Can you tell me about the Exchange Rate Mechanism adopted by UBI (Union Bank of India) for its business purpose?

The rate at which one currency is converted into another is called the exchange rate. There are two methods of quoting the exchange rate.

1) Direct Method
2) Indirect Method.

A given number of units of local currency for a unit of foreign currency is the ‘Direct Method’ for quoting exchange rate e.g. USD 1 = Rs.61.50. In the Direct Method, home currency is variable. In India the direct method of quotation is used since August 1993.

However, certain foreign currencies are quoted for 100 units, since their one unit value is less than one Rupee e.g. Japanese Yen etc. In the ‘Indirect Method’ of quotation, the variable is the foreign currency expressed in a fixed unit of home currency.


All foreign exchange transactions undertaken have to be either a purchase or a sale transaction for the bank. The type of transaction (i.e. whether it is purchase or sale) is to be determined based on whether the Bank dealing with the foreign exchange is buying or selling the same.

In a purchase transaction the Bank receives foreign exchange. In a sale transaction, the Bank parts with foreign exchange. All purchase/sale transactions are not alike and hence attract different rates.


Exchange Rate Mechanism adopted by UBI (Union Bank of India)

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