Card rate

A bank's dealing room sees the rupee move all day. A retail customer buying USD 2,000 for a holiday does not.

So banks do something simpler for small customers. At the beginning of the day the bank fixes a rate for each currency pair. Purchases from and sales to retail customers are made at that rate, regardless of how the currency moves during the day. That fixed retail rate is the card rate.

It is convenient, and it is not cheap. The bank has taken on the risk that the market moves against it before the day ends, and it charges for that. The gap between the interbank rate and the card rate is wide to cover the risk of price fluctuation.

Two more things the workbook says about it. On days of high volatility banks revise the card rate several times during the day rather than hold a losing rate. And card rates vary significantly from bank to bank, so the same remittance costs different amounts at different branches.

Customers who deal in size do not use card rates at all. They negotiate.

The definition (Chapter 1, sections 1.3.3 and 1.3.7). Banks follow the practice of fixing card rates for the various forex pairs at the beginning of the day, at which purchases and sales from and to retail customers would be made regardless of the intraday movement of the currency.

What it is built on. Section 1.3.7 gives the chain:

• The base rate is the rate derived from the ongoing market rate, on which buying and selling rates for merchant transactions are quoted. Normally the interbank rate for spot deliveries is taken as the base rate.
• For quoting merchant transactions on a cash basis (value today), the base rate is adjusted to the extent of cash/spot differences.
• Member banks are free to determine their own charges for various types of forex transactions, subject to the RBI's advice that charges should not be out of line with the average cost of providing services, and that customers with a low volume of activity are not penalised.

The three facts that get examined.

Where it sits among a retail customer's options. Chapter 1 lists several avenues for a retail customer who needs to buy or sell foreign exchange:

1. Over the phone with an AD Bank. In one-to-one negotiated dealing, customers with a large order size command more negotiating power than those with small requirements.
2. Proprietary electronic dealing platforms of individual banks, and Multi-Bank Portals.
3. FX-Retail, the platform RBI introduced in 2019 and CCIL rolled out in August 2019, precisely to bring transparent and fair pricing to the retail forex market.

The card rate is the default for whoever does not or cannot use the first three. The workbook gives no figure for how wide the card-rate margin is — only that it is high — so do not expect a stated percentage.

A student's fee remittance. The card-rate margin is illustrative; the workbook says only that the gap to the interbank rate is high. The 83.00 spot level is the workbook's own worked figure.

Interbank USDINR at 9.15 am is 83.0000. A bank sets its card rates for the day:

A student remits USD 5,000 of university fees at 3 pm.

Now note what the card rate did for him. Suppose the rupee weakened sharply to 83.70 by 2 pm.

The card rate cut both ways, and that is the deal. The bank absorbed the intraday move because it had already charged for the possibility. And if the move had been violent, the workbook says the bank would simply have revised the card rate during the day — so a customer cannot rely on the morning rate surviving a turbulent afternoon.

Bank to bank. Because card rates vary significantly between banks, the same USD 5,000 at a bank quoting 83.45 would cost Rs 4,17,250 — Rs 750 less, for the same remittance on the same afternoon.

Chapter 1, section 1.3.3 (Forex Market), introduces card rates among the avenues open to retail customers, and section 1.3.7 (Forex Rates) gives the full treatment along with the base rate and the RBI's advice on charges. Questions are recall-shaped: when the card rate is fixed, whether intraday movement changes it, why the gap to the interbank rate is wide, and whether card rates are uniform across banks. It is also a natural pair with FX-Retail, since the workbook introduces that platform as the answer to opaque retail pricing.

• Fixed at the beginning of the day, and applied regardless of intraday movement — but revisable multiple times on volatile days. Both halves are in the workbook, and a question can test either.
• Card rates are not uniform. They vary significantly from bank to bank.
• The card rate is not the interbank rate. The gap between the two is deliberately high, to cover price-fluctuation risk.
• The base rate is not the card rate. The base rate is derived from the ongoing market rate, normally the interbank spot rate, and the card rate is built off it with a retail margin.
• Large customers negotiate. The workbook says larger order size commands more negotiating power, so card rates matter most to the smallest customers.
• FX-Retail is the alternative, not a synonym. It was introduced to make retail pricing transparent; the card rate is the practice it competes with.