general bank management (caiib) international banking (module a) – part-i foreign exchange r n...
TRANSCRIPT
General Bank Management(CAIIB)
International Banking (Module A) ndash PART-IForeign Exchange
R N Hirve Chief Manager
International Division Mumbai
29th November 2008
Contents of Module A RBI and exchange control in India ICC FEDAI ECGC EXIM Bank Exchange rates Risk management and basics of
derivatives Documentary letters of credit Facilities for exporters and importers Correspondent Banking
EXCHANGE CONTROL IN INDIA FEMA 1999- WEF 1ST JUNE 2000 ORIGIN IN DEFENSE OF INDIA RULES (DIR) 1935 CONTROL TO CONSERVE FEX DUE TO SEVERE
CONSTRAINTS ON FOREX RESERVES DUE TO II ND WORLD WAR
23 MAR 1947 THESE RULES BECAME FERA 1947 MODIFIEDAMENDED-FERA 1973 WEF 111974 FURTHER RALAXATIONS SINCE 1994 FCRA 1976- [permission from MinOf Home Affairs to
receive FC ndash HCDC Judge Newspaper Editor Publisher Columnist Printer Political party leader Office Bearer Candidate for election Charitable Trust]
FEMA VS FERA FEMA (49 Sections) Plays a role of
facilitator which regulates amp manages of FE transactions
Civil Act- prosecution to prove guilt
NRI status Penalty Regulation Discretion
amp Permission
FERA (81 sections) Acted as controller for
Conservation of FE
Criminal Act- accused to prove innocence
NRI status not compatible with IT Act
Penalty amp prosecution Only regulation
FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL
BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS
ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX
FEMA 1999 How to receive FX Exports + IRS + Borrowings +
Inbound Investments How to remit FX Imports + ORS + Lending +
Outbound Investments
Capital Account Residents
Creation of AssetsLiab Outside INDIA
Non Residents
Creation of AssetsLiab In INDIA
Capital AC ( Contd) Inflow -- Equity Debt ampAssistance
ECBADRGDRFDIFIINR INVEXTassistance to INDIA
Out flow
Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA
Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)
Inflow Export of goods amp services ndash travel
insurance investment transport income compensation to employees etc
Outflow Import of goods amp services travel
insurance investment transport income compensation to employees etc
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Contents of Module A RBI and exchange control in India ICC FEDAI ECGC EXIM Bank Exchange rates Risk management and basics of
derivatives Documentary letters of credit Facilities for exporters and importers Correspondent Banking
EXCHANGE CONTROL IN INDIA FEMA 1999- WEF 1ST JUNE 2000 ORIGIN IN DEFENSE OF INDIA RULES (DIR) 1935 CONTROL TO CONSERVE FEX DUE TO SEVERE
CONSTRAINTS ON FOREX RESERVES DUE TO II ND WORLD WAR
23 MAR 1947 THESE RULES BECAME FERA 1947 MODIFIEDAMENDED-FERA 1973 WEF 111974 FURTHER RALAXATIONS SINCE 1994 FCRA 1976- [permission from MinOf Home Affairs to
receive FC ndash HCDC Judge Newspaper Editor Publisher Columnist Printer Political party leader Office Bearer Candidate for election Charitable Trust]
FEMA VS FERA FEMA (49 Sections) Plays a role of
facilitator which regulates amp manages of FE transactions
Civil Act- prosecution to prove guilt
NRI status Penalty Regulation Discretion
amp Permission
FERA (81 sections) Acted as controller for
Conservation of FE
Criminal Act- accused to prove innocence
NRI status not compatible with IT Act
Penalty amp prosecution Only regulation
FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL
BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS
ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX
FEMA 1999 How to receive FX Exports + IRS + Borrowings +
Inbound Investments How to remit FX Imports + ORS + Lending +
Outbound Investments
Capital Account Residents
Creation of AssetsLiab Outside INDIA
Non Residents
Creation of AssetsLiab In INDIA
Capital AC ( Contd) Inflow -- Equity Debt ampAssistance
ECBADRGDRFDIFIINR INVEXTassistance to INDIA
Out flow
Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA
Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)
Inflow Export of goods amp services ndash travel
insurance investment transport income compensation to employees etc
Outflow Import of goods amp services travel
insurance investment transport income compensation to employees etc
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
EXCHANGE CONTROL IN INDIA FEMA 1999- WEF 1ST JUNE 2000 ORIGIN IN DEFENSE OF INDIA RULES (DIR) 1935 CONTROL TO CONSERVE FEX DUE TO SEVERE
CONSTRAINTS ON FOREX RESERVES DUE TO II ND WORLD WAR
23 MAR 1947 THESE RULES BECAME FERA 1947 MODIFIEDAMENDED-FERA 1973 WEF 111974 FURTHER RALAXATIONS SINCE 1994 FCRA 1976- [permission from MinOf Home Affairs to
receive FC ndash HCDC Judge Newspaper Editor Publisher Columnist Printer Political party leader Office Bearer Candidate for election Charitable Trust]
FEMA VS FERA FEMA (49 Sections) Plays a role of
facilitator which regulates amp manages of FE transactions
Civil Act- prosecution to prove guilt
NRI status Penalty Regulation Discretion
amp Permission
FERA (81 sections) Acted as controller for
Conservation of FE
Criminal Act- accused to prove innocence
NRI status not compatible with IT Act
Penalty amp prosecution Only regulation
FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL
BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS
ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX
FEMA 1999 How to receive FX Exports + IRS + Borrowings +
Inbound Investments How to remit FX Imports + ORS + Lending +
Outbound Investments
Capital Account Residents
Creation of AssetsLiab Outside INDIA
Non Residents
Creation of AssetsLiab In INDIA
Capital AC ( Contd) Inflow -- Equity Debt ampAssistance
ECBADRGDRFDIFIINR INVEXTassistance to INDIA
Out flow
Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA
Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)
Inflow Export of goods amp services ndash travel
insurance investment transport income compensation to employees etc
Outflow Import of goods amp services travel
insurance investment transport income compensation to employees etc
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
FEMA VS FERA FEMA (49 Sections) Plays a role of
facilitator which regulates amp manages of FE transactions
Civil Act- prosecution to prove guilt
NRI status Penalty Regulation Discretion
amp Permission
FERA (81 sections) Acted as controller for
Conservation of FE
Criminal Act- accused to prove innocence
NRI status not compatible with IT Act
Penalty amp prosecution Only regulation
FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL
BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS
ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX
FEMA 1999 How to receive FX Exports + IRS + Borrowings +
Inbound Investments How to remit FX Imports + ORS + Lending +
Outbound Investments
Capital Account Residents
Creation of AssetsLiab Outside INDIA
Non Residents
Creation of AssetsLiab In INDIA
Capital AC ( Contd) Inflow -- Equity Debt ampAssistance
ECBADRGDRFDIFIINR INVEXTassistance to INDIA
Out flow
Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA
Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)
Inflow Export of goods amp services ndash travel
insurance investment transport income compensation to employees etc
Outflow Import of goods amp services travel
insurance investment transport income compensation to employees etc
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL
BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS
ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX
FEMA 1999 How to receive FX Exports + IRS + Borrowings +
Inbound Investments How to remit FX Imports + ORS + Lending +
Outbound Investments
Capital Account Residents
Creation of AssetsLiab Outside INDIA
Non Residents
Creation of AssetsLiab In INDIA
Capital AC ( Contd) Inflow -- Equity Debt ampAssistance
ECBADRGDRFDIFIINR INVEXTassistance to INDIA
Out flow
Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA
Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)
Inflow Export of goods amp services ndash travel
insurance investment transport income compensation to employees etc
Outflow Import of goods amp services travel
insurance investment transport income compensation to employees etc
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
FEMA 1999 How to receive FX Exports + IRS + Borrowings +
Inbound Investments How to remit FX Imports + ORS + Lending +
Outbound Investments
Capital Account Residents
Creation of AssetsLiab Outside INDIA
Non Residents
Creation of AssetsLiab In INDIA
Capital AC ( Contd) Inflow -- Equity Debt ampAssistance
ECBADRGDRFDIFIINR INVEXTassistance to INDIA
Out flow
Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA
Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)
Inflow Export of goods amp services ndash travel
insurance investment transport income compensation to employees etc
Outflow Import of goods amp services travel
insurance investment transport income compensation to employees etc
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Capital Account Residents
Creation of AssetsLiab Outside INDIA
Non Residents
Creation of AssetsLiab In INDIA
Capital AC ( Contd) Inflow -- Equity Debt ampAssistance
ECBADRGDRFDIFIINR INVEXTassistance to INDIA
Out flow
Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA
Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)
Inflow Export of goods amp services ndash travel
insurance investment transport income compensation to employees etc
Outflow Import of goods amp services travel
insurance investment transport income compensation to employees etc
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Capital AC ( Contd) Inflow -- Equity Debt ampAssistance
ECBADRGDRFDIFIINR INVEXTassistance to INDIA
Out flow
Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA
Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)
Inflow Export of goods amp services ndash travel
insurance investment transport income compensation to employees etc
Outflow Import of goods amp services travel
insurance investment transport income compensation to employees etc
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)
Inflow Export of goods amp services ndash travel
insurance investment transport income compensation to employees etc
Outflow Import of goods amp services travel
insurance investment transport income compensation to employees etc
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
CURRENT AC TRANSACTIONS
SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of
lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural
tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc
SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of
exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
BOT amp BOP BOT
Current ac inflows ndash outflows
BOP
Current ac + Capital ac
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
BALANCE OF TRADE
$ in BN (YrMarch)
08 07 06 05 04 03
EXPORTS 15551
12641
10061
7924 6184 5274
IMPORTS 23591
18574
14023
10706
7521 6019
Trade deficit -8040 -5933 -3962 -2782 -1337 - 745
TD as of EXP 517 47 39 35 22 14
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Growing Foreign Exchange Reserves
22 26 30
15162
19917
30972 313
251
14130
112967543
17
4226385415
5025
43444462
399
4264437
456488
4664
436425
372355
335
475
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280
300
320
1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08
20-Nov-08
0
7
14
21
28
35
42
49
56
Fore
ign
Exch
an
ge R
eserv
es (
US
$ b
illion
)
Exc
han
ge R
ate
(Rs
US
$)
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their
dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in
payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)
Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp
outstanding cont
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)
Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)
Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP
CONCERNED MINISTRIES
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Export Credit Guarantee Corporation of India Ltd (ECGC)
It was set up for the promotion of exports in the year 1957
To protect the exporters from any financial loss Primary goal of ECGC
To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Other market players Insurance companies Transporters Chamber of commerce ExportersImporters
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Interest Rates
PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last
working day of the previous month plus 100 basis points wef 15th Nov 2008
FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding
maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006
NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Correspondent Banking Relationship to be established by approval
of the Board or delegated by Board headed by ChairmanCEO
To be placed before the Board in next Board meeting for post facto approval
To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
USA PATRIOT ACT amp Correspondent Banking Guidelines
United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism
Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313
Requirementsndash Terminate relationship no later than ten days
after receipt of notice that the foreign bank has
1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the
summons or subpoena
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
USA PATRIOT ACT amp Correspondent Banking Guidelines
120 hour rulendash Not later than 120 hours after receiving a
request1048698 Related to anti-money laundering
compliance at a covered institution or1048698 Regarding a customer at a covered
institution - Covered institution shall provide information and documentation for
account opened maintained administered or managed in the US
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM
1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four
second Other markets- money capital amp debt ndash also
affect forex market Controlspolicies of respective governments
also affect forex markets Settlement of forex transactions normally do
not take place simultaneously
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in
LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
FX Rates What is Exchange Rate Exchange Rate is a rate at which one
currency can be exchanged into another currency
Foreign Exchange Deal Involves the sale of one currency and
the purchase of another at an agreed exchange rate
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
How Banks quote spot rates to customers
Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction
must be a bank ie AD
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
SPREAD
THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS
SPREAD
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai
Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM
HOW ARE THEY CALCULATED
A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF
DOLLAR RUPEE = 453536
DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Calculating Cross Rates hellip 2
FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY
MULTIPLICATION
DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965
GBP RUPEE = 8145 8149
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed
date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for
the premium discount
Forward Rate = Spot Rate + - premium or discount
Forward calculation ( examples ) Is the forward rate the marketrsquos
expectation of future spot rates
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
FOREX FORWARDS
CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE
FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates
Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a
future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376
The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward
date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
FOREX FORWARDS
As per FEMA 1999 one of the parties has to be an AD
The contract could then be between an AD amp its customer
OR between two ADs
The former is the RETAIL segment while the later is the WHOLESALE segment
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
VALUE DATE
IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD
THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC
and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Basic Terms Used Exchange Position The difference between the amount of a
currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency
Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position
Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position
Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo
Open Position Exchange position at given point of time
ON Position Open Exchange position at the end of the day
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for
front office to deal with branches customers amp other banks
Back office responsible for the follow-up of the deals made by the dealers
Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES
Front Office- Dealing Room Mid- Office- Risk Management
Accounting Policies amp MIS Back Office- Settlement
Reconciliation Accounting
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Exchange traded currency futures
U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding
position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank
reference rate Settlement date last working day (excluding
Saturdays) of the month Trading time 9 to 5 pm
Convenient lot size and standardized contracts
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Currency futures segment ndash in a recognized exchange
Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability
A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council
Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by
certification FIIs and NRIs would not be permitted to trade
Three exchanges in the initial stage NSE MCXBSE
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
44
Advance Payment Open Account On Account
Sales ndash Consignment Basis Collection Method
- Documentary Collection Demand Bills Usance Bills
- Clean collection Documentary Credit Letters of Credit
INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based
Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required
Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices
Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse
For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables
No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
46
An arrangement at the request and on instructions of a customer
To make payment authorise other bank to pay or negotiate
Against stipulated documents Provided terms and conditions are
complied with
DOCUMENTARY CREDITS
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
47
ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT
EXPORTER
SALECONTRACTDEFINING
TERMS
IMPORTER
ISSUINGBANKADVISING
BANK
LCAPPLICATION
ISSUANCE OF THE LETTER OF
CREDIT
ADVICE OFOPENING
LETTER OFCREDIT
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
48
Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank
PARTIES TO DOCUMENTARY CREDIT
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
49
Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby
TYPES OF CREDIT
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
50
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681
International Standby Practices (ISP 98) ndash Publication No590
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
51
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Customs and Practice for Documentary Credits ndash UCP 600
andSupplement to UCP 600 for electronic presentation (eUCP 11 version)
Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
52
INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS
Uniform Rules for Collection (URC 522)
INCOTERMS 2000 Uniform Rules for Demand
Guarantees (URDG) ndash Publication No458
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
53
THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure
EXW EX Works (hellipnamed place)
Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)
Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of
destination)
Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
54
Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working
towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly
used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible
By handing over documents or transferring title or to control over the goods is possible under LC mechanism
UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance
UCPDC ndash UNIFORM CUSTOMS AND PRACTICE
FOR DOCUMENTARY CREDITS
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
The UCP 600 Revision
Some Highlights Fewer articles UCP600 contains 39 articles The
UCP 500 has 49
A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents
A new provision concerning addresses of the beneficiary and the applicant
An expanded discussion of original documents and
Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
The UCP 600 Revision
Some Highlights (continued)
A new section of definitions containing terms such as honour and negotiationldquo
Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance
Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
Summary of Changes The phrase reasonable time for acceptance or
refusal of documents has been replaced by a firm period of five banking days
The number of articles reduced to 39 New provisions allow for the discounting of
deferred payment credits Banks can now accept an insurance document
that contains reference to any exclusion clause New sections on definitions and
interpretations have been added to clarify the meaning of ambiguous terms
Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements
THANK YOU
THANK YOU