Posted in Finance, Accounting and Economics Terms, Total Reads: 5698
Definition: Bill Buying Rate
Bill Buying rate come into picture when a bill involving foreign exchange is purchased by a bank. The bank (say X) pays the seller of the bill an amount in home currency by taking the exchange rate on the date of purchase of such bill from the seller.
The bank then presents the bill to the foreign bank (say Y) on which the bill is drawn. This foreign bank is not obliged to pay bank X immediately. It will take time for bank X to actually present the bill to bank Y; thus resulting in delayed payment from bank Y. Also the bank Y will try to delay the payment till the last date mentioned in the bill.
The fluctuation in exchange rate can affect the earnings. The seller of the bill will get money in home currency by taking exchange rate on the date of sale. While the bank X will get the home currency by taking exchange rate on which the bank Y pays. If the home currency depreciates in the time interval, bank X will be benefited. However, if the home currency appreciates, the seller will be benefited.