Finance

Forex Trading Problems: Maintain Credit Balance In Nostro Account

FXCM Inc. of Australia is a leading Forex (Foreign Exchange) trading Company based in Sydney. It has many Forex experts who provide excellent customer services round the year. FXCM offers fast and reliable execution on MT4 platform along with other platforms of Forex transactions. Whether you are a newbie or expert in online Forex trading, FXCM has customized account types and wide range of services for all levels of traders.

FXCM Inc. has the following dealing position in Pound Sterling:

Opening Balalnce in Barclays Bank London GBP  20000 O/D
Opening Currency Position Overbought      £      5,000
T/T (Telegraphic Transfer) Purchased          50,000
Issed a Demand Draft on London          20,000
T/T (Telegraphic Transfer) Remittance Outward          25,000
Bills Purchased on London          75,000
Forward Sales          75,000
Export Bills realized          45,000

 

What steps would FXCM Inc. take if it requires to maintain a credit balance of GBP 10,000 in Nostro Account and  make it’s Exchange Position square ?

Solution to Forex Trading Problems:

(ii) Cash Position in Nostro Account
Dr. Cr.
Opening Balance  £  20,000  £       –
Purchase of T/T  £      –  £  50,000
Issue of T/T  £   25,000  £     –
Realization of Export Bills  £       –  £  45,000
Total  £  45,000  £   95,000
Closing Balance  £  50,000  £      –
 £  95,000  £ 95,000

 

(i) Exchange Position Purchases Sales
Opening Balance- Overbought               5,000
Purchase of T/T            50,000
Issue of Demand Draft            20,000
Issue of T/T Outward            25,000
Purchase of Bills on London            75,000
Forward Sales            75,000
         130,000          120,000
Closing Balance- Overbought              10,000
         130,000          130,000

To maintain a cash balance of 10000 in Nostro Account, FXCM Inc. should sell spot GBP 40,000. This would result in an exchange position of GBP oversold. To square the position, FXCM has to buy GBP 30,000 for forward delivery.

Export bills realized have been taken  only in cash position because they would have been entered in exchange position on the date of purchase of bills.

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