Vostro accounts are rupee accounts maintained by banks outside India with a bank in India to clear and settle their rupee transactions.
4.12 Loro:
Loro Account is a Current Account Maintained by one Domestic Bank on behalf of other domesticbank in foreign bank in foreign currency. In other word Loro Account is a Nostro Account for onebank who opened the bank and Loro Account for other bank who refers first one account.
For Example: SBI opened Current Account with Swiss bank. If Yes Bank refers that account of SBI for itscorrespondence, then it is called Loro Account for Yes Bank and it is Nostro Account for SBI.
4.13 Mirror Accounts:
Nostro mirror accounts are shadow accounts maintained by the banks corresponding to the nostro accounts maintained with the correspondent banks. Transactions in the nostroaccounts are replicated in mirror accounts in exactly the opposite manner, viz., debits innostro accounts are matched by credits in mirror accounts and vice versa. They reconcile.
4.14 Open Currency position:
The sum of the open currency spot position and the open currency forward position, is themeasure of the foreign exchange risk. The open currency position is the difference betweenassets and liabilities in foreign currency plus the forward forex purchased and sales. The open currency position is the measure of theforeign exchange risk.
4.15 Net Spot Position
The net spot position is the difference between foreign currencyassets and the liabilities in the balance sheet. This should include all accruedincome/expenses.
The open position must first be measured separately for each foreign currency.
4.16 Net Forward Position:
This represents the net of all amounts to be received less allamounts to be paid in the future as a result of foreign exchange transactions. These transactionsare recorded as off-balance sheetitems in the bank’s books.
The open position must first be measured separately for each foreign currency.
4.17 Net Options Position:
The options position is the “delta-equivalent” spot currencyposition as reflected in the authorized dealer’s options risk management system, andincludes any delta hedges in place which have not already been included under Net Spot Position and Net Forward Position.
4.18 Offshore exposures:
For banks with overseas presence, the offshore exposures should be calculated on a standalone basis and should not be netted with onshore exposures.
The aggregate limit (on-shore + off-shore) may be termed Net Overnight open Position(NOOP) and will be subjected to capital charge.
Accumulated surplus of foreign branchesneed not be reckoned for calculation of open position – this is very important and critical.
Example:
If a bank has 5 foreign branches and the respective 5 foreign branches have the following open position:
Branch A: + Rs. 15 Crores
Branch B: + Rs. 20 Crores
Branch C: – Rs. 10 Crores
Branch D: + Rs. 05 Crores
Branch E: – Rs. 10 Crores
The open position for the overseas branches taken together
would be INR40 crores
4.19 Bid-ask Spread:
It is common for any currency pair to be quoted with both a bid and an ask price. The former,which is always lower than the ask price is the price at which a broker is ready and willing tobuy, which is the price at which the trader should sell.
The ask price, on the other hand, is theprice at which the broker is ready and willing to sell, meaning the trader should jump at thatprice and buy.
Example: EUR / USD 1.1655 / 58
Bid price is 1.1655
Ask price is 1.1658
4.20 Pip:
The minimum incremental move that is possible by a currency pair is knownas a pip.
Example:
EUR / USD 1.1655 moves to 1.1660, means the move is equivalent to 5 pips.
USD / JPY moves from 112.05 to 113.05 would be equivalent to 100 pips