Rate Card Arithmetic, a Website Comparison and a Returned Transfer
Mr. Deepak Iyer, 47, needs foreign exchange for two purposes in the same week. He must remit USD 12,000 by telegraphic transfer to a university in Ohio for his daughter's second-semester fee. Separately, he will travel to the United States for ten days and wants USD 1,500 in currency notes plus a travel card loaded with USD 3,000. His bank's rate card for the day shows the interbank rate at Rs 83.55/83.57, TT selling at Rs 83.95, currency notes selling at Rs 84.90, a card load fee of 0.75% of the loaded value plus 18% GST on that fee, and an outward remittance handling charge of Rs 1,000 plus 18% GST. Mr. Iyer has seen "USD/INR = 83.56" on a financial website and argues that the bank is overcharging him by almost one rupee per dollar. A week later the TT is returned unpaid because the university's nostro account number he supplied was wrong, and the bank re-credits his account at TT buying Rs 83.20.
1. Compute the rupee outlay for each of the three requirements and rank them by effective cost per dollar.
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Telegraphic transfer, USD 12,000: 12,000 x 83.95 = Rs 10,07,400. Handling charge Rs 1,000 + GST Rs 180 = Rs 1,180. Total Rs 10,08,580, i.e. about Rs 84.05 per dollar including charges.
Currency notes, USD 1,500: 1,500 x 84.90 = Rs 1,27,350, i.e. Rs 84.90 per dollar.
Travel card, USD 3,000: 3,000 x 83.95 = Rs 2,51,850. Load fee at 0.75% = Rs 1,888.88; GST at 18% = Rs 340.00. Total Rs 2,54,078.88, i.e. about Rs 84.69 per dollar.
Ranking by clean cost per dollar: TT (83.95) cheapest, then the card (about 84.69 after fees), then notes (84.90). Cash is the most expensive way to buy dollars and the remittance is the cheapest, which is why a customer should pay by transfer wherever the beneficiary accepts one.
2. How should the branch respond to his complaint that the bank's rate is far above the 83.56 he saw online?
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The 83.56 figure is a mid-market or interbank rate, the price at which banks deal with each other in large wholesale amounts. It is not an offer to a retail customer, and no dealer can sell at it while covering cost and risk.
Currency notes carry the widest spread for real reasons: cash has to be vaulted, insured, transported, held as idle inventory, and taken back at the lower notes buying rate if it is returned; counterfeit and mutilation risk sit with the dealer. The TT and card rates sit much closer to the market because they are electronic entries.
Authorised dealers set commercial rates in a competitive market and must display their rates transparently; there is no entitlement to the interbank rate. The branch can show the customer the rate card and its cost build-up, invite him to compare another dealer for a large ticket, and explain that GST applies to fees, not to the conversion itself.
3. Quantify the outcome of the returned remittance and decide who bears the loss.
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He was sold dollars at 83.95 and the funds came back to be bought at 83.20, a spread of 75 paise per dollar. On USD 12,000 that is 12,000 x 0.75 = Rs 9,000 lost on re-conversion, plus any cancellation or rebooking charge the tariff allows and the handling fee already collected.
The loss falls on the customer, because the incorrect nostro account number was supplied in his written instruction and the bank executed exactly what he asked. Unless the bank can show it mis-keyed the details, this is not a bank error. The bank should show the re-booking calculation, refund the unutilised portion transparently and keep the debit advices on file.
Prevention is the practical lesson: validate the beneficiary account number and SWIFT code with the university, use a small test transfer for a first payment, and remember that a wrong but valid-format account number cannot be detected by the bank.