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The interbank market caters for both the majority of commercial turnover and large amounts

of speculative trading every day. A large bank may trade billions of dollars daily. Some of

this trading is undertaken on behalf of customers, but much is conducted by proprietary

desks, trading for the bank's own account. Until recently, foreign exchange brokers did large

amounts of business, facilitating interbank trading and matching anonymous counterparts for

small fees. Today, however, much of this business has moved on to more efficient electronic

systems.

Foreign Exchange Trading or FX Trading, clients are able to hedge against, or speculate

upon, changes in the exchange rate of two currencies. For example, a speculator can long

EUR/USD in foreign exchange market in order to profit from capturing the appreciation of

Euro against the U.S. Dollar. Foreign exchange services provide an opportunity for clients to

trade FX. Foreign Exchange Trading is done on the foreign exchange market.

Prime Bank operates it foreign exchange business in larger arena and it is one of the mostreputed bank in the Bangladesh earns a huge amount of money in year to year. In foreign

exchange business Prime Bank leads the country in well manner. The operation of Prime

bank in terms of foreign exchange includes-remittance, letter of credit, export- import

business and many other ancillary services related to foreign exchange. In according to that I

just focus on foreign exchange operation of prime bank and try to develop how they perform,

what’s the central bank role in foreign exchange operation for the commercial banks to a

great extent. And i have also focused on analytical tools how their growth of foreign

exchanges business which shows that performance analysis of Prime bank.

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1.1.Introducton

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This report is originated after completing the BBA program from Department of Marketing

under Dhaka University. During the internship a student has to undertake a management

problem or arena of investigation of the organization for in depth study. This report is the

outcome of the assigned internship suggested by the Department of Marketing, University of

Dhaka.

I have done my internship in Prime Bank Ltd. (MoulviBazar Branch) and the title of my

internship is “An Analysis of Foreign Exchange Operation of Prime Bank limited”

Complexity in the operation it foreign exchange department may hamper the export import

transactions as well as the functions of the general banking which will reduce the profit of the

bank and the foreign exchange earnings of a country.I select foreign exchange operation of

prime bank limited to done my assign task.

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1.2. Origin of the Report

1.3.Problem Statement

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My Broad objective of this report is to meet the partial requirements for the fulfillment of

BBA program.The other objectives of my report are given below

To analyze the performance of the Moulvibazar branch and the Prime Bank as a

whole.

To focus on the brief description of foreign trade.

To know the overall import business position of prime bank.

To find out the import fluctuation of prime bank in the last five years.

To know the overall export business position of prime bank.

To find out the export fluctuation of prime bank in the last five years.

To know the overall remittance business position of prime bank.

To find out the remittance fluctuation of prime bank in the last five years.

To assess the performance of the foreign exchange activities in comparison with other

banks.

To measure the performance of the banks through various analysis.

To suggest remedial measure for more development of Prime Bank service.

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1.4.Objective of the

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Foreign exchange is a proactive and lucrative zone of bank transactions. It is exposed to

uncertainty to various extents. The risks inherent in foreign exchange business, particularly in

running open foreign exchange positions, have been heightened in recent years by the

increased instability of exchange rates. Still it is considered as one of the income generating

sources of banks due to more involvement in international trade now-a-days and globalization

trend. Therefore, as one of the leading third generation commercial banks Prime Bank

Limited, emphasized its foreign exchange department as an income generating source. PrimeBank virtually functions corporate Banking and advisory services to institutional clients in

our country, large scale retail portfolios along with wholesale banking. This report intends to

explore the growing and expanded business trend of foreign exchange department of the bank

over the last few years and how the bank best manages its risk exposures.

The report is highlighting the major functional area of foreign exchange department and

procedure of import, export & remittance of Prime Bank Ltd. Try to cover the whole process

of letter of credit at the same time export,import and remittance collection procedure done by

the banks. I have done some mathematical analysis(Time series,Trend analysis,Multiple

regression etc.) to find out the total export, import and remittance position of the bank.also try

to compare the prime bank ltd. Foreign exchange position with five leading banks in the

country.

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1.6. Scope of the Report

1.5.Rationale of the

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For preparing the report I have used both primary data and secondary data. The Trend

Analysis, Multiple Regression, Time Series Analysis and Growth% Analysis are used as a

mathematical tools.

Sources of data

For collecting the required data, I have used different sources or methods like the following:

Primary Sources

Personal Interview – Face-to-face conversation and in depth interview with the

respective officers of the branch. Personal observation – Observing the procedure of banking activities of FX Dept.

Practical work exposures on different areas of the branch.

Informal conversation with the clients or customers.

Relevant documents related to the study as provided by the officers.

Secendary Sources

Foreign Exchange Operation Manual

Bangladesh Bank Manual

Annual Report of Prime Bank Ltd. and few other banks.

Books, Journals, Newspapers, Reports etc.

Website of Prime Bank LTD..

Website of Bangladesh Bank.

Website of Export Promotion Bureau.

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1.7. Methodology of the Study

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Statistical Tools:

After collecting the data I have used several statistical tools to analyze the data and prepare

the analytical part of my report. The lists of statistical tools I have used in this report are

given hereunder:

• Trend Analysis

• Time Series Analysis

• Multiple Regression

• Growth% Analysis.

Computer Program:

• Microsoft Word

• Microsoft Excel

• SPSS-16

There were some problems while I conducted the orientation program. A wholehearted effort

was applied to conduct the program and to bring a reliable and fruitful result. In spite of

having the wholehearted effort, there exit some limitations, which acted as a barrier to

conduct the program. The limitations are:

The study was limited only to the Prime Bank Ltd Moulvibazar

Branch.

Another Problem was time constraints.This time is not enough for

complete study.

Sufficient data for prepare a report is not available.

The employees of the bank are so much busy so they cannot provideme to give information about the foreign exchange such as import, export etc.

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1.7.Limitations of the

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Prime Bank Ltd is a fast growing private bank. In Prime Bank has focused for providing high

quality customer service at a very competitive price. Prime Bank Ltd efforts are directed at

diversification of product and service. Offering customers a wide variety of choices and

options have remained cornerstone of their business strategy. In this backdrop Prime Bank

Ltd has launched credit card business in collaboration with a global player like Master Card.Master Card is one of the top 20 brands in the world. An alliance with these as its Principal

Member is definitely a big advantage from marketing point of view. Policy planners of the

bank through that large majority mainly in the cities & towns would prefer payment through

usage of plastics in the form of credit card. A market with upscale customers existed for card.

Accordingly in December 1999, Master Card credit card was launched bringing new

dimension to their product line. Since credit card operation required real time on line

connectively the bank made substantial investment in the technology and other infrastructure

in related areas. High quality international software and top of the line hardware was

deployed. Key person to manage the strategic operations was trained home and abroad. With

initial teething problems over, the bank successfully issued local and international card within

a record time. Since journey was for steady and sustainable growth.

The principal activities of the Bank are banking and related businesses. The banking

businesses include deposits taking, cash withdrawal, extending credit to corporate

organization, retail and small and medium enterprises, trade financing, project financing,

lease and hire purchase financing, issuance of local and international credit cards etc. The

mode of banking included conventional and Islamic Banking. The services are provided

through both traditional and modern products. It also performs investment banking and

advisory services through Merchant Banking and Investment Division under the license

issued by Securities and Exchange Commission, Dhaka, Bangladesh. Its Subsidiary at

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Company

2.1.Principal

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Singapore is engaged in providing remittances

facilities to expatriate Bangladeshis. Through its

Off shore Banking Units it provides banking

business involving Non Resident foreign currency

denominated assets and liabilities.

April 1995 Incorporation of the Company

June 1995 Commencement of core business of Prime bank

Sept 1995 Establishment of branch in Chittagong, the main port city

Dec 1995 Islamic banking operation

Jan 1999 Listed with both the bourses of Bangladesh viz Dhaka stock Exchange and

Chittagong stock Exchange.Feb 2000 Registered as Merchant Banker with the Security Exchange Commission and

starting its Investment banking and Advisory services Nov 2003 Became primary dealer for busing and selling securities under the license

issued by Bangladesh Bank 8th July 2006 Opened its first fully owned subsidiary - Prime Exchange Co. Pte Ltd. to

offer remittance service to Bangladeshi Nationals living in SingaporeJune 2007 PBL opened its first Offshore Banking unit at DEPZ

April 2007 Won ICAB Award for Best Bank in

Bangladesh and SAFA Bronze Award for best presented accounts of 2007.March 2008 Introduce of ATM in the countryJan 2009 Decided to sponsor a Mutual Fund of "Prime Bank 1st ICB Mutual Fund" to

the tune of Tk. 100 crore and will subscribe at least 20% of the fund

June 2009 Credit Rating Information and Services Limited (CRISL) has awarded "AA"

rating in the long-term and ST-1 rating in the short-term for the year 2008.Dec 2009 Approval from the SEC. 3. Merchant Banking and Investment Division of

the Bank shall be converted into a subsidiary company in the name and style

"Prime Bank Investment Ltd."

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PBL opened 14 branches at important hubs of the country in 2009; PBL The opening of

branches strengthened the network and opened opportunity growth. The present status of the

branch network is

Network of branches

Classification 2009 2008

Urban 62 52

Rural 22 18

Total 84 70

Source: Company Annual Report

Prime Vision

To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital

adequacy, asset quality, sound management and profitability having strong liquidity.

Prime Mission

To build Prime Bank Limited into an efficient, market driven, customer focused institution

with good corporate governance structure. Continuous improvement in our business policies,

procedure and efficiency through integration of technology at all levels.

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2.2. Network of

2.3. Corporate Vision-

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As more than one currency is involved in foreign trade, it gives rise to exchange of currencies

which is known as Foreign Exchange. The term 'Foreign Exchange' has three principal

meanings.

• Firstly it is a term used referring to the currencies of other countries in

terms of any single one currency. To a Bangladeshi, Dollar, Pound

Sterling, etc. are foreign currencies and as such foreign exchanges.

• Secondly, the term also commonly refer to some instruments used in

international trade, such as bill of exchange, drafts, traveler’s cheque

and other means of international remittance.

• Thirdly, the term foreign exchange is also quite often referred to the

balance in foreign currencies held by a country.

Foreign Exchange refers to the process or mechanism by which the currency of one country

is converted into the currency of another country.

The exchange of the currency of one country for that of another country

Donal .A Ball

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3.1. Foreign

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Foreign trade can be easily defined as a business activity, which crosses national boundaries.

These may be between parties or government ones. Trade among nations is a common

occurrence and normally benefits both the exporter and importer. In many countries,

international trade accounts for more than 20% of their national incomes.

Foreign trade can usually be justified on the principle of comparative advantage. According

to this economic principle, it is economically profitable for the country to specialize in the

production of that commodity in which the producer country has the grater comparative

advantage and to allow the other country to produce that commodity in which it has the lesser

comparative advantage. It includes the spectrum of goods, services, investment, technology

transfer etc. this trade among various countries calls for lose linkage between the parties

dealing in trade. The banks, which provide such transactions, are referred to as rendering

international banking operations. International trade demands a flow of goods from seller to

buyer and of payment from buyer to seller.

There are three kinds of foreign exchange transaction:

1. Export

2. Import

3. Remittance

A flow-chart showing the flow of functions regarding foreign exchange is shown in the next page.

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3.2. Foreign Trade & its

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12

Foreign Exchange

Import Export

L/C opening

Loan against

imported

merchandisedLoan against

trust receipt

Payment

against

Document

Inward Bills Guarantee

Dealing Section

RealizationExport

Certificate

Foreign Bills

for collection

Post

Shipment

Finance

Reshipment

FinanceExport against

Advising

Remittance

Quoting rate

of Exchange

Forward

Cover

(Booking of

Contract)

Guidance on

rates trend to

customer

Reconciliation

Inward

Remittance

Outward

remittance

(FDD, MT,TT)

Travel Returns

Purchase of

foreign currency

Issue and sale

of foreign

currency Other Returns

Returns to

Bangladesh

Bank

Figure: Functions of ForeignExchange

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Letter of credit commonly termed as L/C is defined as “Credit Contract” whereby the buyer’s

bank committed (on behalf of the buyers) to place an agreed amount of money at the seller’s

disposal under some agreed conditions. Since the agreed conditions include amongst other

things, the presentation of some specified documents, the letter of credit is called

Documentary letter of credit. The Uniform Customs and Practices for Documentary Credit

(UCPDC) published by International Chamber of Commerce (1993) publication no 500

define Documentary Credit:

“Any arrangement however named or described whereby a bank (the issuing bank) acting at

the request and on the instructions of a customs (the Applicant) or on its own behalf, is to

make a payment to or to the order of a third party(the beneficiary) or is to accept and pay bills

of exchange(Drafts)drawn by the beneficiary or Authorize another bank to effect such

payment or to accept and pay such bills of exchange (Drafts) or Authorize another bank to

negotiate against stipulated documents provide that terms and conditions are complied with.”

3.3.1.Types of Documentary Letter of Credit:

Documentary letter of credit, basically, can be classified into two segments:

a) Revocable letter of credit

b) Irrevocable letter of credit

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3.3. L/C Operation

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Revocable Letter of Credit:

This type of letter of credit can be revoked or cancelled at any time without consent of, or

notice to the beneficiary. As per article 8 (a) of UCPDC-500 “A revocable credit may be

amended or cancelled by the issuing bank at any moment and without prior notice to the

beneficiary”.

In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or

cancelled while the goods are in transit and before the documents are presented, or although

presented before payments has been made. The seller would then face the problem of

obtaining payment on the other hand revocable credit gives the buyer maximum flexibility, as

it can be amended or cancelled without prior notice to the seller up to the moment of payment

buy the issuing bank at which the issuing bank has made the credit available. In the modern

banking the use of revocable credit is not widespread.

Irrevocable Letter of Credit:

An irrevocable credit is a documentary credit, which cannot be revoked, varied or changed/amended or cancelled without the consent of all parties- buyer (Applicant), seller

(Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed L/C). As per Article

9(a) of UCPDC 500, an irrevocable credit constitutes a definite undertaking of the Issuing

Bank, provided that the stipulated documents are presented to the Nominated Bank or to the

Issuing Bank and that the terms and conditions of the credit are complied with. Irrevocable

Credit gives the seller greater assurance of payments, but he/she remains dependent on an

undertaking of a foreign bank.

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3.3.2. DOCUMENTS USED IN L/C OPERATION:

Documents Name Particulars in Document

1.Bill of Exchange:

Bill of Exchange is one of the important

negotiable instruments in the mercantile

world and used as a vital document

facilitating settlement of payments

between buyer/importer and

seller/exporter at home and abroad

There are 3 parties:

Drawer: The person who draws the bill.

Drawee: The person on whom the bill is

drawn.

Payee: The person on whom the amount is

payable

Payment is made under the sales contract or

condition of L/C

1. Bill ofLading:

A bill of lading is a document that is usually

stipulated in a credit when the goods are

dispatched by sea. It is evidence of a

contract of carriage, is a receipt for the

goods, and is a document of title to the

goods. It also constitutes a document that is,

or may be, needed to support an insurance

claim.

Bill of Lading includes-

• A description of the goods in general

terms not inconsistent with that in the

credit.

• The name of the carrying vessel.

• Evidence that the goods have been

loaded on board.

• The ports of shipment and discharge.

• The names of shipper, consignee and

name and address of notifying party.

• Whether freight has been paid or is

payable at destination.

• Original bills no. & issue date

3. Commercial Invoice: Commercial Invoice include:

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A commercial invoice is the accounting

document by which the seller charges the

goods to the buyer.

4.A certificate of origin:

It is a signed statement providing evidence

of the origin of the goods.

• Date, Name and address of buyer and

seller

• Order or contract number, quantity and

description of the goods, unit price and thetotal price.

• Weight of the goods, number of packages,

and shipping marks and numbers

• Terms of delivery & payment and

Shipment details.

5. Inspection Certificate:

This is usually issued by an independent

inspection company located in the exporting

country certifying or describing the quality,

specification or other aspects of the goods, as

called for in the contract and/or the L/C. The

buyer who also indicates the type of inspection he

wishes the company to undertake usually

nominates the inspection company.

6. Packing List:

This is a unique document and not

The list includes:

•Gross & net weight &Measurement

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combined with other document. This is

a listing of the contents of each package,

cartoon etc. and other relevant

information.

• No. of Packages differs with B/L.

• Not marked one fold as Original

• Not signed by the Beneficiary

• Shipping marks differ with B/L

7. Insurance Document:

Insurance is a contract whereby the insurer

is undertaking to indemnify the assured to

the agreed manner and extent against

fortuitous losses

Insurance document generally contains the

following information:

• The name of the insurer or his agent, the

ship/carrier and the assured

• The subject matter of insurance

• The time and/or voyage insured and

peril(s) insured.

• Date, subscription& valuation

8. Proforma Invoice/Indent:

Pro Forma Invoice/indent is the sale contract

between seller and buyer in import- export

business. There is slight difference between

indent and Proforma invoice. The sales

contract, which is direct correspondence

between importer and exporter, is called

Proforma invoice.

Proforma Invoice/ Indent contains:

• Name of the Beneficiary company

• Address of Beneficiary

• Mode of Payment and Payment terms

and condition.

• Sales amount and price

• Types of goods.

• Bill number.

• Mode of transport.

3.3.3.ACCOUNTS RELATED TO FOREIGN EXCHANGE TRANSACTION:

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In L/C operation different accounts are maintained which are needed for foreign

exchange transaction. These are:

NOSTRO ACCOUNT:

Nostro account means “our account with you”. A Nostro account is a foreign currency

account of a bank maintained its foreign correspondents abroad. For example, US Dollar

Account of PBL maintained with Citibank, N.A, New York, USA is a Nostro account of

PBL.

VOSTRO ACCOUNT:

Vostro account means “your account with us”. The account maintained with foreign

correspondent in a bank of a particular country is known as Vostro account. What is the

Nostro account for a bank in a particular country is a Vostro account for the bank abroad

maintaining the account thus the account of PBL with City Bank N.A, New York is regarded

as it’s Nostro account held with Citi Bank, while Citi Bank N.A, New York regards it as a it’s

Vostro account held for PBL.

LORO ACCOUNT:

Loro account means “their account with you”. Account maintained by third party is known as

Loro account; suppose PBL is maintaining an account with Citi Bank N.A, New York and at

the same time Janata Bank is also maintaining a Nostro account with Citi Bank N.A, New

York. From the point of view of PBL, Janata Bank’s account maintained with Citi Bank N.A

New York is the Loro account.

3.3.4. PARTIES INVOLVED IN L/C OPERATION:

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Documentary credit substantially reduces payment related risks for both exporter and

importer. So in the whole L/C operation there are many parties involved. The parties are

given in a chart in the following page:

Parties involving L/C Description

1. Importer/Applicant Importer wants to import goods from other countries. In

terms of the Importers (Registration) Order-1981 no

person can import goods into Bangladesh unless he is

with the Chief Controller of Import And Export

(CCI&E). He is also called applicant. The bank opened

L/C on the importer’s application.

2. Issuing Bank/Opening Bank The bank which opens L/C on behalf of the importer is

called issuing bank. Issuing bank’s obligation is to make

payment against presentation of documents drawn

strictly as per terms of L/C.

3. Advising Bank The bank through which the L/C is advise / forwarded to

the beneficiary. It is situated in the beneficiary’s

country. The most important function of this bank is to

make sure the beneficiary about the authenticity of the

documents.

4.Beneficiary/Exporter/Seller Beneficiary is the party in whose favor the L/C is issued.

Usually he is the seller or exporter.

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5. Negotiating Bank The bank that negotiates the bill of exporter drawn

under the credit is known as negotiating bank. If the

advising bank is also authorized to negotiate the bill

drawn by the exporter, he becomes the negotiating bank.

6. Reimbursing Bank The bank nominated in the credit by the issuing bank to

make payment stipulated in the document, complying

with the reimbursement bank. In reimbursing bank the

issuing bank maintains its Nostro account.

7.Confirming bank

Confirming bank is a bank that adds its confirmation to

the credit and it is done at the request of the issuing

bank. It provides the credit report of the exporter of his

country.

3.3.5.Mechanism for L/C opening:

The standard mechanism for opening L/C is shown through a flow-chart below:

Figure 3.2: Mechanism for L/C opening

20

Issuing Bank

Advising

Bank

(against of

the issuing

bank)

Negotiating Bank

(Exporter has an account

with this bank)

Reimbursement Bank (The bank

that debit the importers account)

Add confirming Bank (Confirmation

of the L/C opening bank if wanted by

the negotiation Bank)

3.4. Import

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The Letter of Credit Authorization Form (LCAF) is the form prescribed for the

authorization of opening letter of credit/payment against import and used in lieu of

import license. The authorized dealers are empowered Import means purchase of

goods and services from the foreign countries into Bangladesh. Normally consumers,

firms, industries and Government of Bangladesh import foreign goods / materials to

meet their various necessities. So, in brief, we can say that import is the flow of

goods and services purchased by economic agent staying in the country from

economic agent staying abroad.

3.4.1. REGULATION OF IMPORT:

Import of goods into Bangladesh is regulated by the Ministry of Commerce in terms

of the Import and Export (Control) Act-1950 with Import Policy Order issued

periodically and public notices issued time to time by the office of the Chief

Controller of Import and Export (CCI&E). At present, it is regulated by the Import

Policy (1997-2002), which was come into effect on June14, 1998. And Import Policy

directs certain Import Procedure, which administers the whole activity.

3.4.2. STANDARD IMPORT PROCEDURE :

As an Authorized Dealer, SJIBL, Main Branch is always committed to facilitate

import of different goods into Bangladesh from the foreign countries. Import

Section, which is under Foreign Exchange Department of the branch, is assigned to perform this job. And to serve its client’s demand to import goods, it always

maintains required formalities that are collectively termed as The Import Procedure

are given in the next page.

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22

The importer must obtain Import Registration Certificate(IRC) from the CCI&E submitting the following papers:

Up to date Trade License.Nationality and Asset Certificate.

Tax Identification Number(TIN)VAT Registration NumberIn case of company, Memorandum & Articles of Associationand Certificate of Incorporation.Bank Solvency Certificate etc.

Step-2

After that the importer has to collect a PerformaInvoice/Indent or sales contract which will meet his demand.An indenter is the local agent. Other sources are:

Trade fair.Chamber of Commerce.Foreign Missions in Bangladesh

Journals etc.

Step-3After importer has to accept the terms and conduit Confirming

bank ion of the Proforma Invoice/Indent.

Step-4

Take delivery of the goods and makes payment by foreign DD,

MT, or TT at some specified date.

Collection Method- Collection methods are either cleancollection or documentary collection. Again, Documentary Collection may be Document against Payment(D/P) or

Document against Acceptance(D/A). The collectionprocedure is the exporter Then the importer has to settleabout the means of payment. They are:Cash in Advance- Importer pays full, partial or progressivepayment by a foreign DD, MT or TT. After receivingpayment, exporter will send the goods and the transportreceipt to the importer. Importer will take delivery of thegoods from the transport company.Open Account- Exporter ships the goods and sendstransport receipt to the importer. Importer will ships thegoods and draws a draft/ bill on the buyer. The exportersubmits the draft/bill (only or with documents) to theremitting bank for collection and the bank acknowledgesthis. Then the remitting bank sends the draft/bill (with orwithout documents) and a collection instruction letter to thecollecting bank. Acting as an agent of the remitting bank,the collecting bank notifies the importer upon receipt of thedraft. The title of goods is released to the importer upon fullpayment or acceptance of the draft/bill.

Step-1

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Import section deals with L/C opening and post import financing i.e. LIM & LTR.

Now the procedure from opening L/C to disbursement against L/C is given below:

3.4.3 APPLICATION FOR OPENING L/C:

At first, an importer will request banker to open L/C along with the following

documents.

• An application

• Indent or Pro forma Invoice

• Import Registration Certificate (IRC)

• Taxpayer’s Identification Number (TIN)

• Insurance cover note with money receipt

• A bank account in MBL, Main Branch

•

Membership of chamber of commerce

23

Step-4

Letter of credit: Letter of credit is the well

accepted and most commonly used means of

payment. It is an undertaking for payment by the

issuing bank to the beneficiary, upon submission of

some stipulated documents and fulfilling the terms

and conditions mentioned in the letter of credit.

Step-5

Requesting the concerned bank (importer’s bank

/issuing bank) to open a L/C(irrevocable) on behalf

of importer favoring the exporter/seller.

Fig: Import procedure

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3.4.4. DIFFERENT L/C APPLICATION FORMS:

L/C Application Form is a sort of an agreement between customer and bank on the basis of

which letter of credit is opened. MBL, Main Branch provides a printed form for opening of

L/C to the importer. Special adhesive stamp of value Tk.150.00 is affixed on the form in

accordance with Stamp Act. While opening, the stamp is cancelled. Usually the importer

expresses his decision to open the L/C quoting the amount of margin in percentage. Usually

the importer gives the following information –

• Full name and address of the importer and the beneficiary

• Draft amount

• Availability of the credit by sight

payment/acceptance/negotiation/deferred payment

• Time bar within which the documents should be presented

• Sales type (CIF/FOB/C&F)

• Brief specification of commodities, price, quantity, indent no.

etc.

• Country of origin

• Bangladesh Bank registration number

• Import License/LCAF number

• IRC number, Account number, Documents number

• Insurance Cover Note / Policy number, date, amount

• Name and address of Insurance Company

• Whether the partial shipment is allowed or not

• Whether the transshipment is allowed or not

• Last date of shipment

• Last date of negotiation

• Other terms and conditions (if any)

• Whether the confirmation of the credit is requested by the

beneficiary or not.

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3.4.5. PREPARATION OF L/C BY BANKER:

Bank’s officer prepares L/C when above-mentioned forms are to be submitted by

customer or importer. Before preparing L/C MBL officer scrutinizes the application

in the following manner.

a) The terms and conditions of the L/C must be complied with

UCPDC 500 and Exchange Control & Import Trade Regulation.

b) Eligibility of the goods to be imported.

c) The L/C must not be opened in favor of the importer.

d) Radioactivity report in case of food item.

Survey reports or certificate in case of old machinery is required. Bank of the

importer is called ‘L/C Issuing Bank’. Then issuing bank inform its corresponding

bank, called “Advising Bank’ or ‘Confirming Bank” located in exporter’s country to

advise and credit forward to the exporter and simultaneously officer makes L/C

opening vouchers.

Figure 3.3: L/C collection process

25

L/C Issuing

Bank

L/C

Confirming

Exporter or L/C

Beneficiary

Issue L/C &

request Bank to

Add Confirm

THE L/C CONFIRMING

PROCESS

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3.4.5.1. FORWARDING DOCUMENTORY CREDIT:

There are usually two banks involved in a documentary credit operation. The issuing

bank and the advising bank which is usually a bank in the seller’s country. The

issuing bank asks another bank to advise or confirm the credit.

If the 2 nd bank is simply “advising the credit”, it will mention that when it forwards

the credit to seller, such a bank is under no commitment or obligation to pay theseller.

If the advising bank is also “confirming the credit”, this mention that the confirming

bank, regardless of any other consideration, must pay accept or negotiate without

recourse to seller. Then the bank is called confirming bank also.

3.4.5.2. SUBMISSION OF NECESSARY DOCUMENTS:

As soon as the seller/exporter receives the credit and is satisfied that he can meet its

terms and conditions, he is in position to load the goods and dispatch them. The

seller then sends the documents evidencing the shipment to the bank. Exporter will

submit those documents in accordance with the terms and conditions as mentioned in

L/C. Generally the documents observed in the foreign exchange department are:

• Bill of exchange

• Commercial invoice

• Bill of lading

• Certificate of origin

• Packing list

• Clean Report of Finding (CRF)

• Weight list

• Insurance cover note

• Pre-shipment certificate

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Clean Report Of Findings (CRF):

This certificate is provided by the Pre Shipment Inspection (PSI) Concerns. The

entire world has been brought under the three supervision of the three pre-shipment

inspection concerns based on different territory. These are as follows:

Intertek Testing Service

Inspectorate Griffith Ltd.

Bureau VERITAS

3.4.5.3. THE DOCUMENTS SENT TO THE ISSUING BANK:

The negotiating bank carefully checks the documents provided by the exporter

against the credit, and if the documents meet all the requirement of the credit, the

bank will pay, accept, or negotiate in accordance with the terms and conditions of the

credit. Then the bank sends the documents to the L/C opening bank.

MAKING THE PAYMENT OF FOREIGN BILLS:

The L/C issuing bank getting the documents checks immediately and if they are in

order and meet the credit requirements; it will arrange to make payment against L/C

through reimbursement bank and will send the importer the document arrival notice.

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L/C Issuing

Bank

Negotiatin

g

Bank Sending L/C Documents

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Export & Exporter: Export means flow of goods and services produced within Bangladesh but

purchase by economic agent i.e. individuals, firms, governments of other countries. The

persons/Firms sales the goods & services to another country is called exporter. An exporter of a

country having a trade relation with an importer of another country may not have enough money

to conclude the deal. He may as such need finance from the Bank.

3.5.1. Export Policy of Bangladesh:

Export policies formulated by the Ministry of Commerce, which provide the overall guideline

and incentives for promotion of exports in Bangladesh. Export policies also set out

commodity-wise annual target.

It has been decided to formulate these policies to cover a five-year period to make them

contemporaneous with the five-year plans and to provide the policy regime.The export-

oriented private sector, through their representative bodies and chambers are consulted in the

formulation of export policies and are also represented in the various export promotion

bodies set up by the government.

3.5.2. Regulatory/Promotional organs of Export:

1. National Committee for Export:

This committee is Headed by the Prime Minister and comprising Ministers of Foreign Affairs,

Finance, Commerce, Industries, Planning, Jute and Textile. The committee will review the export

situation and provide necessary direction & resolved problems.

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2. Export Council:

Consultative body comprising of Chambers, Exporter’s Associations and institutions of public

sector.

3. Export Promotion Bureau (EPB).

Main functions of EPB:

(a) Quota allocation for export of RMG.

(b) Participation in international trade fairs.

(c) Arrangement of fair and exhibition both at home and abroad.

(d) Arrangement of training programs for boost up exports.

3.5.3.Export Development Fund:

As per agreement between International Development Association (IDA) and Government of

Bangladesh, Export Development Fund (EDF) in foreign exchange have been created in

Bangladesh Bank to finance import payment against import of raw materials of 100% export

oriented industries on sight payment basis. An exporter is eligible to avail of EDF facilities on the

basis of the following conditions:

• He must bean exporter of non-traditional manufacturing items.

• The loan should be utilized in the case of importing raw materials for manufacturing the

exportable products.

• The exporter must have an export LC.

• He must create a back to back LC for importing raw materials.

• The period of loan is 180 days.

• The exporter can borrow as many times as he likes in a year.

• An exporter can borrow an amount an US$ 500,000 in a single case but outstanding should not

be over US$ 1,000,000.

• He has to obtain Export Credit insurance through ECGS.

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3.5.4. EXPORT PROCEDURES:

The import and export trade in our country are regulated by the Import and Export (Control)

Act, 1950.

Under the export policy of Bangladesh the exporter has to get valid Export registration

Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required

to renew every year. The ERC number is to incorporate on EXP forms and other papers

connected with exports.

3.5.4.1. REGISTRATION OF EXPORTERS:

For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/

Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/

Chittagong/ Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barishal/ Bogra/ Rangpur/ Dinajpur in

the prescribed form along with the following documents:

• Nationality and Assets Certificate;

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EXPORTER: SECURING EXPORT ORDER FROM BUYER DIRECTLY OR THROUGH AGENT.

EXPORTER: RECEVING L/C FORM BUYER’S BANK THROUGH AN ADVISING BANK IN

WILL THE EXPORTER BE ALLOWED

ANY PRESHIPMENT CREDIT FACILITY

EXPORTER: OBTAINING EXPORT REGISTRATION CERTIFICATE (ERC) FROM CCI & E


EXPORTER: OBTAINING EXPORT REGISTRATION CERTIFICATE (ERC) FROM CCI & EEXPORTER: OBTAINING EXPORT REGISTRATION CERTIFICATE (ERC) FROM CCI & E

EXPORT PROCEDURE


EXPORTER: OBTAINING EXPORT REGISTRATION CERTIFICATE (ERC) FROM CCI & E

BANK: CERTIFICATION OF FROM AUTHORISED DEALER (BANK)

8/3/2019 part 1& 2 & 3


• Memorandum and Article of Association and Certificate of

Incorporation in case of Limited Company;

• Bank Certificate;

•Income Tax Certificate and Trade License etc.

3.5.4.2. SECURING THE ORDER:

After getting ERC Certificate the exporter may proceed to secure the export order. He can do

this by contacting the buyers directly or through agent.In this purpose the exporter may get

help from:

• License Officer;

•Buyer’s Local Agent;

• Export Promoting Organization;

• Bangladesh Mission Abroad;

• Chamber of Commerce (local & foreign)

• Trade Fair etc.

3.5.4.3. RECEIVING LETTER OF CREDIT:

After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly

stating terms and conditions of export and payment. The following are the main points to be

looked into for receiving/ collecting export proceeds by means of Documentary Credit:

• The terms of the L/C are in conformity with those of the

contract;

• The L/C is an irrevocable one, preferably confirmed by the

advising bank;

• The L/C allows sufficient time for shipment and negotiation.

Terms and conditions should be stated in the contract clearly in case of other mode of

payment:

Cash in advance;

Open account;

Collection basis (Documentary/ Clean)

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3.5.4.4. PROCURING THE MATERIALS:

After making the deal and on having the L/C opened in his favor, the next step for the

exporter is to set about the task of procuring or manufacturing the contracted merchandise.

3.5.4.5. SHIPMENT OF GOODS:

Then the exporter should take the preparation for export arrangement for delivery of goods as

per L/C and incomers, prepare and submit shipping documents for Payment/ Acceptance/

Negotiation in due time.

Documents for shipment:

ERC (valid),

L/C copy,

Customer Duty Certificate,

Shipping Instruction,

Transport Documents,

Insurance Documents EXP form,

Invoice,

Other Documents,

Bills of Exchange (if required)

Certificate of Origin,

Inspection Certificate,

Quality Control Certificate,

G.S.P. Certificate,

Phyto-sanitary Certificate

,

3.5.4.6. FINAL STEP:

Submission of the documents to the Bank for negotiation.

3.5.5. Export Financing:

Financing exports constitutes an important part of a bank’s activities. Exporters require

financial services at four different stages of their export operation. During each of these

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phases exporters need different types of financial assistance depending on the nature of the

export contract.

Pre-shipment credit

Post-shipment credit

3.5.5.1 Pre-shipment credit:

Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter

prior to the actual shipment of the goods for export. The purpose of such credit is to meetworking capital needs starting from the point of purchasing of raw materials to final

shipment of goods for export to foreign country. Before allowing such credit to the

exporters the bank takes into consideration about the credit worthiness, export performance

of the exporters, together with all other necessary information required for sanctioning the

credit in accordance with the existing rules and regulations. Pre-shipment credit is given for

the following purposes:

• Cash for local procurement and meeting related

expenses.

• Procuring and processing of goods for export.

• Packing and transporting of goods for export.

• Payment of insurance premium.

• Inspection fees.

An exporter can obtain credit facilities against lien on the irrevocable, confirmed anunrestricted export letter of credit in form of the followings:

• Export cash credit (Hypothecation)

• Export cash credit (Pledge)

• Export cash credit against trust receipt.

• Packing credit.

• Back to back letter of credit.

• Credit against Red-clause letter of credit.

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Export cash credit (Hypothecation):

Under this arrangement, a credit is sanctioned against hypothecation of the raw materials or

finished goods intended for export. Such facility is allowed to the first class exporters. As

the bank has got no security in this case, except charge documents and lien on exports L/C

or contract, bank normally insists on the exporter in furnishing collateral security. The letter

of hypothecation creates a charge against merchandise in favor of the bank. But neither r the

ownership nor the possession is passed to it.

Export cash Credit (Pledge):

Such Credit facility is allowed against pledge of exportable goods or raw materials. In this

case cash credit facilities are extended against pledge of goods to be stored in the godown

under bank’s control by signing letter of pledge and other pledge documents. The exporter

surrenders the physical possession of the goods under banks effective control as security for

payment of bank dues. In the event of failure of the exporter to honor his commitment, the

bank can sell the pledged merchandise for recovery the advance.

Export Cash Credit Against Trust Receipt:

In this case, credit limit is sanctioned against trust receipt (TR). Here also unlike pledge, the

3xportable goods remain in the custody of the exporter. He is required to execute a stamped

export trust receipt in favor of the bank, he holds wherein a declaration is made that goods

purchas4ed with financial assistance of bank in trust for the bank. This type of credit is

granted when the exporter wants to utilize the credit for processing, packing and rendering

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the goods in exportable condition and when it seems that exportable goods cannot be taken

into bank’s custody. This facility is allowed only to the first class party and collateral

security is generally obtained in this case.

Packing Credit:

Packing Credit is essentially a short-term advance granted by a Bank to an exporter for

assisting him to buy, process, manufacture, pack and ship the goods. Generally for

movement of goods from the hinterland areas to the ports of shipment the Banks provide

interim facilities by way of Packing Credit. This type of credit is sanctioned for the

transitional period starting from dispatch of goods till the negotiation of the export

documents. Practically except for single transaction, most of the pre-shipment credits are

allowed in the form of limits duly sanctioned by Bank in favor of regular exporters for a

particular period. The drawings are required to be adjusted fully once within a period of 3 to

6 months. Suiting to the breed and nature of export, sometimes an exporter may also be

allowed to avail a combined Cash Credit and Packing Credit limit with fixed ceiling on

revolving basis. But in no case the borrower would be allowed to exceed individual credit

limit fixed for the purpose. The drawings under Export Cash Credit limits are generally

adjusted by the drawing in packing credit limit, which is, in turn liquidated by the

negotiation of export documents.

3.5.6. BACK TO BACK LETTER OF CREDIT (BTB):

Bangladesh is a developing country. After receiving order from the importer, very frequently

exporters face problems of scarcity of raw material. Because some raw materials are not

available in the country. These have to be collected from abroad. In that case, exporter gives

lien of export L/C to bank as security and opens an L/C against it for importing raw materials.

This L/C is called Back To Back L/C. In back to back L/C, PBL keeps no margin.

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Sometimes there is provision in the export L/C that the importer can use the certain portion of

the export L/C amount for importing accessories that are necessary for the making of the

product. Only in that case, BTB is opened.

On March 24, 1994 Bangladesh Taka was declared convertible for Current account

International Transaction.

Foreign remittance means remittance of foreign currencies from one place/persons to

another place/person. In broad sense, foreign remittance includes all sale and purchase of

foreign currencies on account of Import, Export, Travel and other purposes. However,

specifically foreign remittance means sale & purchase of foreign currencies for the purposes

other than export and import. As such, this chapter will not cover purchase & sale of foreign

currencies on account of Import & Export of goods.

3.6.1. Private Remittance:

The major sources of private remittance are described below in detail:

1. Family remittance facility: Foreign Nationals working in Bangladesh with approval of

the Government may remit through an Authorized Dealer 50% of Salary and 100% of

leave salary as also actual savings and admissible person benefits. No prior approval of

Bank is necessary for such remittance.

2. Remittance of Membership fees/registration fees etc.

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Authorized Dealer may remit without prior approval of Bangladesh Bank, membership fees

of foreign professional and scientific institutions and fees for application registration,

admission, examination (TOEFL, SAT etc.) in connection with admission into foreign

educational institutions on the basis of written application supported by demand notice/letter

of the concerned institution.

3. Education: Prior permission of Bangladesh Bank is not required for releasing foreign

exchange in favor/on behalf of Bangladesh students studying abroad or willing to proceeds

abroad for studies.

4. Remittance of Consular Fees:

Consular fees collected by foreign embassies in Bangladesh Taka and deposited in a Taka

Account maintained with an AD solely for this purpose may be remitted abroad without

prior approval of Bangladesh Bank.

5. Travel:

Private travel quota entitlement of Bangladesh Nationals is set at US$3000/- per year for visit to countries other than SAARC member countries and Myanmar, Quota for SAARC

member countries and Myanmar is US$1000/- for travel by air and US$500/-for travel by

overland route. Authorized Dealers may release this travel quota in the form of foreign

currency notes upto US$500/- or equivalent and balance exchange in the form of TCs or

total quota in the form of TCs The annual quotas mentioned above are for adult passengers.

6. Health & Medical:

Authorized Dealers without prior approval of Bangladesh Bank may release foreign

exchange upto US$10,000/- for medical treatment abroad on the basis of the

recommendation of the medical Board set up the Head Directorate and the cost estimate of

the foreign medical institution.

Applications for release of exchange exceeding US$10,000/- should be forwarded along

with supporting documents to Bangladesh Bank for prior approval.

7 . Remittance for Hajj:

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Authorized Dealers may release foreign exchange to the intending pilgrims for performing

Hajj as per instructions/circulars to be issued by the Bangladesh Bank each year.

3.6.2. Official & Business Travel Remittance:

1. Official Visit:

For official or semi officials visits abroad by the officials of govt., Autonomous/Semi-

autonomous institutions etc., Authorized Dealers may release foreign exchange as per

entitlements fixed by the Ministry of Finance from time to time, In such cases, the applicant

for foreign exchange shall be required to submit the sanction letter and the competent

authority’s Order/Notification/Circular authorizing the travel.

2. Business Travel Quota for New Exporters:

Up to US$6,000/- or equivalent may be issued by an AD without prior approval of

Bangladesh Bank to a new exporter for business travel abroad, against recommendation

letter from Export Promotion Bureau, Bona-fide requirement beyond US$6000/- is

accommodated by Bangladesh Bank upon written request through an AD with supporting

documents.

3. Business Travel Quota for Importers and Non-exporting producers:

1. Subject to annual upper limit of US$5000/- importers are entitled to a

business travel quota @ 1% of their imports settled during the previous financial year.

2. Subject to annual upper limit of US$5000/- non exporting producers for the

local markets are entitled to a business travel quota @1% of their turnover of the proceeding

financial year as declared in their tax returns.

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The same business organization engaged in imports as well as production shall however;

draw business travel quota entitlement only on one count.

4. Exporters’ Retention Quota:

I) Merchandise exporters may retain up to 40% of realized FOB value of their

exports in foreign currency accounts. However, for exports of goods having

accounts. However, for exports of goods having high import content (such as

readymade garments, POL products including naphtha, furnace oil bitumen,

electronic goods etc.,) the retention quota is 7.5% of the repatriated FOB value.

Funds from these accounts can be used to meet bonafide business expenditure, such

as business visits abroad, participation in export fairs and seminars, establishment

and maintenance of office abroad, import of raw materials, machinery and spares

etc. without prior approval of Bangladesh Bank.Exporters may at their option, retain

the foreign currency in interest bearing renewable term deposit accounts with

Authorized Dealers in US Dollar, Pound Sterling DM or Japanese Yen with a

minimum account of US$2000 or Pound 1500/-

ii) Service exporters (excluding indenting commission or agency commission of

indenting house of buying house respectively) may retain 5% of their repatriated

income in foreign currency accounts or as renewable time deposits with Authorized

Dealers, Funds from these accounts can be used to meet expenses for bonafide

business travel abroad.

3.6.3. Commercial Remittances:

1. Opening of branches or subsidiary companies abroad:

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Remittance of up to US$30,000/- or equivalent per annum may be released by the

Authorized Dealers without prior approval of Bangladesh Bank to meet current expenses of

offices/branches opened abroad by resident in Bangladesh or Commercial/Industrial

concern incorporated in Bangladesh.

2. Remittance by shipping companies airlines & courier service:

Foreign Shipping Companies, airlines and courier service companies may send, through an

AD, funds collected in Bangladesh towards freight and passage after adjustment of local

cost & Taxes, if any without prior approval of Bangladesh Bank.

3. Remittance of Royalty and technical fees:

No prior permission of the Bangladesh Bank of BOI is required by the enterprises for

entering into agreement involving remittance of royalty, technical know-how or technical

assistance fees, operational services fees, marketing commission etc., if the total fees and

other expenses connected with technology transfer do not exceed.

6% of the cost of imported machinery in case of new projects.

6% of the previous year’s sales as declared in the income tax returns of the

ongoing concerns.

The Authorized Dealers may remit such royalty and other fees without prior approval of

Bangladesh Bank.

4. Remittance on account of training & consultancy:

Industrial enterprises producing for local market may remit through Authorized Dealers up

to 1% of their annual sales as declared in their previous years’ tax return for the purpose of

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training and consultancy services as per relevant contract with the foreign trainer/consultant,

without prior approval of Bangladesh Bank.

5. Remittance of profits of foreign firms/branches:

Authorized Dealers may without prior Bangladesh Bank approval remit abroad the post tax

profits of branches of foreign firms and companies including foreign banks & other

financial institutions subject to submission of relevant documents/information along with

the application.

6. Remittance of Dividend:

Prior permission of Bangladesh Bank is not required for:

Remittance of dividend income to non-resident shareholders on receipt of

application in the prescribe form from the companies concerned.

Remittance of dividend declared out of previous years’ accumulated

reserves.

7. Subscriptions to foreign media services:

On application from the local newspapers, Authorized Dealers may remit foreign exchange

towards cost of subscription of news items, features, articles of foreign news agencies

subject to submission of (I) contracts entered into between the applicant and the foreign

news agency and (ii) NOC of the Ministry of Information.

8. Costs/ for Reuter monitors:

Authorized Dealers may remit abroad costs/fees on account of their own subscription to

foreign media services such as Reuter monitor service, without prior approval of

Bangladesh Bank.

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9. Advertisement of Bangladeshi Products in mass media abroad:

Prior permission of Bangladesh is not required by the Authorized Dealers for remittance of

charges for advertisement of Bangladeshi commodities in mass media abroad subject to

submission of Invoice from the concerned foreign mass media along with the applications

of the remitter. The applicant will have to submit copy of the advertisement to the Ad within

one month of this issuance.

3.6.4. Features of Different Foreign Currency Accounts:Shahjaial Islami Bank Limited maintains different foreign currency accounts. Each has some

unique characteristics that customers require. Some of them are presented below:

3.6.4.1. FC General A/C:

• Payment can be made freely abroad from these accounts.

• Local disbursement can be made freely in Taka, (if and not FC specially

permitted by the Government/Bangladesh Bank).

• Bills of Foreign Contractors/Missions may be settled from these accounts.

• Convertible Foreign Exchange i.e. TC, Draft, Cash Currency may be

deposited.

• Interest can be paid provided the accounts are maintained in the form of term

deposits for a minimum period of 90 days.

• No tax payable against the interest accrued as per Income Tax Act.

• FC accounts can be opened in US Dollar, EURO, Deutsche Mark, Japanese

Yen and Pound Sterling.

3.6.4.2 Exporters Foreign Currency Accounts:

On realization of export proceeds in Foreign Exchange, the bank will credit the exporter’s

Quota to this account @ 7.5% of FOB value. The balance of such FC accounts can be used

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by the exporter for bonafide business purpose only such as business visit abroad, participation

in export firms and seminars, import of raw materials, machineries, spares etc.Interest bearing

renewable term deposits may be kept in US Dollar, Pound Starling, EURO and Japanese Yen

with minimum balance of USD 2,000 or Pound Starling 1,500 or equivalent.

3.6.4.3 Non-resident Foreign Currency Account (NFCD Accounts):

• Account nature is Term Deposit of 1 month, 3 months, 6 months and 1 year

for minimum amount of USD 1,000.00 or Pound Starling 500 or equivalent in

EURO, Deutsche Mark and Japanese Yen.

• NFCD accounts may be opened against direct remittances or by debiting FC

General Account.

• Those Accounts can be maintained as long as desired.

• Applicant’s signature should be verified by the Bangladesh Mission abroad or

a reputable bank or any other person acceptable to AD in Bangladesh if the

applicant do not maintain ay FC account with the AD Bank.

• Interest payable at the EURO currency rate.

• No interest on premature encashment.

• Interest exempted from Income tax payment.

• Principal amount and the interest are repatriatable to any foreign country.

3.6.4.4 Resident Foreign Currency Account (RFCD Accounts):

• Amount up to US$ 5,000.00 may be deposited without declaration, any

amount excess of USD 5,000.00 brought in may also be deposited through

customs declaration form FMJ

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• A declaration should by taken that this Foreign Exchange is not a receipt

against export of goods or services from Bangladesh or a commission due

from abroad arising any business deals in Bangladesh.

•

Balances in RFCD Account shall be transferred freely abroad.• Release of FC should be up to USD 300.00 in the form of cash and reminder

in the form of TC.