Download VTU (Visvesvaraya Technological University) MBA 3rd Semester (Third Semester) 16MBAFM301-Principles and Practices of Banking PPB Notes Module 4 Important Lecture Notes (MBA Study Material Notes)
INTERNATIONAL BANKING
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
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MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
? Bank guarantees:
? Bank on behalf of importers/ other
customers issues guarantees in favour of
beneficiaries abroad. The guarantees can be
both Performance and Financial.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
? Bank guarantees:
? Bank on behalf of importers/ other
customers issues guarantees in favour of
beneficiaries abroad. The guarantees can be
both Performance and Financial.
Role of ECGC, RBI and EXIM bank
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
? Bank guarantees:
? Bank on behalf of importers/ other
customers issues guarantees in favour of
beneficiaries abroad. The guarantees can be
both Performance and Financial.
Role of ECGC, RBI and EXIM bank
Export Credit Guarantee
Corporation of India (ECGC)
? The ECGC Limited (ECGC) was established on 30 July 1957 with an
objective to provide insurance cover in respect of risks in export trade.
? These risk may include loss of money on account of foreign buyer
becoming bankrupt or sudden import or exchange restrictions resulting
in stopping of payments etc.
? The Export Credit Guarantee Corporation of India Limited is a
company wholly owned by the Government of India based in Mumbai,
Maharashtra.
? It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had
initially set up Export Risks Insurance Corporation (ERIC) in July 1957.
? It was transformed into Export Credit and Guarantee Corporation
Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation
of India in 1983. In 2014 August, the Company was again renamed as
ECGC Limited
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
? Bank guarantees:
? Bank on behalf of importers/ other
customers issues guarantees in favour of
beneficiaries abroad. The guarantees can be
both Performance and Financial.
Role of ECGC, RBI and EXIM bank
Export Credit Guarantee
Corporation of India (ECGC)
? The ECGC Limited (ECGC) was established on 30 July 1957 with an
objective to provide insurance cover in respect of risks in export trade.
? These risk may include loss of money on account of foreign buyer
becoming bankrupt or sudden import or exchange restrictions resulting
in stopping of payments etc.
? The Export Credit Guarantee Corporation of India Limited is a
company wholly owned by the Government of India based in Mumbai,
Maharashtra.
? It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had
initially set up Export Risks Insurance Corporation (ERIC) in July 1957.
? It was transformed into Export Credit and Guarantee Corporation
Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation
of India in 1983. In 2014 August, the Company was again renamed as
ECGC Limited
What does ECGC do?
? Provides a range of credit risk insurance covers to
exporters against loss in export of goods and services.
? Offers Export Credit Insurance for Bankers and financial
institutions to enable exporters to obtain better facilities
from them.
? Provides Overseas Investment Insurance to Indian
companies investing in joint ventures abroad in the form
of equity or loan.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
? Bank guarantees:
? Bank on behalf of importers/ other
customers issues guarantees in favour of
beneficiaries abroad. The guarantees can be
both Performance and Financial.
Role of ECGC, RBI and EXIM bank
Export Credit Guarantee
Corporation of India (ECGC)
? The ECGC Limited (ECGC) was established on 30 July 1957 with an
objective to provide insurance cover in respect of risks in export trade.
? These risk may include loss of money on account of foreign buyer
becoming bankrupt or sudden import or exchange restrictions resulting
in stopping of payments etc.
? The Export Credit Guarantee Corporation of India Limited is a
company wholly owned by the Government of India based in Mumbai,
Maharashtra.
? It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had
initially set up Export Risks Insurance Corporation (ERIC) in July 1957.
? It was transformed into Export Credit and Guarantee Corporation
Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation
of India in 1983. In 2014 August, the Company was again renamed as
ECGC Limited
What does ECGC do?
? Provides a range of credit risk insurance covers to
exporters against loss in export of goods and services.
? Offers Export Credit Insurance for Bankers and financial
institutions to enable exporters to obtain better facilities
from them.
? Provides Overseas Investment Insurance to Indian
companies investing in joint ventures abroad in the form
of equity or loan.
How does ECGC help exporters?
? Offers insurance protection to exporters against payment
risks.
? Provides guidance in export-related activities
? Makes available information on different countries with
its own credit ratings
? Makes it easy to obtain export finance from
banks/financial institutions
? Assists exporters in recovering bad debts
? Provides information on credit-worthiness of overseas
buyers
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
? Bank guarantees:
? Bank on behalf of importers/ other
customers issues guarantees in favour of
beneficiaries abroad. The guarantees can be
both Performance and Financial.
Role of ECGC, RBI and EXIM bank
Export Credit Guarantee
Corporation of India (ECGC)
? The ECGC Limited (ECGC) was established on 30 July 1957 with an
objective to provide insurance cover in respect of risks in export trade.
? These risk may include loss of money on account of foreign buyer
becoming bankrupt or sudden import or exchange restrictions resulting
in stopping of payments etc.
? The Export Credit Guarantee Corporation of India Limited is a
company wholly owned by the Government of India based in Mumbai,
Maharashtra.
? It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had
initially set up Export Risks Insurance Corporation (ERIC) in July 1957.
? It was transformed into Export Credit and Guarantee Corporation
Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation
of India in 1983. In 2014 August, the Company was again renamed as
ECGC Limited
What does ECGC do?
? Provides a range of credit risk insurance covers to
exporters against loss in export of goods and services.
? Offers Export Credit Insurance for Bankers and financial
institutions to enable exporters to obtain better facilities
from them.
? Provides Overseas Investment Insurance to Indian
companies investing in joint ventures abroad in the form
of equity or loan.
How does ECGC help exporters?
? Offers insurance protection to exporters against payment
risks.
? Provides guidance in export-related activities
? Makes available information on different countries with
its own credit ratings
? Makes it easy to obtain export finance from
banks/financial institutions
? Assists exporters in recovering bad debts
? Provides information on credit-worthiness of overseas
buyers
RBI
? RBI has issued Authorized Dealers (AD) licenses to banks, all
India financial institutions and a few co-operative banks to
undertake foreign exchange transactions in India
? It has also issued Money Changer licenses to a large number
of established firms, companies, hotels, shops, etc.
? Money changers help facilitate encashment of foreign
currencies of foreign tourists
? Entities authorized to buy and sell foreign currency notes,
coins and travelers? Cheques are called full-fledged money
changers
? Those authorized only to buy are called restricted money
changers
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
? Bank guarantees:
? Bank on behalf of importers/ other
customers issues guarantees in favour of
beneficiaries abroad. The guarantees can be
both Performance and Financial.
Role of ECGC, RBI and EXIM bank
Export Credit Guarantee
Corporation of India (ECGC)
? The ECGC Limited (ECGC) was established on 30 July 1957 with an
objective to provide insurance cover in respect of risks in export trade.
? These risk may include loss of money on account of foreign buyer
becoming bankrupt or sudden import or exchange restrictions resulting
in stopping of payments etc.
? The Export Credit Guarantee Corporation of India Limited is a
company wholly owned by the Government of India based in Mumbai,
Maharashtra.
? It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had
initially set up Export Risks Insurance Corporation (ERIC) in July 1957.
? It was transformed into Export Credit and Guarantee Corporation
Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation
of India in 1983. In 2014 August, the Company was again renamed as
ECGC Limited
What does ECGC do?
? Provides a range of credit risk insurance covers to
exporters against loss in export of goods and services.
? Offers Export Credit Insurance for Bankers and financial
institutions to enable exporters to obtain better facilities
from them.
? Provides Overseas Investment Insurance to Indian
companies investing in joint ventures abroad in the form
of equity or loan.
How does ECGC help exporters?
? Offers insurance protection to exporters against payment
risks.
? Provides guidance in export-related activities
? Makes available information on different countries with
its own credit ratings
? Makes it easy to obtain export finance from
banks/financial institutions
? Assists exporters in recovering bad debts
? Provides information on credit-worthiness of overseas
buyers
RBI
? RBI has issued Authorized Dealers (AD) licenses to banks, all
India financial institutions and a few co-operative banks to
undertake foreign exchange transactions in India
? It has also issued Money Changer licenses to a large number
of established firms, companies, hotels, shops, etc.
? Money changers help facilitate encashment of foreign
currencies of foreign tourists
? Entities authorized to buy and sell foreign currency notes,
coins and travelers? Cheques are called full-fledged money
changers
? Those authorized only to buy are called restricted money
changers
EXIM Bank
? Export-Import Bank of India (Exim Bank) was set
up by an Act of the Parliament ?THE EXPORT-
IMPORT BANK OF INDIA ACT, 1981? for
providing financial assistance to exporters and
importers and for functioning as the principal
financial institution for co-ordinating the working of
institutions engaged in financing export and import
of goods and services with a view to promoting the
country?s international trade and for matters
connected therewith or incidental thereto.
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
? Bank guarantees:
? Bank on behalf of importers/ other
customers issues guarantees in favour of
beneficiaries abroad. The guarantees can be
both Performance and Financial.
Role of ECGC, RBI and EXIM bank
Export Credit Guarantee
Corporation of India (ECGC)
? The ECGC Limited (ECGC) was established on 30 July 1957 with an
objective to provide insurance cover in respect of risks in export trade.
? These risk may include loss of money on account of foreign buyer
becoming bankrupt or sudden import or exchange restrictions resulting
in stopping of payments etc.
? The Export Credit Guarantee Corporation of India Limited is a
company wholly owned by the Government of India based in Mumbai,
Maharashtra.
? It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had
initially set up Export Risks Insurance Corporation (ERIC) in July 1957.
? It was transformed into Export Credit and Guarantee Corporation
Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation
of India in 1983. In 2014 August, the Company was again renamed as
ECGC Limited
What does ECGC do?
? Provides a range of credit risk insurance covers to
exporters against loss in export of goods and services.
? Offers Export Credit Insurance for Bankers and financial
institutions to enable exporters to obtain better facilities
from them.
? Provides Overseas Investment Insurance to Indian
companies investing in joint ventures abroad in the form
of equity or loan.
How does ECGC help exporters?
? Offers insurance protection to exporters against payment
risks.
? Provides guidance in export-related activities
? Makes available information on different countries with
its own credit ratings
? Makes it easy to obtain export finance from
banks/financial institutions
? Assists exporters in recovering bad debts
? Provides information on credit-worthiness of overseas
buyers
RBI
? RBI has issued Authorized Dealers (AD) licenses to banks, all
India financial institutions and a few co-operative banks to
undertake foreign exchange transactions in India
? It has also issued Money Changer licenses to a large number
of established firms, companies, hotels, shops, etc.
? Money changers help facilitate encashment of foreign
currencies of foreign tourists
? Entities authorized to buy and sell foreign currency notes,
coins and travelers? Cheques are called full-fledged money
changers
? Those authorized only to buy are called restricted money
changers
EXIM Bank
? Export-Import Bank of India (Exim Bank) was set
up by an Act of the Parliament ?THE EXPORT-
IMPORT BANK OF INDIA ACT, 1981? for
providing financial assistance to exporters and
importers and for functioning as the principal
financial institution for co-ordinating the working of
institutions engaged in financing export and import
of goods and services with a view to promoting the
country?s international trade and for matters
connected therewith or incidental thereto.
ASSIGNMENT:
? Explain: ECGC: Functions, role of ECGC, ECGC
policies, risks and guarantees covered by ECGC.
? RBI: Functions, loans, schemes of RBI
Regarding exports.
? EXIM bank of India: Objective, organisation of
EXIM bank, Financing assistance by EXIM bank,
Role of EXIM bank, EXIM bank Finance.
? Due on : 16
th
November, 2017
FirstRanker.com - FirstRanker's Choice
MODULE 4
INTERNATIONAL BANKING
OUTLINE:
? International Banking:
? Exchange rates and Forex Business
? Correspondent banking and NRI Accounts
? Letters of Credit
? Foreign currency Loans
? Facilities for Exporters and Importers
? Role of ECGC
? RBI and EXIM Bank
INTERNATIONAL BANKING
With the rapid expansion of international
network, the banking sector occupies a
pivotal position in the global economy as it
has access to the capital, the technological
capabilities and the international network
to facilitate these activities.
MEANING
International banking means opening of
banks outside country of origin. It is a
mechanism by which one can maintain
bank accounts outside their country of
residence.
It is also known as ?offshore banking?.
EXCHANGE RATES AND
FOREX BUSINESS
EXCHANGE RATES
It is the rate at which one currency will be
exchanged for another.
It is also known as foreign-exchange rate,
forex rate, ER, FX rate.
TYPES OF EXCHANGE RATES
? ? Fixed Exchange Rate System
Fixed rates provide greater certainty for
exporters and importers.
? ? Flexible Exchange Rate System
Flexible exchange rate or floating
exchange rates change freely and are
determined by trading in the forex market.
? Exchange rate fluctuations
A reliable forecast or future spot rate is
called study of empirical patterns of
exchange rate fluctuation.
It provides essential information for an
exchange rate exposure.
Factors Influencing the Exchange rate
? International trade
? Capital movements
? Change in prices
? Speculations
? Strength of the economy
? Government policies
? Stock exchange operations
? Political factors
FOREIGN EXCHANGE
? Foreign exchange is the mechanism by
which the currency of one country gets
converted into the currency of another
country.
? The conversion of currency is done by the
banks who deal in foreign exchange. These
banks maintain stocks of one currencies in
the form of balances with banks
MEANING
OPERATION OF FOREIGN EXCHANGE MARKET
? Foreign exchange market operates
either as:-
? Spot Market: (Current Market)
? Forward Market
Spot Market: (Current Market)
Spot market for foreign exchange is that
market which handles only spot transaction
or current transactions.
? Principle characteristics:-
? Spot Market is of daily nature. It does not
trade in future deliveries.
? Operation of foreign exchange market
Forward Market
Forward Market for foreign exchange is
that market which handles such transaction
of foreign exchange as are meant for future
delivery.
? Principles Characteristics:-
? It only caters to forward transaction.
? It determines forward exchange rate at
which forward transaction are to be honored.
The Foreign Exchange Market
for Beginners
? The foreign exchange market or forex market
as it is often called is the market in which
currencies are traded.
? Currency Trading is the world?s largest market
consisting of almost trillion in daily volumes
and as investors learn more and become more
interested, market continues to rapidly grow.
? All trades that take place in the foreign exchange
market involve the buying of one currency and
the selling of another currency simultaneously.
This is because the value of one currency is
determined by its comparison to another currency.
? The first currency of a currency pair is called the
?base currency,? while the second currency is
called the counter currency.
? Foreign exchange Capital Markets (FXCM) is an
online currency trading firm that offers a free
demo account to traders who are new and
interested in the foreign exchange market.
? Registering for a demo account allows a new
trader to download the online trading platform
that is used by the company?s clients trading live
accounts and make trades as if they were doing it
with real money.
NATURE OF FOREIGN EXCHANGE
? Volatile, affected by hedger, arbitrager, speculator.
? Affected by demand and supply
? Affected by rate of interest
? Affected by BoP surplus and deficit
? Affected by inflation rate
? Affected by the fiscal policy of the government.
? Affected by the political condition of the country.
Characteristics of foreign exchange
? Lower trading cost
? Excellent transparency
? Superior liquidity
? Strong market trends
CORRESPONDENT BANKING
AND
NRI ACCOUNTS
CORRESPONDENT BANKING
A correspondence bank is a financial
institution that provides services on behalf
of another, equal or unequal, financial
institution.
It can facilitate wire transfers, conduct
business transactions, accept deposits and
gather documents on behalf of another
financial institution.
A correspondent account is an account (often
called a nostro or vostro account) established by
a banking institution to receive deposits from,
make payments on behalf of, or handle other
financial transactions for other financial institutions.\
? Correspondent banks are used by domestic banks
in order to service transactions originating in
foreign countries, and act as a domestic bank's
agent abroad.
? This is done because the domestic bank may have
limited access to foreign financial markets, and
cannot service its client accounts without
opening up a branch in another country.
A SIMPLE CORRESPONDENT CROSS BORDER
TRANSACTION
? A Correspondent Banking relationship
involves the provision of banking services by
one financial institution (a Correspondence
bank) to another financial institution
(Correspondent Banking Client)
Services offered under CB are:
? payments including telegraphic or electronic
transfers and drafts.
? Foreign exchange
? Payable through and nested accounts
? Managed investments and mortgage schemes
? Custodian account arrangements
? Trade finance transactions
? Syndicated loans
INTRODUCTION
? To meet the specific needs of Non Resident
Indians related to their remittances,
savings, earnings, investments and
repatriation, the GOI introduced in 1970
Non resident(External) account rule which
are controlled by the exchange control
regulations.
Types of NRI bank account Types of NRI bank account
1. Non-Resident Externals (NRE) Deposits
2. Non-Resident Ordinary (NRO) Savings Account
3. Foreign Currency Non-Resident (FCNR)Fixed
Deposits
4. Resident Foreign Currency (RFC) Deposits
Non-Resident External (NRE) Deposits
? The Non Resident External (NRE) saving
account is open for Indian residing abroad .
? This account will help you to transfer
foreign earning easily to India .
? NRE account can be opened in any bank as
saving and fixed deposit account.
Benefits of NRE Account
? There is no tax and no wealth tax
? The currency maintain in this account is in Indian rupees
? Funds can be easily transferred from NRE account to NRO
account
? Joint account facility is available with only NRI`s.
? Nomination facility is available with only NRI Indians
Non-Resident Ordinary (NRO) Savings Account
? Non Resident ordinary (NRO) account is just like any
other bank account with the only difference that this
account is being opened for only those individuals
who are leaving India for taking an employment or
establishing a business outside India.
? The existing accounts for these Indians are also
termed as Ordinary Non Resident account or an NRO
Accounts.
? These accounts can also be opened through foreign
remittance. Thus it?s a rupee denominated account
Benefits of NRO Account
? Interest earned on these accounts is high as Banks
can themselves determine interest rates.
? These accounts also offer joint account facility with
a resident or a NRI individual.
? Nomination facility is available with both NRI and
resident Individuals.
? It is taxable.
Foreign currency nonresident
(FCNR) fixed deposit
? FCNR Deposits are maintained in foreign
currency and they are completely safe
against any exchange rate fluctuations.
Benefits of FCNR
? Interest is payable in the same currency of
the deposit at Half yearly.
? FCNR account can be opened jointly with
other non-residents.
? FCNR a/c can be converted or amount
transferred to NRE accounts.
? No income tax on interest earned.
Resident Foreign Currency (RFC) Deposits
? RFC Deposit has been specially created for
persons of Indian nationality or origin
returning to India permanently for
settlement after having been a resident
outside India for a continuous period of at
least one year.
Benefits of RFC
? The account will be denominated in USD,
GBP, and EURO.
? The account can be held single or jointly.
? The account can be maintained in the form
of Term Deposit account.
? The balance in the account can be freely
used for local disbursements.
Additional Service FOR NRI ACCOUNTS
? An individual resident Indian can borrow
sum not exceeding USD 250,000 or its
equivalent staying outside India, subject to
the conditions that:
? The minimum maturity period of the loan is
one year;
? The loan is free of interest
LETTER OF CREDIT
MEANING:
? A letter of credit is a document from a
bank guaranteeing that a seller will
receive payment in full as long as certain
delivery conditions have been met. In the
event that the buyer is unable to make
payment on the purchase, the bank will
cover the outstanding amount.
TYPES OF LOC
? Import and Export Letter of Credit
? Revocable and Irrevocable Letter of Credit
? Confirmed and Unconfirmed Letter of Credit
? Transferrable and Un transferrable LoC
? Deferred/ usance LoC
? Red clause Loc
? Back to back Loc
Import and Export Letter of Credit
? Are letters of credit that are used in
international trade. The same letter of
credit would be termed an import letter of
credit by the importer and an export letter
of credit by the exporter. In most cases, the
importer is the buyer and the exporter is the
beneficiary.
Revocable and Irrevocable Letter of Credit
? The?revocable letter of credit?can?be?
changed?at?any?time?by?either?the?buyer?or?
the?issuing?bank?with?no?notification?to?the?
beneficiary.?
? Irrevocable letter of credit?only?allows?
change?or?cancellation?of?the?letter?of?credit?
by?the?issuing?bank?after?application?by?the?
buyer?and?approval?by?the?beneficiary.
Confirmed and Unconfirmed Letter of Credit
? A?confirmed letter of credit?is?one?where?
a?second?bank?agrees?to?pay?the?letter?of?
credit?at?the?request?of?the?issuing?bank.
? An?unconfirmed letter of credit?is?
guaranteed?only?by?the?issuing?bank.?This?
is?the?most?common?form?with?regard?to?
confirmation.
Transferrable and Un transferrable LoC
? A?letter?of?credit?may?also?be?
a?transferrable letter of credit.?These?are?
commonly?used?when?the?beneficiary?is?
simply?an?intermediary?for?the?real?supplier?
of?the?goods?and?services?or?is?one?of?a?
group?of?suppliers.?
? An?un-transferrable letter of credit?does?
not?allow?transfer?of?payments?to?third?
parties.
Deferred/ usance LoC
? A?letter?of?credit?may?also?be?at sight,?
which?is?payable?as?soon?as?the?
documentation?has?been?presented?and?
verified,?or?payment?may?be?deferred.?
? Deferred?letters?of?credit?are?also?called?
a?usance letter of credit and?may?be?put?
off?until?a?certain?time?period?has?passed?or?
the?buyer?has?had?the?opportunity?to?inspect?
or?even?sell?the?related?goods.
Red clause Loc
? A?red clause?letter?of?credit?allows?the?
beneficiary?to?receive?partial?payment?
before?shipping?the?products?or?performing?
the?services.?
? Originally,?these?terms?were?written?in?red?
ink,?hence?the?name.?In?practical?use,?
issuing?banks?will?rarely?offer?these?terms?
unless?the?beneficiary?is?very?creditworthy?
or?an?advising?bank?agrees?to?refund?the?
money?if?the?shipment?is?not?made.
Back to back Loc
? A?back-to-back letter of credit?is?used?in?
a?trade?involving?an?intermediary,?such?as?a?
trading?house.
? ?It?is?actually?made?up?of?two?letters?of?
credit,?one?issued?by?the?buyer's?bank?to?the?
intermediary?and?the?other?issued?by?the?
intermediary's?bank?to?the?seller.
Foreign currency Loans
Meaning:
? Foreign currency loans are all loans given
or taken for which the contract currency is
different to the local currency (balance
sheet/company code currency).
Eligibility
? Exporters for working capital needs
? Importers for meeting import obligations
? Importers of capital goods
? Those customers who have earlier raised medium-term FC
Loans for meeting capital expenditure from overseas
financial institutions, so that these loans can be foreclosed
(subject to RBI guidelines)
? Loan to JV/WOS entities of Indian companies.
? High value corporate clients with a good track record, to
meet working capital requirements in substitution of
WCDL
? Those customers who are looking for conversion of rupee
term/cash credit.
Period:
? Working capital for exporter/importer- 6 months
to one year.
? Importers of capital goods-3 years (subject to
availability of funds)
? Substitution of WCDL/Cash Credit ? 6 months to
one year.
? In case of Term Loan Conversion- 6 months to 3
years (subject to availability of funds)
Quantum/ Currency:
? On transaction to transaction basis within
the existing credit facilities
? Minimum USD 0.50 mn. (Rs. 2.00 Crores)
equivalent.
? Normally in US$, FC Loans can also be
availed in Pound Sterling or in Euros
subject to availability of funds
Rate of Interest
? Bench marked to relevant LIBOR rates.
Repayment
? Bullet payment (one lump sum) by:
? Tendering export documents
? Proceeds of export collection bills
? Debit to EEFC accounts
? Purchase of foreign currency from the bank at
contracted/ready rate if forward booking is waived.
? Term loans for import of capital goods ? repayment
in stipulated installments
? Conversion of rupee term loans ? as per original
sanction terms
Procedure
? Roll-over at the sole discretion of the Bank
? In case of loans on floating rate basis the rates will be
reset once in every six months
? Interest charged on reducing balance method.
? Forward cover for appropriate maturity to be booked.
? Forward cover can be waived for customers having
natural hedge.
? Prepayment generally not permitted
? In exceptional cases prepayment permitted. However,
as an exception, prepayment is permitted in certain
cases, with levy of penalty.
Facilities for
exporters and importers
FACILITIES FOR
EXPORTER
Facilities for Exporter
? Export credit
? Export bill rediscounting
? Export credit in foreign currency
Pre-shipment credit in foreign currency
(PCFC)
? Exporter gold card
Export Credit
? Rupee export credit (pre-shipment and post-shipment) :
? Bank offers both pre and post shipment credit to the Indian
exporters through Rupee denominated loans as well as
foreign currency loans in India.
? Exporters having firm export orders or L/C from a
recognized Bank can avail the export credit facilities from
United Bank of India provided they satisfy the required
credit norms. The details of the credit norms can be
obtained from the nearest authorized branch of the Bank.
? Post shipment rupee export credit is available for a
maximum period of -180- days /360daysfrom the date of
first disbursement. The corporate, if required can book
forward contracts in respect of future export credit drawals.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post shipment
finance to the exporters at competitive international
rate of interest.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
Export credit in foreign currency
Pre-shipment credit in foreign currency (PCFC):
? Bank provides PCFC in the foreign currency to the exporters
enabling them to fund their procurement, manufacturing/
processing and packing requirements.
? These loans are available at very competitive international
interest rates covering the cost of both domestic as well as import
content of the exports. The PCFC can be availed in US$, Euro,
GBP and Japanese Yen.
? The corporate / exporters with a good track record can avail a
running account facility with the Bank for PCFC. To qualify for
this purpose, the exporter?s overdue bill should not exceed 5% of
the average annual export realization during the preceding -3-
years.
? PCFC in foreign currency is available for a maximum period of -
180- days from the date of first disbursement similar to the case
of Rupee facility.
? Export bill rediscounting:
? Bank offers financing of export by way of bill
discounting of export bills to provide post
shipment finance to the exporters at competitive
international rate of interest. This facility is
available in -4- currencies i.e. US$, Pound Sterling,
Euro and JPY.
? The export bills (both Sight and Usance) can be
purchased/ discounted provided they comply with
the norms of the Bank/ RBI.
? All exporters are eligible to cover the bills drawn
under L/C, non-credit bills under sanctioned limits
under the Bill discounting Scheme.
? Exporter Gold Card
? Bank has formulated Gold Card Scheme for its
exporter clients based on the scheme drawn up
by Reserve Bank of India.
? The scheme proposes to ensure easy
availability of export credit on best terms to
credit worthy exporters with good track record.
? The card to be offered by United Bank of India
will be known as ?United Bank of India Expo
Gold Card?. The salient features of the scheme
are as under:
? Eligibility under the Scheme:
? All exporters , including those in small and medium
sector having good track record and credit worthiness
depending on the credit rating done as per bank?s
norms.
? Exporters whose accounts have been classified as
?Standard? continuously for a period of three years
and there are no irregularities/adverse features in the
conduct of the accounts will be considered.
? The scheme will not be applicable to those exporters
who are blacklisted by ECGC or included in RBI?s
defaulter?s list/caution list or making losses for the
past 3 years or having overdue export bills in excess
of 10 per cent of the current year?s turnover.
Bank Facilities for Importers
qImport finance
qCollection of import bill
qLetter of credit
? Import Finance:
? Bank provides various types of funding/
services to the importers for facilitating the
imports in the country.
? The vast network of branches and
Correspondent Banks worldwide facilitate
prompt & efficient services to the importers.
? All the facilities are subject to the prevalent
rules of the Bank/ RBI guidelines.
? The various facilities provided are:
? Collection of import bill.
? Opening of Import L/Cs (Sight/ DA)
? Financing of import by way of Foreign
Currency Loans
? Issuing Guarantees etc. on behalf of
importers.
? Collection of import bills:
? The import bills are collected through the
47 authorized branches at very competitive
rates.
? The Bank has correspondent relationship
with reputed International Banks
throughout the world and can provide the
services to importers who may be
importing from any part of the globe.
Letter of credit:
? Bank offers L/C facility for the purchase of goods in
the international market. Being a Prime Bank of
repute, the L/Cs of the United Bank of India are well
accepted in the International market.
? With the Letter of Credit of United Bank of India,
importers can build up better trust/ confidence in
their suppliers and develop other business
relationship at a much faster pace.
? The L/C facility can be granted to the importers after
assessing their requirement/ credit worthiness/
financial strength and other parameters being to the
satisfaction of the Bank.
? Bank guarantees:
? Bank on behalf of importers/ other
customers issues guarantees in favour of
beneficiaries abroad. The guarantees can be
both Performance and Financial.
Role of ECGC, RBI and EXIM bank
Export Credit Guarantee
Corporation of India (ECGC)
? The ECGC Limited (ECGC) was established on 30 July 1957 with an
objective to provide insurance cover in respect of risks in export trade.
? These risk may include loss of money on account of foreign buyer
becoming bankrupt or sudden import or exchange restrictions resulting
in stopping of payments etc.
? The Export Credit Guarantee Corporation of India Limited is a
company wholly owned by the Government of India based in Mumbai,
Maharashtra.
? It provides export credit insurance support to Indian exporters and is
controlled by the Ministry of Commerce. Government of India had
initially set up Export Risks Insurance Corporation (ERIC) in July 1957.
? It was transformed into Export Credit and Guarantee Corporation
Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation
of India in 1983. In 2014 August, the Company was again renamed as
ECGC Limited
What does ECGC do?
? Provides a range of credit risk insurance covers to
exporters against loss in export of goods and services.
? Offers Export Credit Insurance for Bankers and financial
institutions to enable exporters to obtain better facilities
from them.
? Provides Overseas Investment Insurance to Indian
companies investing in joint ventures abroad in the form
of equity or loan.
How does ECGC help exporters?
? Offers insurance protection to exporters against payment
risks.
? Provides guidance in export-related activities
? Makes available information on different countries with
its own credit ratings
? Makes it easy to obtain export finance from
banks/financial institutions
? Assists exporters in recovering bad debts
? Provides information on credit-worthiness of overseas
buyers
RBI
? RBI has issued Authorized Dealers (AD) licenses to banks, all
India financial institutions and a few co-operative banks to
undertake foreign exchange transactions in India
? It has also issued Money Changer licenses to a large number
of established firms, companies, hotels, shops, etc.
? Money changers help facilitate encashment of foreign
currencies of foreign tourists
? Entities authorized to buy and sell foreign currency notes,
coins and travelers? Cheques are called full-fledged money
changers
? Those authorized only to buy are called restricted money
changers
EXIM Bank
? Export-Import Bank of India (Exim Bank) was set
up by an Act of the Parliament ?THE EXPORT-
IMPORT BANK OF INDIA ACT, 1981? for
providing financial assistance to exporters and
importers and for functioning as the principal
financial institution for co-ordinating the working of
institutions engaged in financing export and import
of goods and services with a view to promoting the
country?s international trade and for matters
connected therewith or incidental thereto.
ASSIGNMENT:
? Explain: ECGC: Functions, role of ECGC, ECGC
policies, risks and guarantees covered by ECGC.
? RBI: Functions, loans, schemes of RBI
Regarding exports.
? EXIM bank of India: Objective, organisation of
EXIM bank, Financing assistance by EXIM bank,
Role of EXIM bank, EXIM bank Finance.
? Due on : 16
th
November, 2017
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This post was last modified on 18 February 2020