Foreign exchange operations - this is a special type of activity for the purchase and sale of foreign currency, as well as special settlement and work in the foreign exchange and exchange markets. The classification of foreign exchange transactions, as a rule, is carried out according to the criteria common to all banks. However, in some cases, properties unique to the currency are used.
Varieties of currency transactions
In fact, the classification of foreign exchange transactions is based on many factors. Consider them in detail. All currency actions can be divided into:
- Purchase and sale of currency values in accordance with applicable laws of the Russian Federation. Also here can be attributed the use of various currency values as the main means of payment.
- The procedure for transfer by a non-resident of a national currency, as well as all types of securities from an account that was opened in the territory of a given country to an account of the same person opened in Russia.
- Transfer of foreign and national currency units, external and internal securities from an open account of a certain person not on the territory of Russia to his own account, but already on the territory of that country. This procedure is also done in the reverse order.
- Export from Russia and import into it of national money, other currency values and all types of securities.
The classification of foreign exchange transactions implies their close relationship, so it is very difficult to classify all actions with foreign currency.
What do customer accounts mean?
When opening and maintaining client accounts, the following operations are usually performed:
- opening bank accounts by individuals and legal entities;
- control over certain time periods for import and export activities;
- regular accrual of interest on all rates on accounts;
- execution of all possible operations at the request of the client regarding the funds on their accounts. This may include the sale and purchase of foreign currency units, as well as payment for some securities provided;
- provision of overdrafts;
- the ability to issue an archive for the time period chosen by the account holder;
- provision by the bank of all statements made in a certain time.
Non-trading operations with currency
The classification of foreign exchange transactions also includes non-trading banking operations. This category includes actions related to servicing clients of a commercial bank without special calculations for the import and export of services and goods, as well as without the movement of cash capital.
In this category, the following operations can be distinguished:
- sale and purchase of all types of payment documents and foreign currency for cash;
- issuing and working with plastic bank cards received by customers;
- payment of some checks at foreign banks.
In fact, conducting such non-trading operations is very important for the existence of every commercial bank. After all, customers will be able to receive a greater number of services, which is very important in the commercial struggle. Thanks to the provision of such services, it became possible to attract more customers. For example, without a plastic card, it is very difficult to make a money transfer abroad or pay letters of credit.
At the same time, the purchase and sale of foreign currency units for cash can be called one of the most important operations performed by banking systems of a non-trading nature.Exchange points can provide good advertising to the institution, especially if they produce a very profitable exchange of funds.
Relations with foreign banking institutions
The concept and classification of foreign exchange transactions are very important terms that help banks to carry out active and efficient activities.
Establishment by banks of correspondent relations with foreign organizations allows customers to make the necessary international payments. In order to decide on the need for such correspondent relations, one must take into account the actual regular need for an international exchange.
In order to establish correspondent relations among international banks, special accounts called “Nostro” and “LORO” are opened in their own and in a foreign institution.
Conversion
The concept and classification of foreign exchange transactions are important terms without which any commercial bank could not exist. One very important feature of such establishments is carrying out conversion operations.
Currency conversion is the ability to exchange one currency for another, given the current exchange rate. But the exchange rate can be described as the value of the monetary unit of one country, which can be expressed as the monetary value of a completely different country. In order to determine the price of foreign money was accurate enough, a minimum of three to four decimal places is used. In this process, the monetary value is called a quote.
What functions do conversion operations in banking systems
The implementation of currency conversion operations implies the following functions:
- currency exchange in the exchange of goods and services, as well as in the movement of loans and capital;
- the opportunity to revalue bank assets in accordance with the foreign exchange rate;
- the ability to compare prices in national and world markets.
It should be borne in mind that the exchange rate is constantly changing. This can occur even several times a day. It is these changes in rates that affect the change in the value of all types of goods and services.
The effect of changes in exchange rates
The types of currency transactions described in this article allow you to build a reliable and strong banking system. At each commercial bank, as well as throughout the country as a whole, changes in the exchange rate are displayed.
For example, if the national currency exchange rate falls, this leads to a significant reduction in the prices of Russian goods in the world market, which are expressed in foreign currency. And this, in turn, helps to increase exports, which can become more competitive. It is also worth considering that the cost of foreign goods issued in rubles is becoming higher, so their import is significantly reduced.
If the national currency begins to grow, this leads to an increase in the prices of Russian goods on the world market, the value of which is determined in foreign currency. In this case, exports are reduced, as it loses its competitiveness. However, the prices of imported goods, the expression in national currency become lower.
A few words about exchange rates
The types of foreign exchange transactions discussed in this article fully determine the systems and structures of commercial banks. Without them, these organizations would not exist at all.
There are fixed and floating exchange rates. The first of them is determined only by law. But the second has the ability to fluctuate, and allows you to have the freedom to choose the exchange rate. However, usually a floating rate is not much different from a solid (fixed) one.
There is also a cross rate, which is a close relationship between two currencies that are dependent on a third currency.
How banks set the exchange rate
It is impossible to carry out any currency operations without taking into account the banking rate.
So, banks set their course depending on the ratio of foreign currency to national. And also depending on the relationship of foreign currencies to each other. In the second case, the cross-rate exchange will be relevant.
To date, there are no specific rules for calculating cross rates, so each bank sets them independently, depending on its requirements.
Value Date
Foreign exchange operations of banks with immediate delivery is the most commonly used type of action. The value date is a very important point during which the currency is transferred to another account.
Consider the main types of operations with immediate delivery:
- “today” operation is the conduct of currency actions in which the exchange coincides with the accrual date;
- “tomorrow” transaction - an accrual operation is carried out on the next banking business day after signing the currency agreement;
- operation “spot” - valuation is carried out on the second day after the conclusion of the transaction.
During any currency transaction, its participants form a currency position. It should be borne in mind that all conversion operations should be carried out taking into account the risks of bank currency positions.
A foreign exchange position is some balances of tangible assets in foreign currency that form liabilities and assets of these types of currencies and in accordance with this there is a risk of additional costs or, conversely, profit when currency exchange rates change.
In this case, the open currency position can be called the difference in the balances of all money in foreign currency. These balances form liabilities and assets that do not coincide in quantity.
A closed foreign exchange position is characterized by a quantitative coincidence of assets and liabilities.
A long opening VP is characterized by an excess of the asset balance over liabilities. Short has the opposite characteristics.
What operations will affect the change in foreign currency position
The classification of foreign exchange transactions (briefly about this you can read in this article) includes many actions in relation to individuals and legal entities, as well as in relation to other banks. Consider what kind of operations will affect the change in foreign currency positions:
- obtaining interest and operating income in foreign monetary units;
- payment of any operating expenses, as well as interest accrual;
- Conducting conversion operations with an immediate supply of cash;
- carrying out urgent operations, during which requirements and obligations usually arise, regardless of the form and method of carrying out all necessary settlements;
- any other banking operations using foreign currency, with the exception of all types of precious metals.
A foreign exchange position will arise on the day when a deal was made to sell or purchase foreign money, and other currency values.
The classification of foreign exchange operations of a commercial bank is described in detail in this article, so each reader will be able to learn all aspects of banking. It should be noted that control over all open currency positions of authorized banks of the Russian Federation is always carried out in accordance with the supervision of the work of all credit organizations. If any bank of Russia violates the requirements set by the state, then it will subsequently lose its license, which gives the right to make exchange operations in foreign currency.
Spot operation
In this article we consider in detail such concepts as the nature and classification of foreign exchange transactions. These terms are very important for bank customers, since they must fully understand their structure and methods of activity, as well as understand what kind of operations they carry out.
A spot transaction is a banking operation that is carried out according to the presence of today's rate. In this case, one currency is used to purchase another currency, but the final cash settlement is carried out on the second business day, excluding the day when the transaction was concluded.
Typically, spot transactions make up the current cash market. The effectiveness of the exchange operation will depend on the size of the spread.
Spread is the difference between the seller’s price and the buyer’s price.
Conducting international settlements related to the import and export of services and goods
The classification of foreign exchange operations of a bank also includes international settlements. When conducting foreign trade, such settlement forms as bank transfers, documentary letters of credit and collection are usually used.
A letter of credit is the obligation of the bank that created this letter of credit at the request of its client to make payments to the exporter against those documents that were indicated in the letter of credit itself. When using this payment form, a foreign bank also opens a letter of credit and sends a special letter that describes the type of letter of credit and the rules of payment.
Collection is an obligation of the bank to give the documents submitted by the bearer to the importer to receive money.
If the method of bank transfers is used (currency classification, types of currency transactions are described in this article), then all cash proceeds will be credited to transit accounts in certain banks.
Placement and fundraising operations
It should be borne in mind that the accounting of foreign exchange transactions is carried out in accordance with all the requirements of the current legislation regarding accounting.
Consider what kind of operations involves the attraction and placement of foreign currency funds by banks:
- attraction of various deposits of legal entities and individuals, as well as interbank deposits;
- granting credit funds to individuals and legal entities;
- the ability to place loans on the interbank market.
Currency Arbitration
The order of currency transactions depends on the bank itself, as well as on its structure and capabilities. In this paragraph, we consider in detail what currency arbitrage is. This concept is a transaction to purchase foreign currency and its simultaneous sale in order to get a certain profit from the difference in the exchange rates used.
Depending on the task, the following types of arbitration are distinguished:
- speculative - helps to benefit from the difference in exchange rates in connection with their fluctuations;
- conversion - specifically aimed at buying the most profitable currency.
There is also currency interest arbitration, which includes two types of transactions:
- obtaining credit funds in the foreign capital market, where the rates are much lower;
- the use of the equivalent of borrowed foreign currency in the Russian market of loan capital, where interest rates are much higher.
Currency arbitration is able to establish a connection between short-term capital and the dynamics of interest in both foreign and national markets. At the same time, it becomes possible to get "hot" money.
The classification of foreign exchange transactions allows you to determine the activities of the bank in the national and international market. The more operations a bank can provide to its customers, the more competitive it is.
The Central Bank of the Russian Federation has established uniform forms of accounting and reporting for all foreign exchange transactions, as well as the timing of their implementation.