What is Two Way Quotes?
A two-way quote is a type of quote that gives both the bid or buying and the ask or selling price of a security in the Inter-Bank Market. This means each quote will have two prices – one rate for buying the base currency and the other for selling the base currency. Example-
USD/INR 67.50/ 68.40
Bid Rate Ask Rate
Do Remember: In two way quote the ask rate will always be higher than bid rate.
Bid Rate: Price at which market is willing to buy the base currency
Ask Rate: Price at which market is willing to sell the base currency
Spread: Difference between bid rate and ask rate
Examples: –An Indian importer received a bill of $10,000. He went to the bank and the bank gives him the below quote-
1$ = INR 68.50 – 69.10
Now find out how much Indian Rupees the importer needs to pay to buy $10,000?
Ans: – In the given example the requirement of the importer is to buy the $ and the base currency is also $.
Relevant Rate in this case is Ask Rate i.e. 1$ = INR 69.10
If cost of 1$ is INR 69.10, therefore cost of $10,000 would be INR 6,91,000. Therefore, importer would pay INR 6,91,000 to buy $ 10,000.
| Now what are you thinking how I have identified what is the relevant rate? Listen just try to remember the concept what we have discussed earlier- Ask Rate and Bid Rate Ask Rate- The rate at which market is ready to sell Bid Rate- The rate at which market is ready to buy In above example you as an importer going to the market to buy $, that means you can buy from the market at the rate on which market is ready to sell you. And market will sell you on Ask rate that’s how I came to the conclusion that the relevant rate is Ask Rate. |
Example: An Indian exporter is about to receive $10,000 for goods exported to USA. He went to the bank and bank provides him the below quote-
1$ = INR 68.50 – 69.10
Now find out how much Indian Rupees the exporter will receive by selling $10,000?
Ans: – In the given example the requirement of the exporter is to sell the $ and the base currency is also $.
Relevant Rate in this case is Bid Rate i.e. 1$ = INR 68.50 Therefore, exporter would receive INR 6,85,000 ($10,000 * INR68.50) by selling $10,000
