Let us call the currency (other than US Dollar) for which the exchange rates is to be calculated as the foreign currency. Suppose a customer tenders a foreign currency bill for purchase by the bank. When the customer tenders a dollar bill, the bank disposes of the dollar acquired from the customer in the inter bank market at the market buying rate and therefore the inter bank buying rate for dollar forms the basis for quoting dollar buying rate to the customer. In case of a foreign currency being tendered by the customer, the bank should first get foreign currency converted to US dollar in the international market. In other words, it has to buy dollar in the international market against foreign currency. the bank can do so at the market selling rate for dollar. Therefore the merchant rate for the foreign currency would be calculated by crossing the dollar selling rate against the foreign currency in the international market.

Exchange Rates

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