Question

Dr. Mohammed Juma Al Hinai working as a Branch Manager in Oman Arab Bank, Ibri, Oman from the period 2014 onwards. During the period, he got a request from a student in Ibri College of Technology, Ibri to pursue her OJT for a period of two months starting from 1^st May 2020 to 30^th June 2020 in Forex Management domain. But, Dr. Mohammed Juma Al Hinai is very skeptical about the student knowledge level and technical background in the subject Forex Management. In order to understand the student caliber, Dr. Mohammed Juma Al Hinai wishes to conduct a basic examination with certain terms associated to Forex Management and the details are given bellow.

Date & Time	Currency Name	Country Name	Bid	Ask
20/04/2020 09:18:28 AM	Philippine Peso	Philippines	132.4345	132.0393
21/04/2020 09:41:42 AM	Philippine Peso	Philippines	132.3732	131.9766
22/04/2020 09:04:37 AM	Philippine Peso	Philippines	132.403	132.008
23/04/2020 08:34:05 AM	Philippine Peso	Philippines	132.1091	131.7141

You are required to calculate the following information from the above details:

1. What will be the Direct Quote for the OMR from the period starting from 20^th April 2020 to 23^rd April 2020?                                                                                               
2. What will be the Bid Rate displayed in the OMR market for the period 20^th April 2020 to 23^rd April 2020 from the above Indirect Quote?
3. Determine the spread rate from 20^th April 2020 to 23^rd April 2020 from the above Indirect Quote?                                                                                                               
4. If Dr. Mohammed Juma Al Hinai wish to buy spot OMR on 22^nd April 2020. How much you will pay in PHP?                                                                                                
5. In case Dr. Mohammed Juma Al Hinai wanted to purchase spot PHP. How much would you have to pay in OMR?                                                                                        
6. The Ask rate on 21^st April 2020 is PHP 131.9766/OMR. The price of PHP is expected to appreciate by 2¾ after 20 days. What will be new exchange rate after 20 days?

Answer 1

Solution:

a) Calculation of Direct Quote for the OMR from the period starting from 20th April 2020 to 23rd April 2020:

Meaning of Direct Quote:

Currency Exchange Rates are rates used to convert one currency into another currency. These rates can be quoted in 2 different ways. The first way is when one unit of foreign currency is written in terms of domestic currency. Domestic currency means the currency of the country in which a person is residing and thus wants to exchange his currency for another country's currency which is known as foreign currency. This quotation of one unit of foreign currency in terms of domestic currency is called as Direct Quote.

In our question, since Dr. Mohammed Juma Al Hinai is residing in Oman, domestic currency for him will be OMR and foreign currency will be Philippine Peso.

The formula for Direct Quote = (1 / Indirect Quote)

In our case, the exchange rates are given as Bid and Ask rates for Indirect Quote. Thus, while quoting exchange rates in terms of Direct Quote, the Bid Rate will be reciprocal of Ask Rate in Indirect Quote and Ask Rate will be reciprocal of Bid Rate in Indirect Quote.

Thus, Direct Quotes Calculation is as follows:

Date & Time	Currency Name	Country Name	Ask Rate	Bid Rate
20/04/2020 09:18:28 AM	OMR	Oman	(1/132.4345)=0.007551	(1/132.0393)=0.007574
21/04/2020 09:41:42 AM	OMR	Oman	(1/132.3732)=0.007554	(1/131.9766)=0.007577
22/04/2020 09:04:37 AM	OMR	Oman	(1/132.403)=0.007553	(1/132.008)=0.007575
23/04/2020 08:34:05 AM	OMR	Oman	(1/132.1091)=0.007570	(1/131.7141)=0.007592

b) The Bid Rate displayed in the OMR market for the period 20th April 2020 to 23rd April 2020 from the Indirect Quote will be as mentioned in last column of Bid Rate in table of answer (a).

c) Spread Rate: The Spread Rate is nothing but the difference between Bid and Ask Rates.

Thus, Spread Rate = Bid Rate - Ask Rate

Thus, The Spread Rates are calculated as follows from the given Indirect Quotes:

Date & Time	Bid Rate	Ask Rate	Spread Rate
20/04/2020 09:18:28 AM	132.4345	132.0393	132.4345 - 132.0393 = 0.3952
21/04/2020 09:41:42 AM	132.3732	131.9766	132.3732 - 131.9766 = 0.3966
22/04/2020 09:04:37 AM	132.403	132.008	132.403 - 132.008 = 0.395
23/04/2020 08:34:05 AM	132.1091	131.7141	132.1091 - 131.7141 = 0.395

d) Calculation of amount to be paid in PHP if Dr. Mohammed Juma Al Hinai wish to buy spot OMR on 22nd April 2020 is as follows:

Dr. Mohammed Juma AI Hinai will buy spot OMR and the authorized dealer will buy PHP and thus Bid Rate given in Indirect Quote will be applicable. The Bid Rate as on 22nd April 2020 is 1 OMR = 132.403 PHP. Thus, to buy spot 1 OMR, PHP 132.403 will have to be paid.

e) Calculation of amount to be paid in OMR if Dr. Mohammed Juma Al Hinai wish to buy spot PHP on 22nd April 2020 is as follows:

Dr. Mohammed Juma AI Hinai will buy spot PHP and the authorized dealer will buy OMR and thus Bid Rate given in Direct Quote will be applicable. The Bid Rate as on 22nd April 2020 is 1 PHP = 0.007575 OMR. Thus, to buy spot 1 PHP, OMR 0.007575 will have to be paid.