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FAQs
What is a spread?
A spread represents the difference between the market rate and the customer’s transaction rate.
How much spread do banks keep on foreign currency conversions?
Sometimes nothing, or sometime 50 paisa, but normally around 5 paisa for a high volume corporate. The spread is also much dependent on market volatility. The higher the volatility, the more spread a bank is able to keep. Increasing the bottom line is the objective of every business, and similarly, it is also the Banks’ priority on every transaction.
Financial statements of five randomly picked banks in Pakistan show their cumulative earnings of more than PKR10 billion on income from dealing in foreign currency transactions.
How can Landmark get better rates from the bank?
Because that’s what we do! Landmark boasts of a team of forex experts who are continuously monitoring the market and have treasury and banking background.
We follow the interbank market rates (rates at which banks deal with each other) and negotiate on the basis of that.
What is volatility? What do you mean by intraday volatility?
Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A currency is more volatile if the movement in the currency occurs by larger sizes. Intraday volatility refers to volatility in a single day.
What is a forward booking?
Forward booking is an agreement between two parties to buy or sell something at an agreed price after a fixed number of days. If the forward rate is higher than the spot rate, the difference is called the premium, whilst if the forward rate is lower than the spot, the difference is called the discount
What is ‘option period’ in a forward booking?
The foreign currency transaction can not be adjusted against the forward booking contract in the fixed period and we have to wait till the fixed period ends. The Option period is the period after the fixed period but before the expiry of the contract during which the forward booking contract can be adjusted against the foreign currency payment/receipt.
What is ‘take up’? What is ‘close out’?
When a forward booking is adjusted by surrendering the underlying asset (in our case FCY), it is said to be “taken up”. Only an export forward is taken up. When forwards are settled by entering into an offsetting position that the one entered at the time of forward booking, the position is said to be closed out. Close out occurs at the end of option period.
Do premiums in forward booking keep changing? How do we know when is the best time to book forward?
In the USD/PKR pair the forward rates attract a premium. This premium can change during every transaction (that means many times during the day) because they are traded in the interbank market. These premiums are directly correlated to liquidity and interest rates.
It is difficult to judge the best time to book forwards if the premiums are very volatile. Again making use of research of macro economic indicators and trading positions of banks give us a fairly good idea in trends.
What is the optimal mix between hedging and keeping our portfolio open?
That depends on your risk appetite, product costing, market conditions and your trade cycle. There is no set percentage for every business. We review dynamics of you business and discuss strategies with you to recommend a tailor made solution.
Is the FOREX strategy proposed to the client customized?
All strategies related to forwards are tailored according to a business’s treasury history, risk appetite, cash cycle and sometimes the client’s preferred banks.
What is the difference between FE discounting and non FE discounting? Why does it matter to me?
FE discounting is LIBOR based discounting whereas non FE discounting is KIBOR based discounting. The method in which the pricing is evaluated makes a direct impact on the cost of your discounting structure
If we engage Landmark for Forex advisory and deal execution, how will the whole process work?
The client informs Landmark of their trade positions. Landmark either takes a rate from the bank or advises the client to wait depending on market movement. Once a favorable rate is received, Landmark takes approval from the client and okays the bank on receipt of approval.
Are banks comfortable with this arrangement?
Since this arrangement may directly impact the profitability per account of the Bank, they may try to slow down the process. But it is important for the client to know that it is the client’s right to assign or nominate anybody to deal with the Banks. The only thing the Bank may ask for is a written authorization from you.
Why is forward booking a good hedging strategy?
Forwards fix the rate at which one currency would be exchanged for another after a fixed no. of days in the future. Forward rates are calculated by adding/(subtracting) premium/(discount) to today’s rate. The premium reduces costs, improves efficiency and competitiveness and allows business to accept export orders more conveniently.
A spread represents the difference between the market rate and the customer’s transaction rate.
How much spread do banks keep on foreign currency conversions?
Sometimes nothing, or sometime 50 paisa, but normally around 5 paisa for a high volume corporate. The spread is also much dependent on market volatility. The higher the volatility, the more spread a bank is able to keep. Increasing the bottom line is the objective of every business, and similarly, it is also the Banks’ priority on every transaction.
Financial statements of five randomly picked banks in Pakistan show their cumulative earnings of more than PKR10 billion on income from dealing in foreign currency transactions.
How can Landmark get better rates from the bank?
Because that’s what we do! Landmark boasts of a team of forex experts who are continuously monitoring the market and have treasury and banking background.
We follow the interbank market rates (rates at which banks deal with each other) and negotiate on the basis of that.
What is volatility? What do you mean by intraday volatility?
Volatility refers to the amount of uncertainty or risk about the size of changes in a security's value. A currency is more volatile if the movement in the currency occurs by larger sizes. Intraday volatility refers to volatility in a single day.
What is a forward booking?
Forward booking is an agreement between two parties to buy or sell something at an agreed price after a fixed number of days. If the forward rate is higher than the spot rate, the difference is called the premium, whilst if the forward rate is lower than the spot, the difference is called the discount
What is ‘option period’ in a forward booking?
The foreign currency transaction can not be adjusted against the forward booking contract in the fixed period and we have to wait till the fixed period ends. The Option period is the period after the fixed period but before the expiry of the contract during which the forward booking contract can be adjusted against the foreign currency payment/receipt.
What is ‘take up’? What is ‘close out’?
When a forward booking is adjusted by surrendering the underlying asset (in our case FCY), it is said to be “taken up”. Only an export forward is taken up. When forwards are settled by entering into an offsetting position that the one entered at the time of forward booking, the position is said to be closed out. Close out occurs at the end of option period.
Do premiums in forward booking keep changing? How do we know when is the best time to book forward?
In the USD/PKR pair the forward rates attract a premium. This premium can change during every transaction (that means many times during the day) because they are traded in the interbank market. These premiums are directly correlated to liquidity and interest rates.
It is difficult to judge the best time to book forwards if the premiums are very volatile. Again making use of research of macro economic indicators and trading positions of banks give us a fairly good idea in trends.
What is the optimal mix between hedging and keeping our portfolio open?
That depends on your risk appetite, product costing, market conditions and your trade cycle. There is no set percentage for every business. We review dynamics of you business and discuss strategies with you to recommend a tailor made solution.
Is the FOREX strategy proposed to the client customized?
All strategies related to forwards are tailored according to a business’s treasury history, risk appetite, cash cycle and sometimes the client’s preferred banks.
What is the difference between FE discounting and non FE discounting? Why does it matter to me?
FE discounting is LIBOR based discounting whereas non FE discounting is KIBOR based discounting. The method in which the pricing is evaluated makes a direct impact on the cost of your discounting structure
If we engage Landmark for Forex advisory and deal execution, how will the whole process work?
The client informs Landmark of their trade positions. Landmark either takes a rate from the bank or advises the client to wait depending on market movement. Once a favorable rate is received, Landmark takes approval from the client and okays the bank on receipt of approval.
Are banks comfortable with this arrangement?
Since this arrangement may directly impact the profitability per account of the Bank, they may try to slow down the process. But it is important for the client to know that it is the client’s right to assign or nominate anybody to deal with the Banks. The only thing the Bank may ask for is a written authorization from you.
Why is forward booking a good hedging strategy?
Forwards fix the rate at which one currency would be exchanged for another after a fixed no. of days in the future. Forward rates are calculated by adding/(subtracting) premium/(discount) to today’s rate. The premium reduces costs, improves efficiency and competitiveness and allows business to accept export orders more conveniently.
