Bid price
Also written Bid · Bid rate · Buying rate
In a two-way quote, the price at which the market maker will buy the base currency from you — always the lower of the two prices, and always quoted first.
In plain language
In the interbank market a dealer does not quote one price. He quotes two, one for buying and one for selling. That pair is a two-way quote.
The lower number is the bid price. The higher number is the offer, also called the ask.
Here is the part that costs marks. Both prices are from the market maker's point of view, not yours. The bid is the price at which the bank buys. So if you are the customer and you want to sell dollars, you sell them at the bid — the lower price. You do not get to buy at it.
Say a bank quotes USDINR as 75.0550 / 75.0600. The bid is 75.0550. An exporter selling a dollar receives 75.0550 rupees. An importer buying a dollar pays 75.0600.
The gap between the two is the spread. It is the market maker's compensation, and it is a real cost to you even though no fee appears anywhere.
Quoting both sides like this is called market making. Your vegetable vendor quotes only a selling price. The wholesaler quotes both — so the wholesaler is the market maker.
How it works
The definitions (Chapter 1, sections 1.3.2 and 1.3.4). In a two-way quote the price quoted for buying is the bid price and the price quoted for selling is the offer or ask price, and these prices are always from the perspective of the market maker and not from the perspective of the price taker. In pair terms, the bid is the price at which the broker or bank will buy the base currency from you in exchange for the quotation currency; the ask is the price at which it will sell you the base currency.
The market norms for quoting.
- The bid price (lower price) is quoted first, followed by the offer price (higher price).
- The offer is generally quoted in abbreviated form — only its last two decimal places.
| Pair | Actual bid / offer | Abbreviated |
|---|---|---|
| USDINR | 82.0525 / 82.0575 | 82.0525 / 75 |
| EURUSD | 1.1225 / 1.1230 | 1.1225 / 30 |
| GBPUSD | 1.3365 / 1.3370 | 1.3365 / 70 |
| USDJPY | 115.55 / 115.57 | 115.55 / 57 |
What the spread tells you. The difference between bid and offer is the spread, and Chapter 1 treats it as a reading on the market:
- A narrow spread indicates higher liquidity and a more efficient market maker.
- In the USDINR spot market spreads are wide at the opening and narrow gradually as the market discovers the price.
- A quote is valid only for a certain quantity. For a USD 100 million transaction the spread is likely to be wider than for a USD 1 million one.
Where two-way quotes do and do not apply. In the interbank market both sides quote two ways continuously. In the merchant market merchants are generally price-takers and banks are price-makers, though a few large corporates may ask for two-way prices because they could be either buyer or seller. Retail customers who do not negotiate are served off the bank's card rate instead.
One more place the bid appears. When FBIL cannot compute the USD/INR reference rate from transaction data, it falls back on polled submissions: panel banks submit bid and offer quotes for spot USD/INR to four decimal places, and a minimum of five quotes is needed.
A worked example
The workbook's quote. A bank quotes USDINR spot as 75.0550 / 75.0600 to a merchant.
| Who | What they want | Price they get | Why |
|---|---|---|---|
| Exporter | To sell USD | 75.0550 (bid) | The bank is buying, so it uses its buying price |
| Importer | To buy USD | 75.0600 (offer) | The bank is selling, so it uses its selling price |
On USD 1,00,000:
| Rupees | |
|---|---|
| Exporter receives (1,00,000 x 75.0550) | Rs 75,05,500 |
| Importer pays (1,00,000 x 75.0600) | Rs 75,06,000 |
| The bank's spread on the round trip | Rs 500 |
That Rs 500 is 0.0050 a dollar on 100,000 dollars. Nobody sends an invoice for it.
The exam's own version. Chapter 1 asks: you are an exporter wanting to sell the dollars you received as export remittance, and the bank quotes 75.10 / 75.12. At what price can you sell one dollar?
| Candidate answer | Verdict |
|---|---|
| 75.12 | Wrong — that is the bank's selling price |
| 75.11 | Wrong — the mid, which nobody trades |
| 75.09 | Wrong — outside the quote entirely |
| 75.10 | Right — the bid, because the bank is buying from you |
Reading an abbreviated quote. A dealer says 82.0525 / 75. The offer is not 75. It is 82.0575, because the last two decimals replace the tail of the bid. On USD 5,00,000 an importer therefore pays 5,00,000 x 82.0575 = Rs 4,10,28,750, not some number near 75.
Why NISM asks about it
Chapter 1, section 1.3.2, introduces bid and ask inside the base-and-quotation discussion; section 1.3.4 (Two-way quotes) is the examinable treatment, with the 75.0550 / 75.0600 illustration, the two quoting norms, the abbreviation table and the liquidity reading of the spread. Section 1.3.9 uses bid and offer quotes in the FBIL polling fallback. Chapter 1's third sample question is a pure bid-or-offer question, and it is the kind that is answered wrongly under time pressure: the candidate reads "exporter selling" and reaches for the higher number.
Common exam traps
- The bid is the market maker's buying price. A customer sells at the bid. Reading the quote from your own side is the single commonest error in this chapter.
- Bid is lower and is quoted first. Offer is higher and is quoted second, often abbreviated.
- 82.0525 / 75 means 82.0525 / 82.0575. The tail replaces the last two decimals; it is not a price of 75.
- A quote is size-dependent. The workbook says the spread on USD 100 million will be wider than on USD 1 million.
- A narrow spread means more liquidity, and USDINR spreads are widest at the open, not at the close.
- Merchants are price-takers. Two-way quoting is the interbank norm; a retail customer usually deals off the bank's card rate.
- Do not confuse the bid price with the base price of a futures contract, which is a reference price for the start of the trading day and a different concept entirely.
Check yourself
1.An exporter wants to sell USD received as export remittance. The bank quotes 75.10 / 75.12 for USDINR. At what price can the exporter sell one unit of USD?
- a)75.10
- b)75.12
- c)75.11
- d)75.09
Show the answer
Answer: (a) 75.10
The exporter is selling USD, so the bank is buying — and the bank buys at its bid, the lower number, 75.10.
The governing rule: please note that these prices are always from the perspective of the market maker and not from the perspective of the price taker.
In a two-way quote, the price quoted for buying is called bid price and the price quoted for selling is called offer or ask price. And the bid price (lower price) is quoted first followed by offer price (higher price).
The workbook's own parallel example makes it explicit: with a quote of 75.0550/75.0600, a merchant interested in buying one unit of USD will get it for a price of INR 75.06 i.e. the price at which bank is willing to sell, and a merchant interested in selling one unit of USD will receive Rs. 75.055 i.e. the price at which the bank is willing to buy.
Option B, 75.12, is what the exporter would pay if she were buying USD — the offer side. Reading the quote from your own perspective instead of the bank's is the single most common error in this chapter.
Option C, 75.11, is the mid-rate — a useful reference number, but never a dealt price for a customer.
The two-line summary to carry into the exam: customer buys at the offer, customer sells at the bid.
And the gap between them is the bank's margin — the difference between the bid and offer is called the "spread", which indicates higher liquidity and higher efficiency of the market maker when narrow.
2.EURUSD is 1.1125 / 1.1150 and USDINR is 75.64 / 75.65. What is the EURINR cross rate?
- a)84.3498 / 84.1495
- b)84.1495 / 84.3498
- c)67.98 / 68.00
- d)1.1125 / 1.1150
Show the answer
Answer: (b) 84.1495 / 84.3498
Therefore, the cross rate for EURINR would be 84.1495 / 84.3498.
The buy side: to buy 1 unit of USD, the applicable price is 75.65 INR (offer side)... The price for buying 1 unit of EUR is 1.1150 USD (offer side). Therefore, price of buying 1.1150 units of USD would be 1.1150 x 75.65 INR i.e. 84.3498 INR.
The sell side: the price comes to 84.1495 (1.1125 x 75.64).
So offer × offer gives the buying price and bid × bid gives the selling price.
Option A has the two the right way round arithmetically but presented in the wrong order. The bid price (lower price) is quoted first followed by offer price (higher price) — a two-way quote always reads low/high.
Option C divides instead of multiplying. That is the JPYINR method, which applies only because in case of JPYINR, USD is base currency for both the currency pairs. For EURINR, USD is the quotation currency in EURUSD and the base currency in USDINR, so the two multiply cleanly.
The conversion path is what tells you which sides to use: you need to sell INR to buy USD; and further sell the USD received to buy EUR. It is important to identify this FX conversion path of selling one currency and buying another to calculate the cross rate.
GBPINR works the same way: assume GBPUSD price as 1.3300 / 1.3325 and USDINR as 75.64 / 75.65, the price for GBPINR works out to be 100.6012 / 100.8036.
And the method reverses: using EURINR and USDINR rate, EURUSD rate could be calculated.
3.USDJPY is 115.08 / 115.09 and USDINR is 75.64 / 75.65. What is the JPYINR rate, and on what convention is it quoted?
- a)0.6572 / 0.6574, quoted per 1 JPY
- b)65.72 / 65.74, quoted per 100 JPY
- c)87.05 / 87.06, quoted per 100 JPY
- d)65.74 / 65.72, quoted per 100 JPY
Show the answer
Answer: (b) 65.72 / 65.74, quoted per 100 JPY
Thus, price of JPYINR (for 100 JPY) would be 65.72 / 65.74 INR.
The convention first: for JPYINR, the market convention is to quote price of 100 JPY in terms of INR. In all other pairs mentioned above, the convention is price of 1 unit of base currency in terms of quotation currency.
So option A has the right arithmetic per yen but the wrong quoting convention.
Why the calculation differs from EURINR: in case of GBPINR and USDINR computation, USD is base currency for one currency pair and quote currency for other currency pair. However, in case of JPYINR, USD is base currency for both the currency pairs.
When USD is base in both, you divide.
The buy side: to buy 1 unit of USD, the applicable price is 75.65 INR (offer side)... The price for selling one unit of USD is 115.08 (bid side). Therefore, you get 115.08 JPY by spending 75.65 INR. Thus, price of buying 1 JPY is 75.65/115.08 i.e. 0.6574 INR or in other words price of buying 100 JPY is 65.74 INR.
The sell side: price of selling 1 JPY is 75.64/115.09 i.e. 0.6572 or in other words price of selling 100 JPY is 65.72 INR.
Note the crossed sides — the USDINR offer over the USDJPY bid for buying. When you multiply you match sides; when you divide you cross them.
Option C multiplies (75.65 × 115.08 ÷ 100), which is the wrong operation entirely.
Option D reverses the order. The bid price (lower price) is quoted first.
FBIL follows the same convention on its reference rates: the reference rate in respect of JPY is for 100 units of JPY, published up to 2 decimal places.
Where this is taught
Free preparation for NISM Series IRelated terms
- Base currencyThe first currency in a pair, fixed at one unit and priced in the second (quotation) currency. In USDINR the base is USD, so the quote is the rupee price of one dollar.
- Card rateThe rate a bank fixes at the start of the day for buying and selling foreign exchange from retail customers, applied regardless of intraday movement in the currency.
- FBIL reference rateThe daily USD/INR (and EUR, GBP, JPY vs INR) benchmark rate published by Financial Benchmarks India Pvt Ltd around 1.30 pm; it is the final settlement price of INR currency futures and options.
- Quotation currencyThe second currency in a pair — the one that does the pricing. Its amount varies as the market moves, and a contract's value is always expressed in it.
- Bid-ask spreadThe gap between the best buy (bid) price and the best sell (ask) price in the order book — the cost a trader bears for buying and immediately selling a small quantity.
- FX-RetailThe electronic platform for buying and selling foreign exchange by retail customers of banks, introduced by the RBI in 2019 and rolled out by CCIL on 05 August 2019 to make retail forex pricing transparent.