Decoding the FX quote — value dates, TT vs card, and forward points

Once you can benchmark the true interbank rate, the next thing worth knowing is that the number your bank quotes is never a single figure — it is a small stack of adjustments layered on a mid. Value date, product type, forward points, and the dealer's spread each move the rate before it reaches you. Read the quote wrong and you will argue about the spread when the real leak is somewhere else in the stack. This piece takes the quote apart, layer by layer. It is the companion to finding the real IBR — that piece is about the benchmark; this one is about everything the bank builds on top of it.

"Spot" is not "today" — the value date

Every FX trade settles on a value date, not instantly. In the near term there are three conventions, and their names come up constantly on a dealing desk:

• Cash — value today (T+0).
• Tom — value tomorrow (T+1).
• Spot — value two business days out (T+2).

Spot (T+2) is the market default. When a dealer says "spot," they mean value two days forward — and every other rate is quoted as an adjustment off spot by the interest-rate differential for those one or two days. The gaps are small, but they are why a cash rate and a spot rate are not the same number. The practical trap: comparing a cash quote from one bank against a spot quote from another is apples to oranges. Fix the value date first, then compare.

Card rate vs TT rate vs the interbank mid

The same conversion can be priced at three very different levels depending on which sheet the bank reaches for:

The card rate is fine for a one-off retail remittance and expensive for anything material. The TT rate is better but still marked up. What you actually want is to be priced off the mid — the further down this list you transact, the tighter your number. A company doing serious volume should never be clearing import or export flow at card rate; that is a retail rate wearing a corporate suit.

Forward points — where the number really comes from

A forward rate is not a forecast of where the rupee is going. It is spot adjusted by the interest-rate differential between the two currencies, quoted as forward points — paise added to or subtracted from spot. Because rupee interest rates sit well above dollar rates, USD/INR trades at a forward premium: the forward rate is above spot, and the further out you go, the higher it climbs. This is arithmetic — covered interest parity — not a view on the currency.

A worked read: spot is 86.00, the 3-month forward points are quoted at +65 paise, so the 3-month forward rate is 86.65. Annualised, that premium is roughly (0.65 / 86.00) × (12 / 3) × 100 ≈ 3.0% — which will track the gap between INR and USD money-market rates. Nobody is predicting the rupee will weaken to 86.65; that is simply what the interest differential prices in.

The bid/ask — and where the spread actually sits

Every quote is two-sided. The bank buys at its bid and sells at its ask, and you always transact on the worse side for you. The dealer's spread is the gap between the mid and the side you get — and forward points carry their own bid/ask too. So the number you finally pay is:

interbank mid  ± forward points (if forward)  ± dealer spread

Only the last term is negotiable. The mid is the market; the forward points are the interest differential, also the market. The spread is the bank's margin, and it is the only piece you can actually move. Knowing which is which stops you from wasting a call trying to "negotiate" the forward premium — which is fixed — while ignoring the spread, which is not.

A worked example, end to end

An importer has to pay $500,000 in 90 days and wants to hedge it forward.

• The xe.com mid spot is 86.00.
• 3-month forward points are +65 → the fair forward mid is 86.65.
• The bank quotes 86.78.

That 86.78 is 13 paise above the fair forward. Of the total gap over spot, the 65 points are legitimate forward premium — arithmetic, leave them alone — and the 13 paise is dealer spread. On $500,000, each paise is ₹5,000, so 13 paise is ₹65,000 of margin on a single booking. Benchmark it, and push the 13 down toward 2–3 paise. You fight the spread; you never fight the premium. That single distinction is the whole point of pulling the quote apart.

What to ask the desk

The one request that changes every FX conversation: ask for spot, forward points, and spread as separate line items. The moment they are quoted separately, the game changes — because the bank can no longer blend the premium and its margin into one opaque all-in number.

• Fix the value date. Confirm you are being quoted spot (T+2) unless you specifically want cash or tom, so cross-bank comparisons are like-for-like.
• Get the forward points independently. Ask for them as a number and sanity-check against the interest differential — they should annualise to roughly the INR/USD rate gap.
• Get the spread in paise, benchmarked to the mid. Not "is this a good rate?" but "your quote is X, the mid is Y, that's a Z-paise spread — bring it in."
• Watch cancellations and rollovers. When you cancel or roll a forward, it is re-priced at the prevailing points — and the bank can bury margin in the cancellation rate just as easily. The same points-vs-spread split applies there too.

The principle

The rate is a stack: mid, value-date adjustment, forward points, spread. Only the last layer is a negotiation — the rest is arithmetic and market. Separate the layers, price each one honestly, and you stop overpaying on the single piece you can actually move. Combined with an honest benchmark for the mid, that is most of corporate FX pricing, demystified.