. So, if I want to send US dollar to any US citizen in US, then I have to convert the domestic rupee into US dollar, that time I have to sell a TT. So, all outward remittances transaction which are generally converted by paying domestic money into foreign currency are called TT selling rate.
So, outward remittances, telegraphic transfer, money transfer, foreign currency denominates DD that is demand draft, conversion of proceeds of instrument that is any instrument in domestic money converted into a foreign currency, cancellation of inward remittances, if you want to convert any foreign domestic DD, TT, MT into foreign currency, then TT selling rate applicable. If you want to import something, then you have to sell TT. TT selling rate applicable to all outward transaction in which any foreign currency purchased by paying domestic currency.
Bills Buying Rate/Bills Selling Rate
Bills are export import proceeds. Bills buying rate is nothing but inward remittances, bill selling rate nothing but outward remittances. Foreign currency converted into domestic currency through bills buying rate; domestic currency converted into foreign currency through bill selling rate. Here bills are export import bill, and any other kind of foreign, foreign currency denominated instruments.
TT/Bills Buying/Selling Examples:
1. Inflow of USD 200,000.00 by TT for credit to your exporter's account, being advance payment for exports (credit received in Nostro statement received from New York correspondent). What rate you will take to quote to the customer, if the market is 55.21/25?
Explanation :
It will be a purchase of USD from customer for which USD will have to be sold in the market. Say when USD/Rs is being quoted as 55.21/25, meaning that market buys USD at Rs 55.21 and sells at Rs 55. 25. We shall have to quote rate to the customer on the basis of market buying rate, i.e. 55.21, less our margin, as applicable, to arrive at the TT Buying Rate applicable for the customer transaction.
2. Retirement of import bill for GBP 100,000.00 by TT Margin 0.20%, ignore cash discount/premium, GBP/USD 1.3965/75, USD/INR 55.16/18. Compute Rate for Customer.
Explanation :
For retirement of import bill in GBP, we need to buy GBP, to buy GBP we need to give USD and to get USD, we need to buy USD against Rupee, i.e. sell Rupee.
At the given rates, GBP can be bought at 1.3975 USD, while USD can be bought at 55.18. The GBP/INR rate would be 77.1140. (1.3975 x 55.18), at which we can get GBP at market rates. Thus the interbank rate for the transaction can be taken as 77.1140.
Add Margin 0.20% 0.1542.
Rate would be 77.1140 + 0.1542 = 77.2682 for effecting import payment. (Bill Selling Rate).
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