1.12 Maintain Customer Spreads

This topic describes the systematic instructions to maintain customer spreads.

1. On Home page, specify CYDTRCSP in the text box, and click next arrow.

   The Treasury Customer Currency Spread Maintenance screen is displayed.

   Figure 1-14 Treasury Customer Currency Spread Maintenance

   
   Description of "Figure 1-14 Treasury Customer Currency Spread Maintenance"
2. On the Treasury Customer Currency Spread Maintenance screen, specify the fields.

   For more information on fields, refer to the below table.

   In this screen, for a customer and currency pair, you can maintain buy and sell spreads for different tenors. You need to maintain customer spreads in each branch. Transactions initiated in a branch picks up the spread(s) maintained for that branch.

   Table 1-14 Treasury Customer Currency Spread Maintenance - Field Description

   Field	Description
   Branch Code	Specify the branch code.
   Currency 1	Select the Currency 1 from the available list of values.
   Currency 2	Select the Currency 2 from the available list of values.
   Spread Definition	Specify the spread definition in percentage.
   Customer Spread Details	Specify the customer spread details. When processing an FX deal involving a customer (for whom you have maintained spread details), the system picks up the customer spread corresponding to the tenor of the deal and builds it into the exchange rate. If spread details are unavailable for a specific tenor, the system picks up the spread defined for the nearest lower tenor. For example, assume for a customer and currency pair you maintain spread details for the following tenors: ‘3’, ‘5’, and ‘10’ days. When processing a deal with a tenor of ‘4’ days (involving the customer and the currency pair), the system picks up the spread details defined for a tenor of three days. This is because spread details for a ‘4’ day tenor are unavailable for the customer and currency pair. Note: You can also maintain customer spreads for the wildcard entry – ALL. If spread details for a specific counterparty (for the currency pair) are unavailable, the System looks for the customer spread maintained for the wildcard ALL entry. If even that is not available, then the customer spread defaults to zero.

• Compute Buy and Sell Spreads
  

1.12.1 Compute Buy and Sell Spreads

Using percentage system, suppose the bank wants to make a profit of 5% over and above the mid rate quoted. Suppose the dealing currencies are USD and AUD. 1USD = 1.4166 AUD for Standard rate type. (Mid rate being 1.4166).

Now to arrive at the spread the bank will use the following formula:

Spread = 5 / 100 x Mid rate (1.4166) = 0.07083

Using the points system, suppose the point quoted by the bank is 708.3.

The points multiplier in this case would be 0.0001 (depends on the decimal points that the mid rate extends to. Usually it is 4 decimal places).

Spread = Points (708.3) x Points Multiplier (0.0001)

Now coming to the buy and sale rate computing, there are two ways of computing the buy and sale rates- Direct and Indirect. Depending upon the quotation method you have specified in the Currency pair screen, the system computes the spreads.

In the Direct method, the buy and sell rates are calculated as follows:Buy Rate = Mid-Rate - Buy SpreadSell Rate = Mid-Rate + Sell Spread

For cross currency contracts, the rate for the currency pair is:1 unit of Ccy 1 = Rate * 1 unit of Ccy 2

In the Indirect method, the buy and sell rates are calculated as follows:

Buy Rate = Mid-Rate + Buy Spread

Sell Rate = Mid-Rate - Sell Spread

For cross currency contracts, the rate for the currency pair is:1 unit of Ccy 2 = Rate * 1 unit of Ccy 2

The method of spread definition – percentage or points – that you have maintained for the currency pair is displayed on this screen.