A FINAL PROJECT STUDY UNDERTAKEN IN PUNJAB NATIONAL BANK

ON FOREIGH EXCHANGE OPERATIONS

A training report submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION (2011-2013)

Submitted to: Dr. B.B Singla Assistant Professor

Submitted by:Dheeraj Kumar MBA 2nd year SEC A Roll No- 1 2 0 4 2 6 2 2 8

SCHOOL OF MANAGEMENT STUDIES

PUNJABI UNIVERSITY, PATIALA

ACKNOWLEGEMENT
Doing a project involves concerned efforts of different persons at different stages. It has been rightly remarked Success is the satisfactory achievement of the chosen and desired objectives. It is attained of major object. Your earnest desired work and burning great enthusiasm and dedication. The project encourages the generosity of my teachers, colleagues and friends, although I shall not be able to thank them, however, I can try. The deep sense of gratitude that I owe to our learned guide and supervisor Sr. Amarjit Singh, Chief Manager, International Banking Division, Bhikhaji Cama Place, New Delhi is fathomless for words to be expressed for his insurmountable help, constant encouragement, invaluable guidance, generous nature which helped me to learn and gather the knowledge in all most important areas of Foreign Exchange. I express our feelings of reverence for Mrs. Suman Aggarwal and Mr. , Senior Managers, Centralized Banking of Foreign Trade, Mr. Alok Bhargava, Senior Manager, International Branch Banking, Mr. C.M. Talwar Manager at Retail Branch and Ms. Romi Hemrajani, Mrs. Sushila, Mr. Girish Sikka, Mr. Deepak Kumar and Mr. Joshi Senior Managers in Foreign Exchange Office for his moral support, guidance and encouragement and for helping me by suggesting relevant sources of information throughout the course of this project. It is my privilege to express special thanks to my Project In charge Dr. Bharat Bhushan Singla for their constant encouragement and guidance during the project. They have been constant source of inspiration and helped me in each step.

TABLE OF CONTENTS

S.NO Chapter Name Executive Summary

Page No. 5-6

1.

Introduction ----------------------------------------------------- - - Industry - - - Organization - - - Scope of Study Objectives -------------------------------------------------------Research Methodology and Objective of Study --------Methods of Data Collection -----------------------------------Limitations ---------------------------------------------------------

7-10 11-64 65 66

2. 3.

67-68 69-70

71 72-78 79 80 81
82 83 84 85-87

4. 5. 6.

Analysis & Interpretation -----------------------------------Recommandations & Suggestions -------------------------Conclusion ------------------------------------------------------Bibliography ---------------------------------------------------Annexure --------------------------------------------------------Questionnaire Bill of Lading Invoice Specimen Letter of Credit

LIST OF TABLES / FIGURES / ABBREVATIONS

Tables:1. Table, Banks in India failed between 1913 and 1918 Page No.2 2. Performance of the banks in terms of business and profit Page No. 6 3. Net Foreign Exchange earned - Page No.22 4. Types of Invoices - Page No.27, 28 5. List of Accepted Currencies in India Page No. 38 Figures:A. Structure of Indian Banking Industry, Page No. 4 B. Organization Structure, Page No. 7 C. Advance payment, Page No. 13 D. Documents against Payment, Page No. 14 E. Documents against Acceptance, Page No. 15 F. Work on LC, Page No. 16 G. Type of LC Accounts, Page No. 19 H. Free On Board, Page No. - 20 I. Cost & Freight, Page No. - 20 J. Cost Insurance & Freight, Page No. - 21 K. Transshipment Bill, Page No. 36 Abbreviations:ADs Authorized Dealers ATM - Automatic Teller Machines BOE Bill of Exchange BOL Bill of Lading BOP Balance of Payment CBS - Core Banking Solution C & F Cost & freight CIF Cost Insurance & Freight CSR - Corporate Social Responsibility DGFT Director General of Foreign Trade ECGC Export Credit & Guarantee Corporation FCNR Foreign Currency Non-resident (External) FEDAI Foreign Exchange Dealers' Association of India FEMA Foreign Exchange Management Act FERA Foreign Exchange Regulation Act FSA - Financial Services Authority FTA Foreign Trade Agreements IEC Importer Exporter Code IBD - International Banking Division KYC Know Your Customer LC Letter Of Credit MNC Multi National Corporation MTSS Money Transfer Service Scheme NRE Non- Resident External NRI - Non- Resident of India NRO Non- Resident Ordinary PC Packing Credit PCFC - Pre-shipment Credit in Foreign Currency PNB Punjab National Bank PO Purchase Order RBI - Reserve Bank of India RDA Rupee Drawing Arrangement

RFC - Resident Foreign Currency

Executive Summary
Today, business have become very much complex as compare to previous days. In area of business management like many organizations providing products and many other companies providing services to their users/consumers. In this connection many companies further deals with product exchange i.e. import & export of the products, services and exchange of technology, in commerce these are known as FOREIGN EXCHANGE OPERATIONS. All the transactions in the foreign exchange process majorly doing by the all Indian banks. The exchange process is a key financial variable that affects decisions made by foreign exchange investors, exporters, importers, bankers, businesses, financial institutions, policymakers and tourists in the developed as well as developing world. Fluctuations affect the value of international investment portfolios, competitiveness of exports and imports, value of international reserves, currency value of debt payments, and the cost to tourists in terms of the value of their currency. Movements in Forex markets thus have important implications for the economys business cycle, trade and capital flows and are therefore crucial for understanding financial developments and changes in economic policy. Accordingly, the study analyses the structure of Indias foreign exchange market and terms of participants, instruments and trading platform as also turnover in the Indian foreign exchange market and forward premia. The Indian foreign exchange market has evolved over time as a deep, liquid and efficient market as against a highly regulated market prior to the 1990s. The market participants have become sophisticated, the range of instruments available for trading has increased, the turnover has also increased, while the bidask spreads have declined

Foreign Exchange Policy of Reserve Bank of India: - A Review

Foreign Exchange Market in India operates under the Central Government of India and executes wide powers to control transactions in foreign exchange. The Foreign Exchange Management Act, 1999 or FEMA regulates the whole Foreign Exchange Market in India. Before the introduction of this act, the foreign exchange market in India was regulated by the Reserve Bank of India through the Exchange Control Department, by the Foreign Exchange Regulation Act or FERA, 1947. After independence, FERA was introduced as a temporary

measure to regulate the inflow of the foreign capital. But with the Economic and Industrial development, the need for conservation of foreign currency was urgently felt and on the recommendation of the Public Accounts Committee, the Indian government passed the Foreign Exchange Regulation Act, 1973 and gradually, this act became famous as FEMA. Early Years of Foreign Exchange Market Until 1992, all Foreign Investments in India and the repatriation of Foreign Capital required previous approval of the government. The Foreign Exchange Regulation Act rarely allowed foreign majority holdings for Foreign Exchange in India. However, a new Foreign Investment Policy announced in July 1991, declared automatic approval for Foreign Exchange in India for thirty-four industries. These industries were designated with high priority, up to an equivalent limit of 51 percent. The foreign exchange market in India is regulated by the Reserve Bank of India through the Exchange Control Department. Initially, the Government required that a companys routine approval must rely on identical exports and dividend repatriation, but in May 1992, this requirement of Foreign Exchange in India was lifted, with an exception to low-priority sectors. In 1994, foreign nationals and non-resident Indian investors were permitted to repatriate not only their profits but also their capital for Foreign Exchange in India. Indian exporters enjoyed the freedom to use their export earnings as they found it suitable. However, transfer of capital abroad by Indian nationals is only allowed in particular circumstances, such as emigration. Foreign Exchange in India is automatically made accessible for imports for which import licenses are widely issued.

INDIAN BANKING INDUSTRY

INTRODUCTION:-

Banking in India originated in the last decades of the 18th century. The first banks were The General Bank of India, which started in 1786, and Bank of Hindustan, which started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank of India, which originated in the Bank of Calcutta in June 1806, which almost immediately became the Bank of Bengal. This was one of the three presidency banks, the other two being the Bank of Bombay and the Bank of Madras, all three of which were established under charters from the British East India Company. For many years the Presidency banks acted as quasi-central banks, as did their successors. The three banks merged in 1921 to form the Imperial Bank of India, which, upon India's independence, became the State Bank of India in 1955. History Merchants in [Calcutta] established the Union Bank in 1839, but it failed in 1848 as a consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865 and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A company that issues stock and requires shareholders to be held liable for the company's debt) It was not the first though. That honor belongs to the Bank of Upper India, which was established in 1863, and which survived until 1913, when it failed, with some of its assets and liabilities being transferred to the Alliance Bank of Simla. Foreign banks too started to app, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869. Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center. The first entirely Indian joint stock bank was the Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the Punjab National Bank, established in Lahore in 1895, which has survived to the present and is now one of the largest banks in India. Around the turn of the 20th Century, the Indian economy was passing through a relative period of stability. Around five decades had elapsed since the Indian Mutiny, and the social,

industrial and other infrastructure had improved. Indians had established small banks, most of which served particular ethnic and religious communities. The presidency banks dominated banking in India but there were also some exchange banks and a number of Indian joint stock banks. All these banks operated in different segments of the economy. The exchange banks, mostly owned by Europeans, concentrated on financing foreign trade. Indian joint stock banks were generally under capitalized and lacked the experience and maturity to compete with the presidency and exchange banks. This segmentation let Lord Curzon to observe, "In respect of banking it seems we are behind the times. We are like some old fashioned sailing ship, divided by solid wooden bulkheads into separate and cumbersome compartments." The period between 1906 and 1911, saw the establishment of banks inspired by the Swadeshi movement. The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. A number of banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India. The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina Kannada and Udupi district which were unified earlier and known by the name South Canara ( South Kanara ) district. Four nationalised banks started in this district and also a leading private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of Indian Banking". During the First World War (19141918) through the end of the Second World War (1939 1945), and two years thereafter until the independence of India were challenging for Indian banking. The years of the First World War were turbulent, and it took its toll with banks simply collapsing despite the Indian economy gaining indirect boost due to war-related economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in the following table 1:
Number of banks that failed Authorised capital (Rs. Lakhs) Paid-up Capital (Rs. Lakhs)

Years

1913 1914 1915 1916 1917

12 42 11 13 9

274 710 56 231 76

35 109 5 4 25

1918

209

Nationalisation
Despite the provisions, control and regulations of Reserve Bank of India, banks in India except the State Bank of India or SBI, continued to be owned and operated by private persons. By the 1960s, the Indian banking industry had become an important tool to facilitate the development of the Indian economy. At the same time, it had emerged as a large employer, and a debate had ensued about the nationalization of the banking industry. Indira Gandhi, then Prime Minister of India, expressed the intention of the Government of India in the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts on Bank Nationalisation." The meeting received the paper with enthusiasm. Thereafter, her move was swift and sudden. The Government of India issued an ordinance ('Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalised the 14 largest commercial banks with effect from the midnight of July 19, 1969. These banks contained 85 percent of bank deposits in the country. Jayaprakash Narayan, a national leader of India, described the step as a "masterstroke of political sagacity." Within two weeks of the issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969. A second dose of nationalization of 6 more commercial banks followed in 1980. The stated reason for the nationalization was to give the government more control of credit delivery. With the second dose of nationalization, the Government of India controlled around 91% of the banking business of India. Later on, in the year 1993, the government merged New Bank of India with Punjab National Bank. It was the only merger between nationalized banks and resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth rate of the Indian economy. STRUCTURE OF INDIAN BANKING INDUSTRY Banking Industry in India functions under the sunshade of Reserve Bank of India the regulatory, central bank. Banking Industry mainly consists of: Commercial Banks Co-operative Banks The commercial banking structure in India consists of: Scheduled Commercial Banks Unscheduled Bank. Scheduled commercial Banks constitute those banks which have been

included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (60) of the Act. Some co-operative banks are scheduled commercial banks although not all co-operative banks are. Being a part of the second schedule confers some benefits to the bank in terms of access to accommodation by RBI during the times of liquidity constraints. At the same time, however, this status also subjects the bank certain conditions and obligation towards the reserve regulations of RBI. For the purpose of assessment of performance of banks, the Reserve Bank of India categorise them as public sector banks, old private sector banks, new private sector banks and foreign banks.

PUNJAB NATIONAL BANK

PROFILE
A SAGA OF EXCELLENCE

VISION

"To be a Leading Global Bank with Pan India footprints and become a household brand in the Indo-Gangetic Plains providing entire range of financial products and services under one roof".
MISSION

"Banking for the Unbanked".

With over 60 million satisfied customers and more than 5100 offices including 5 overseas

branches, PNB has continued to retain its leadership position amongst the nationalized banks. The bank enjoys strong fundamentals, large franchise value and good brand image. Besides being ranked as one of India's top service brands, PNB has remained fully committed to its guiding principles of sound and prudent banking. Apart from offering banking products, the bank has also entered the credit card, debit card; bullion business; life and non-life insurance; Gold coins & asset management business, etc. PNB has earned many awards and accolades during the year in appreciation of excellence in services, Corporate Social Responsibility (CSR) practices, transparent governance structure, best use of technology and good human resource management. Since its humble beginning in 1895 with the distinction of being the first Swadeshi Bank to have been started with Indian capital, PNB has achieved significant growth in business which at the end of March 2012 amounted to Rs 6, 73, 363 crore. PNB is ranked as the 2nd largest bank in the country after SBI in terms of branch network, business and many other parameters. During the FY 2011-12, with
36.2 % share of CASA to domestic deposits, the Bank achieved a net profit of Rs 4, 884

crore. Bank has a strong capital base with capital adequacy ratio of 12.63% as on Mar12 as per Basel II with Tier I and Tier II capital ratio at 8.44% and 3.98% respectively. As on March11, the Bank has the Gross and Net NPA ratio of 2.93% and 1.52% respectively. During the FY 2011-12, its ratio of Priority Sector Credit to Adjusted Net Bank Credit at 40.7% & Agriculture Credit to Adjusted Net Bank Credit at 29.48 % was also higher than the stipulated requirement of 40% & 18% respectively. The Bank has been able to maintain its stakeholders interest by posting an improved NIM of 3.96% in Mar11 (3.57% Mar10). The Earning per Share improved to Rs 140.60 (Rs 123.86 Mar10) while the Book value per share improved to Rs 661.20 (Rs 514.77 Mar10). Punjab National Bank continues to maintain its frontline position in the Indian banking industry. In particular, the bank has

retained its NUMBER ONE position among the nationalized banks in terms of number of branches, Deposit, Advances, total Business, Assets, Operating and Net profit in the year 2010-11. The impressive operational and financial performance has been brought about by Banks focus on customer based business with thrust on CASA deposits, Retail, SME & Agri Advances and with more inclusive approach to banking; better asset liability management; improved margin management, thrust on recovery and increased efficiency in core operations of the Bank. The performance highlights of the bank in terms of business and profit are shown below:
Rs. In Crore Parameters Operating Profit Net Profit Deposit Advance Total Business Mar'09 5690 3091 209760 154703 364463 Mar'10 7326 3905 249330 186601 435931 Mar'11 9056 4433 312899 242107 555005 Mar 12 2936 4884 379588 293775 673363

Bank always looked at technology as a key facilitator to provide better customer service and ensured that its IT strategy follows the Business strategy so as to arrive at Best Fit. The Bank has made rapid strides in this direction. All branches of the Bank are under Core Banking Solution (CBS) since Dec08, thus covering 100% of its business and providing Anytime Anywhere banking facility to all customers including customers of more than 3515 rural & semi urban branches. The Bank has also been offering Internet banking services to its customers which also enables on line booking of rail tickets, payment of utilities bills, purchase of airline tickets, etc. Towards developing a cost effective alternative channels of delivery, the Bank with 6009 ATMs has the largest ATM network amongst Nationalized Banks. With the help of advanced technology, the Bank has been a frontrunner in the industry so far as the initiatives for Financial Inclusion is concerned. With its policy of inclusive growth, the Banks mission is Banking for Unbanked. The Bank has launched a drive for biometric smart card based technology enabled Financial Inclusion with the help of Business Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer. The Bank has started several innovative initiatives for marginal groups like rickshaw pullers,

vegetable vendors, dairy farmers, construction workers, etc. Bank has launched a welfare scheme of adoption of village viz., PNB VIKAS. Under the scheme, Bank has selected 117 villages (60 in lead districts and 57 in non lead district) in different circles for all-round improvement in the living standards of the villagers. Besides, Bank has formed PNB PRERNA, an association of the wives of the Banks senior management. The association through its voluntary initiatives has undertaken activities like distribution of food to the poor and needy, provision of computers, books, stationary items to poor girl students at various orphanages and schools etc. Backed by strong domestic performance, the Bank is planning to realize its global aspirations. Bank has opened one branch each at Kabul and Dubai, two branches at Hong Kong and an Off Shore Banking Unit at Mumbai. In addition to the above, Bank has Representative offices at Almaty, Dubai, Shanghai and Oslo, a wholly owned subsidiary in UK with 7 branches and a subsidiary each in Kazakhstan & Bhutan, and joint venture with Everest Bank Ltd. Nepal. During the year, Bank acquired majority equity stake of 63.64% in Dana Bank of Kazakhstan.

Subsidiaries and Joint Ventures in Overseas

PNBIL Punjab National Bank (International) Limited (PNBIL) is a wholly owned UK subsidiary of Punjab National Bank, India. PNBIL was incorporated in UK on 13th April 2006 and registered with the Companies House in England & Wales under No. 5781326. PNBIL was authorised by the Financial Services Authority (FSA) on 13th April 2007 to conduct Banking Business in UK under Registration No. 459701. PNBIL started banking operations in UK on 10th of May 2007 from two locations. The corporate office of PNBIL is at 87, Gresham Street, London EC2V 7NQ (UK). Presently PNBIL has 7 Branches as under: 1. At 87, Gresham Street, London EC2V 7NQ (UK) 2. At 90, South Road, Southall, Middlesex UB1 1RD (UK) 3. At 160 Belgrave Road, Leicester LE4 5AU (UK) 4. At 290 Soho Road, Birmingham B21 9LZ (UK) 5. At 47, Crane book Road, Ilford, Essex, London (UK) 6. At 188 Ealing Road, Wembley HA0 4QD (UK) 7. At 502-504 Dudley Road, Wolver Hampton, WV2 3AA DRUK PNB Bank Ltd

Druk PNB Bank Ltd. (DPNBL) is our Joint Venture Subsidiary in Bhutan with our Equity participation to the extent of 51%. It started operations on 27th January, 2010 and has three branches- one each at Thimphu, Phentsholing and Wangduephodrang Sh N.K. Arora, DGM is the CEO. Contact details of Sh. N.K. Arora are: Phone No. 00975- 17116440 E Mail id: nk_arora@pnb.co.in JSC (SB) PNB Kazakhstan Our bank has acquired 80.95% stake in JSC (SB) PNB, Kazakhstan. The bank has its head quarters in Almaty. It has five branches at Almaty, Pavlador, Karganda, Astana & Taraz. Everest Bank Ltd, Kathmandu, Nepal Everest Bank Limited (EBL) is our joint venture in Nepal with equity participation to the extent of 20%. Under a Technical Services Agreement, our Bank is providing Top Management Support. The operations of EBL with Management Support from our Bank started in January, 1997. EBL presently has a network of 44 branches in Nepal. EBL has started Financial Inclusion concept in Nepal. Domestic Subsidiaries:1. PNB GILTS LTD.

PNB Gilts Ltd., a subsidiary of the Bank, is engaged in the business of trading in Govt. securities, treasury bills and Non SLR Investments. It is also engaged in dealing in Money Market Instruments (Call/Notice/Term Money, Repo /Reverse Repo, Inter-corporate Deposits, Commercial Paper, Certificate of Deposit) and Mutual Funds Distribution. The company is listed at NSE and BSE.
2. PNB HOUSING FINANCE LTD

PNB Housing Finance Ltd. is engaged in providing housing loans for purchase, construction and upgradation of a dwelling unit. The company offers Loans for construction or for purchase of house/flat from development authorities and also from private builders/ group housing societies as well as for renovation/ repairs. Company also provides finance for construction of residential projects. Loans to NRIs are also provided for purchase/ construction of house/ flat along with a resident/ non-resident co-borrower.
3. PNB INVESTMENT SERVICES LTD

PNB Investment Services Ltd, a wholly owned subsidiary, has been set up by the Bank for carrying out Merchant Banking Business. It provides services for Project Appraisal, Loan Syndication, and Debt Placement and to execute IPOs/FPO/QIPs. PNBISL is registered with SEBI as a Category- I Merchant Banker.
4. PNB INSURANCE BROKING Pvt. Ltd. 5. PNB LIFE INSURANCE Co. Ltd.

The Bank is holding majority stake in above two companies, jointly with Vijaya Bank, minor shareholder. Domestic Joint Ventures The Bank has the following Joint Ventures: 1. 2. 3. 4. Principal PNB Asset Management Company Pvt. Ltd Principal Trustee Company Pvt. Ltd Assets Care Enterprises Ltd. India Factoring & Finance Solutions Pvt. Ltd.

PNB now brings to you Centralized Banking Solution (CBS). An inter-branch networking and data sharing platform which makes 'Anytime Anywhere ' banking a reality. With over 5874 CBS Outlets of Bank, the status of customers is changing from 'Customer of the branch' to "Customer of the bank" CBS - 'Benefits' to Customers

Instant fund transfers Cheques collection / deposit across cities Cheque can be deposited at the centre where it is drawn Interconnected ATMs Access of Accounts through any CBS connected branch SWIFT remittance facility Instant generation of statement of accounts

At present CBS facility is available in over 5874 Service Outlets at the 2922 Cities/Centres as on 30.04.2012.

ORIGIN
Punjab under the British especially after annexation in 1849 witnessed a period of rapid development giving rise to a new educated class fired with a desire for freedom from the yoke of slavery. Amongst the cherished desires of this new class was also an overriding

ambition to start a Swadeshi Bank with Indian Capital and management representing all sections of the Indian community. Firstly the idea mooted by, Rai Mool Raj of Arya Samaj who, as reported by Lal Lajpat Rai, had long cherished the idea that Indians should have a national bank of their own. He felt keenly "the fact that the Indian capital was being used to run English banks and companies, the profits accruing from which went entirely to the Britishers whilst Indians had to contend themselves with a small interest on their own capital". On May 23, 1894, the efforts materialized. The founding board was drawn from different parts of India professing different faiths and a varied back-ground with, however, the common objective of providing country with a truly national bank which would further the economic interest of the country. The Bank opened for business on 12 April, 1895. Sh. Dayal Singh Majithia was the first Chairman, Lala Harkishan Lal, the first secretary to the Board and Shri Bulaki Ram Shastri Barrister at Lahore, was appointed Manager. Lala Lajpat Rai was the first to open an account with the bank which was housed in the building opposite the Arya Samaj Mandir in Anarkali in Lahore. His younger brother joined the Bank as a Manager. Authorised total capital of the Bank was Rs. 2 lakhs, the working capital was Rs. 20000. It had total staff strength of nine and the total monthly salary amounted to Rs. 320. The first branch outside Lahore was opened in Rawalpindi in 1900. The Bank made slow, but steady progress in the first decade of its existence. Lala Lajpat Rai joined the Board of Directors soon after in 1913, the banking industry in India was hit by a severe crisis following the failure of the Peoples Bank of India founded by Lala Harkishan Lal. The years 1926 to 1936 were turbulent and loss ridden ones for the banking industry the world over. The 1929 Wall Street crash plunged the world into a severe economic crisis. The five years from 1941 to 1946 were ones of unprecedented growth. From a modest base of 71, the number of branches increased to 278. Deposits grew from Rs. 10 crores to Rs. 62 crores. On March 31, 1947, the Bank officials decided to leave Lahore and transfer the registered office of the Bank to Delhi and permission for transfer was obtained from the Lahore High Court on June 20, 1947. PNB was then housed in the precincts of Sreeniwas in the salubrious Civil Lines, Delhi. Many a staff member fell victim to the widespread riots in the discharge of their duties. The conditions deteriorated further. The Bank was forced to close 92 offices in West Pakistan constituting 33 percent of the total number and having 40% of the total deposits. The Bank, however, continued to maintain a few caretaker branches. The Bank then embarked on its task of rehabilitating the displaced account holders. The migrants from

Pakistan were repaid their deposits based upon whatever evidence they could produce. Such gestures cemented their trusts in the bank and PNB became a symbol of Trust and a name you can bank upon. Surplus staff posed a big problem. Fast expansion became a priority. The policy paid rich dividends by opening up an era of phenomenal growth. In 1951, the Bank took over the assets and liabilities of Bharat Bank Ltd. and became the second largest bank in the private sector. In 1962, it amalgamated the Indo-Commercial Bank with it. From its dwindled deposits of Rs. 43 crores in 1949 it rose to cross the Rs. 355 crores mark by the July 1969. Its number of offices had increased to 569 and advances from Rs. 19 crores in 1949 to Rs. 243 crores by July 1969 when it was nationalized. Since inception in 1895, PNB has always been a "People's bank" serving millions of people throughout the country.

PRODUCTS/SERVICES
Punjab National Bank is extensively catering to banking needs of Non-resident Indians, Importers & Exporters particularly relating to foreign exchange business including Imports & Exports of Goods & Services as also Remittances etc.
PNB OFFERS VARIOUS SCHEMES / PRODUCTS /SERVICES RELATING TO INTERNATIONAL BANKING. THE BROAD DETAILS THRREOF ARE AS UNDER

Foreign Currency Non-resident Deposit A/c Scheme (FD) Non-resident External Deposit A/c Scheme (SB/CA/FD) Non-resident Ordinary Deposit A/c Scheme (SB/CA/FD/RD) Foreign Inward Remittances Rupee Drawing Arrangements / Speed Remittances with Exchange Houses Money Transfer Schemes PNB-NRI REMIT Scheme Exchange of Foreign Currency Travellers Cheques/Notes World Travel Card Buyers / Suppliers Credit against Imports into India Letter of Guarantee (issued on behalf of foreign bank) Precious Metal Business (on consignment basis) Gold (Metal) Loan Scheme for Domestic Jewellery Manufacturers. ECGC Bank assurance - Selling of policies to exporters

INTRODUCTION
International Trade

In simple terms, International Trade means export and import of merchandise goods between countries and from one place to other place. In earlier days, the barter system existed and goods were exchanged for goods or gold. When the domestic markets began to saturate, countries tried to expand beyond international boundaries and sought foreign markets. Trading between two countries has many difficulties like language barriers, time zones, country laws, market practices, etc. Over a period of time the trades of goods between

countries have been standardized and the purchase and sell of goods have more or less fixed patterns regarding rules, regulations, terms and conditions. We give below some of the most commonly used ways of exporting merchandise goods. Advance Payment Documents against Payment Documents against Acceptance Letter of Credit Open Account
Advance Payment

These terms mean that the seller is paid before he ships the goods.
India
1. Places order and makes payment

USA

2. Ships goods after receipt of payment

Seller Sellers view Most secure form of trading Receives money in advance for shipment, thus covered from risk of non- payment by the buyer. Has good cash flow Can use the money manufacturing the goods. Documents against Payment (DP)

Buyer Buyers view Least secure form of trading Pays money in advance and hence carries risk in case the seller fails to honour the sale contract and ship goods. He must have complete confidence in the seller. Drains his cash flow for Agrees to this method if the goods are not available from any other source.

Such type of transaction occurs when seller is strong or when it is sellers market.

In this type of transaction, the buyer pays before he takes possession of the goods.

India

1. Places Order

USA

2. Ships the goods

Seller

Buyer

3. submits Shipping documents to bank

9. Makes the Payment

6. Makes Payment

5. Ask importer to make payment 7. Releases shipping Documents

4. Forwards the shipping documents

8. Remits the payments

Sellers Bank

Buyers Bank

Such type of transaction occurs when seller is strong or when it is sellers market. Greater degree of risk for buyer as he has to pay before getting delivery of goods.

Sellers view More Secure form of trading Payment is secure since buyer makes payment before receipt of goods The buyer may refuse to pay after the goods have reached. Goods will lie at foreign port and will be difficult to dispose off. Seller will have to search for a new buyer or sell at a discount. If the goods do not sell, he will have to bring it back, thus incurring more costs. Has good cash flow

Buyers view Less Secure form of trading Has to make payment before receipt of goods. On risk since he cannot check goods (for quality, quantity) before making payment. Thus is depends on seller meeting the contract terms.

Cash flow is drained

Documents against Acceptance (DA)

This type of transaction involves a Bill of Exchange (BOE). The documents for collection of goods are handed over to the buyer only after he signs the BOE.

India

1. Places Order

USA

2. Ships the goods

Seller
3. Submits shipping documents and Bill of Exchange to bank 11. Makes the payment

Buyer
6. Signs BOE. 9. Makes Payment on due date

5. Ask importer to sign BOE 7. Releases shipping Documents 8. On due date ask to make payment

4. Forwards the shipping documents and BOE

10. Remits the payments

Sellers Bank

Buyers Bank

Such type of transaction occurs when seller is not so strong. For the buyer it is vis--vis DP. However seller carries risk for payment on buyer.

Sellers view Less Secure form of trading Payment is secure since buyer accepts BOE. There is a certainty as to when the payment will be made. On risk in case when buyer goes bankrupt. Export proceeds are realized only on due date hence cash flow is drained. The buyer may refuse to sign the BOE. Goods will lie at foreign port and will be difficult to dispose off. Seller will have to search for a new buyer or sell at a discount. If the goods do not sell, he will have to bring it back, thus incurring more costs.

Buyers view More Secure form of trading He can check the goods before making payment. In case he fails to make payment, legal proceedings can be undertaken. Gets a credit period for making payment.

Letter of Credit A Letter of Credit (LC) is a document issued by the importers bank in favour of the exporter giving him the authority to draw bills up to a particular amount (as per the contract price) covering a specified shipment of goods and assuring him of payment against the delivery of shipping documents as mentioned in LC.

Parties involved in LC Seller Buyer LC Opening Bank/ LC Issuing Bank: (The bank which issues letter of credit at the request of the importer.) LC Advising Bank LC Negotiating Bank LC Confirming Bank How an LC Works:

Buyer is weak or there is no past track record of the buyer or country risk is high. Greater degree of risk for buyer, whilst it is a secured mode of payment for seller. Sellers view Buyers view Very secure as an LC is a guarantee Not Applicable of payment by a bank. Seller need not worry about delays in Administratively cumbersome. payment and financial problems of the buyer as the payment is made by a bank. Not costly. High cost since he has to deposit cash margin for opening LC On risk if there is political crisis in LC process is time consuming and buyers country, unless the LC is there is a delay in possession of confirmed by another bank in goods another country. Types of Letter of Credit

Following are the types of LCs: Documentary Letter of Credit:

A Documentary Letter of Credit is simply a means of opening a credit in favour of someone, under which a payment will be made by a bank, provided certain conditions are fulfilled. The word Documentary means that the payment obligations by the bank will be only after production of correctly completed documents as specified in the LC. There are three types of Documentary Letter of Credits.
Revocable LC:

This type of letter of credit can be amended, withdrawn or changed at any time without the consent of the exporter. It gives the buyer maximum security, but little or no security to the seller. This form of LC is seldom used in practice. A revocable letter of credit is never confirmed.
Irrevocable LC:

In this type of letter of credit, none of the parties involved has a right to amend, change or withdraw the letter of credit except with the permission of ALL the parties involved. i.e. importer, exporter, importers bank and exporters bank. However, the bank can refuse its payment obligation in the event of non-compliance by the exporter with the terms of credit or in case of fraud on the part of exporter.
Confirmed Irrevocable

If the seller does not have a confidence in the LC opening bank or the country of the buyer, it may ask the LC advising bank to confirm the LC. In case the LC Opening bank does not meet its obligations to pay, the LC advising bank makes good the payment.
Clean Letter of Credit:

In this type of letter of credit, bank does not put any conditions for acceptance and payment of bill of exchange.
Back-to-Back LC:

In a back to back LC, the exporter opens an LC in favour of his supplier on the back of LC opened in his favour by importer.
Confirmed LC

When the LC issuing/ opening bank is a weak bank or the concerned country has political problems, another bank in another country (which is either a strong bank or it is in a country which does not have political problem) guarantees payment. The bank, which gives such guarantee, is called LC Confirming bank and LC is called as Confirmed LC. In case the LC opening bank does not pay, the LC confirming bank makes good the payment.

With Recourse LC

The term Recourse means that the BANK may direct the EXPORTER at any time, to pay to the BANK an amount equal to the amount remaining unpaid by the IMPORTER. Thus, in recourse LC exporter is required to make payment to his bank in case importer fails to make payment.
Red Clause LC

Such LC is opened to provide exporter with advance payment to enable him manufacture and purchase goods from the local suppliers. In this LC risk of non-submission of documents or non-execution of order by exporter is on LC opening bank. Since this letter of credit is printed in Red for the sake of differentiation, it is called Red Clause LC.
Green Clause LC

This type of letter of credit envisages grant of storage facilities at port over and above the pre-shipment payment to the exporter. In India opening of Green Clause LC covering import of goods in our country requires prior permission.
The operations of letters of credit have been regulated and are governed by UCPDC 500 of International Chamber Commerce, Paris. Open Account

Open account terms means that the seller has agreed to give the buyer a certain credit period to pay (usually 30 to 90 days after the date of shipment) and the buyer has agreed to pay as per the agreed terms. India
3. Pays on Due date 1. Places Order

USA

2. Ships the goods

Seller

Buyer

Such type of transaction occurs when buyer is strong or when it is buyers market. Here risk is 100% on the seller.

Sellers view Least Secure form of trading. He should have complete confidence that the buyer will pay. On risk since buyer may not pay on due date Should have sufficient liquidity to allow a credit period to the buyer.

Buyers view Most Secure form of trading Can collect and use the goods before making payment Gets free credit. Their own lines from the banks are not used to fund the credit period.

Should have confidence in the It is administratively cheaper. government of the buyers country that they wont impose any restrictions for transfer of money Should have sound knowledge of the trade practices in the buyers country, their language for followup, time zone adjustment and the laws of the country Terms of Trade (INCOTERMS) INCOTERMS means International commercial terms. These are set of rules applicable uniformly to all international trade. They set out the rights and obligations of the exporter and the importer in international trade transactions. They came in to force w.e.f from 1st July 1990. The most common ways of exporting goods are:
FOB C&F CIF FOB

FOB means Free On Board. Here the exporter pays for all the costs till the goods are placed On Board the ship. Once the goods are on board, all the costs are paid by the buyer.

Seller

Port

on Board

On Board

Port

Buyer

Seller Pays Transportation Warehousing Buyer pays Freight Insurance Transportation C&F

C & F means Cost & Freight Here the exporter pays for all the costs till the goods are placed downloaded at the buyers port. The transportation from the port to the final destination and insurance is borne by the buyer.

Seller

Port

On Board

On Board

Port

Buyer

Seller Pays Transportation Warehousing Freight Buyer pays Insurance Transportation CIF

C I F means Cost Insurance & Freight Here the exporter pays for all the costs till the goods are downloaded at the buyers port including Insurance. The transportation is borne by the buyer.

Seller

Port

On Board

On Board

Port

Buyer

Seller Pays Transportation Warehousing Freight Insurance Buyer pays Transportation

TADE DOCUMENATION

Definition of an Exporter Exporter means a person who exports or intends to export and holds an Importer-Exporter Code Number. IEC code is unique for exporter and is registered with Director General of Foreign Trade (DGFT).
Following are the categories of exporters:

- Manufacturer Exporter means a person who exports goods manufactured by him or intends to export such goods.
-

Merchant Exporter means a person engaged in trade activity and exporting or intending to export. He can also export goods manufactured by him.

Export Zones To build marketing infrastructure and expertise required for exports, government has categorized following:

- EOU means Export Oriented Unit - EPZ means Export Processing Zone. - SEZ means Special Economic Zone. These zones are set up as enclaves and have different tariff structures compared to domestic business. This provides an internationally competitive duty free environment for export production at low cost. Thus enabling the products, to be competitive, both quality-wise and price-wise in the international markets. Exports of Service
Service Provider means a person providing:

(i) (ii) (iii) (iv)

Supply of a service from India to any other country Supply of a service from India to the service consumer of any other country, and Supply of a service from India through commercial or physical presence in the territory of any other country. Supply of a service in India relating to exports paid in free foreign exchange.

Types of Exporters When exporters, service providers achieve a specified level of exports over a period of time, they can get recognition or registration as
Export House (EH) Trading House (TH) Star Trading House (STH)

Super Star Trading House (SSTH)

This status is to facilitate the development of business houses specializing in export trade. The eligibility is on basis of:

- average F.O.B. (F.O.B. Value is explained later in this section) value of goods or services in the preceding three years, or preceding year OR
-

The Average net foreign exchange earning in FCY and INR in the preceding three years or Net Foreign Exchange earned in the preceding year.

(INR) CATEGORY AVG FOB (3 preceding FOB (Preceding AVG NFE (3 preceding years) 12 CR 62 CR 312 CR 937 CR NFE (Preceding year) 18 CR 90 CR 450 CR 1350 CR

years) year) EH 15 CR 22 CR TH 75 CR 112 CR STH 375 CR 560 CR SSTH 1112 CR 1680 CR NFE = Net foreign exchange earned on exports
EXPORT FINANCE

FOB = Actual invoice value after deducting all freight, Commission & Insurance payable. An exporter may require financial assistance from his bank at both pre-shipment and postshipment stages. Export finance is broadly classified into following two categories, depending upon what stage of export activity the finance is extended:
1. Pre-shipment Finance

This type of finance is available to produce goods before it is shipped / exported. The types of pre-shipment finance are:
i) ii) Packing Credit Pre-shipment Credit in Foreign Currency (PCFC)

2. Post-shipment Finance

This type of finance is available after the goods are shipped / exported till the money is realized from the overseas buyer. The types of post-shipment finance are:
i) ii) iii) iv) v) Negotiations of export documents under Letter of Credit. Purchase/Discount of Export Documents Advances against Documents / Bills sent on Collection Basis Advances against Exports on Consignment Basis Advances against Cash Incentives / Duty Drawback Entitlements

vi)

Financing Exports under Deferred Payment Arrangements, Turnkey Projects, and Construction Contracts etc.

Some of the common and the most frequently used finance are highlighted below:

Pre-Shipment Finance:
Packing Credit: Packing Credit advance is available for the purpose of: Purchasing raw materials for the goods meant for exports, Manufacturing them, Processing them, Warehousing them, Transporting to the seaport / airport for export, and Packing and shipping.

The maximum period for which the credit can be granted is 180 days from the date of disbursement. The period can be extended by another 90 days at the discretion of the Commercial Bank, subject to the payment of additional interest by the exporter for extended period. Pre-shipment Credit in Foreign Currency (PCFC) This scheme enables Indian exporters to avail pre-shipment credit in foreign currencies to finance cost of imported inputs for manufacture of export products. The maximum credit period for an advance under PCFC is 180 days. The facility for pre-shipment credit limit in foreign currency is available only to the following categories of the exporters:- Export Houses, Trading Houses with annual export turnover exceeding Rs.10 crores.
-

Manufacturing units with minimum export orientation of 25% of production or export turnover of Rs.5 crores, whichever is lower? For this purpose, only physical exports of commodities will be taken into account and not services. Such exports could be made either directly by the manufacturer or he can sell to a Trading House, who can then export.

Advances against Cash Incentives

Advances against Duty Drawback Entitlements

These are not very common and can be ignored for the purpose of this training. Post Shipment Credit Post Shipment Credit can be both, short-term (180 days) or medium to long-term (more than 180 days). Banks give Post-shipment credit (short-term) after the shipment of goods and

submission of shipping documents to banks. Following are the types of post-shipment credits given by banks. Negotiation of Documents: Where the export is under a Letter of Credit, the banks accept the documents, check them, and if they are as per the LC terms, pay the exporter the total amount of the LC, less the bank interest and charges. This process is called negotiation of documents. Purchase/Discount of Bills Where bills are not covered under Letters of Credit, the exporter may ship on a Bill of Exchange Basis. i.e. DA or DP terms. In such cases also, the banks check the documents, wait for the acceptance of the BOE by the buyer, and on acceptance, pay the exporter the value of the BOE. This process is called purchase / Discount of Bills. Documents on Collection Basis The term Collection Basis means that the banks send the documents to the buyer through the buyers bank and the exporters will receive export proceeds only after they are paid by the buyer. No payment is made to the exporter when he submits the documents. Banks may also sometimes grant advances against invoices / bills sent on collection basis. This may be resorted to when the limit available under the Bills purchased scheme is exhausted or when, some export bills drawn under L/C have discrepancies. Such payments are usually avoided and not favored by banks. The period of credit will be from the date of negotiation or collection of export documents to the due date (not more than 180 days in any case) mentioned on the relative export bill or the date of realization of export proceeds from the overseas bank. Advances against Goods sent on Consignment Basis Need for this type of finance arises where goods are exported on consignment basis at the risk of the exporter for sale and eventual remittance of sale proceeds by the agent/consignee. This type of finance is also not favoured by banks. Advances against Cash Incentives/Duty Drawback Where the domestic cost of production of certain goods is high in relation to international price, government may grant some incentives to the exporter so that he may compete effectively in the overseas market. The banks may at times give advances to the exporter against these incentives. Government of India have formulated a Duty Drawback Credit Scheme under which banks are able to grant advances to exporters against their entitlements

of duty drawback on export of goods, free of interest charges. The period of advances will be up to a maximum 90 days beyond which the bank may not allow the advances or may charge normal interest applicable to export credit. Financing Exports under Deferred Payment Arrangements, Turnkey Projects, Construction Contracts etc. Post-shipment credit (medium or long term) is given for exports on deferred payment terms for the period of over one year. Also special RBI approval or EXIM approval is required for credit period more than 180 days. While sanctioning the post-shipment credit, the bank will first liquidate the packing credit from the bill proceeds and then convert the entire amount of the bill into post-shipment credit. TRADE DOCUMENTATION EXPORT DOCUMENTS Given below are the various documents involved in the export of goods. Purchase Order A Purchase Order (PO) is the very first document executed. The Exporter and the Importer negotiate with each other to sell and purchase goods. The Exporter commits to sell the Importer:certain goods at a certain price and At a certain date.

In the Purchase Order all this is put in writing and signed by both the parties. On signing the PO, there is a commitment on both sides and is legally binding on both sides. PO is not only important to the exporter and importer, but it is also of concern to their respective countries, since it affects the balance of payment position of both the countries. It is, therefore, not just a matter of product, manufacturing, packing, shipment and payment but also one of the concerns to licensing authorities, exchange control authorities and banks dealing in export trade. The exporter is required to produce copies of export order to various Government departments/Financial institutions for many things like - obtaining export licenses for products covered under restricted items for exports, availing pre-shipment & post-shipment finance, other incentives, dealing with inspection authorities, insurance underwriters, customs offices, exchange control authorities, etc. for various purposes.

Order Acceptance The Order Acceptance is another important commercial document prepared by the exporter confirming the acceptance of order placed by the importer. Under this document, he commits the shipment of goods covered at the agreed price during a specified time. Sometimes, the exporter needs a copy of his order acceptance signed by the importer.
The order acceptance normally covers:

Name and address of the importer Name and address of the consignee Port of shipment Country of final destination Description of goods Quantity Price each and total amount of the order Terms of delivery Details of freight and insurance Mode of transport Packing and marking details Terms of payment.

Invoice It is a prima facie evidence of the contract of sale and purchase. The invoice should be strictly in accordance with the contract of sale (PO). It contains following details: Name and Address of Seller Name and Address of Buyer Name and address of the consignee

Description of Goods i.e. Technical features, Physical features

Quantity of Goods Gross Weight / Net Weight Price of Goods unit price and total price Country of Origin Port of Loading & Port of Discharge

 Payment Terms After sale service and warranty details Validity of Invoice Delivery Schedules
There are five types of invoices:

Proforma Invoice 1 It is an . indicative quote from the exporter to the importer

Commercial Invoice It is a firm contract of sale for the shipments made. It is a receivable in the books of accounts of the exporter. It is fundamental and basic document used for commercial transactions.

Consular Invoice Consular Invoice is a document required mainly by countries like Philippines and South Africa. It is useful at the time of payment of Import duty. Thus facilitates fast clearance of goods at customs of importers country. Consular invoice is certified by Embassy or Trade Consulate of the Importers country stationed in exporters country

Legalised Invoice It is required by the Middle East countries. It is also called as visaed invoice.

Custom Invoice It is required by countries like USA and Canada.

2 It gives a . clear idea to the importer in respect of terms and conditions of sale and price of goods.

This invoice is legalized by the consular of importing country by stamping and attesting.

Specific form is to be supplied by the consular office of the importing country.

3 Acceptance . of a Proforma Invoice by the buyer is equivalent to a Purchase order duly accepted.

It gives description of the goods as per the L/C, if transaction is drawn under letter of Credit

It is same as consular invoice except that it is not on the prescribed form.

This facilitates entry of merchandise into importing country under preferential traffic.

4 .

In addition to basic terms mentioned above, it includes: Order and Contract No Marks and Vessel No Packing specification s Terms of Sale (FOB,CIF, C&F) Details of shipment i.e name of vessel, route, sailing date, GRI No, IE Code, Marine Insurance Reference.

The exporter has to pay to the Embassy concerned some fees for the certification of this invoice.

Packing List/Note A Packing List/Note gives description of goods exported in detail including every part, component, specifications, etc. It includes following details 1. Date of packing 2. Connecting invoice number 3. Order number 4. Port of Loading 5. Port of Discharge 6. Country of Destination 7. Quantity of goods 8. Description of goods item wise 9. Gross weight and Net Weight 10. Item-wise details Transport Documents
The following documents are used in export business as transport documents:

Ways of Transport

Document Issued

Transport by Sea

Air Freight Rail/Road Post Courier Bill of Lading It is a document of title and it is evidence of shipment.

Bill of Lading Freight Forwarders Receipt Airway Bill/Air consignment note Railway Receipt/Consignment note Post Parcel Receipt Courier Receipt/Way Bill

The Bill of Lading is a document issued by the shipping company or its agent: - acknowledging the receipt of goods mentioned in the bill for shipment on board the vessel - undertaking to deliver the goods in the same order and condition as received, - to the consignee mentioned on the Bill of Lading. Consignor is one who ships the goods. Consignee is one who can collect goods from shipping company. The Bill of Lading contains details such as the: Name of the consignor Name and destination of the vessel Destination of the goods Description of goods Quantity of goods Marks and numbers Invoice number GR number Gross and Net weight Number of packages Amount of freight etc. Date and place of shipment
From the legal point of view, a Bill of Lading is:

i) ii)
iii)

A formal receipt by the ship-owner or the master of the ship acknowledging that the goods of the stated specifications, quantity and condition has been received in the custody of the ship-owner for the purpose of shipment or is on board a certain ship; A memorandum of the contract of carriage, repeating in detail, the terms of the contract which was in fact concluded prior to the signing of the bill; and A document of title of the goods enabling the consignee to dispose of the goods by endorsement.

Bills of Lading are usually made out in sets of three.

The exporter should submit ALL the sets of Bill of Lading together with the mate receipt to the shipping company, which would calculate the freight amount on the basis of measurement or weight as certified by the recognized Chamber of Commerce. On payment of the freight, the shipping company returns the Bill of Lading duly signed and stamped. If required, the exporter may prepare additional copies of the Bill of Lading. In some cases, the exporter may have the Bill made out to his own order or in the name of the Bank. The consignee or the consignor, as the case may be, may transfer the bill either by: - an endorsement, which names the transferee to whom the delivery is to be made or

By an endorsement in blank (i.e. without naming an endorsee).

Airway Bill/Air Consignment Note Airway Bill or Air Consignment Note is the receipt issued by the airline company for the carriage of goods under certain terms and conditions. Airway Bill or Air Consignment Note is NOT treated as a document of title and is not issued in negotiable form. Airway Bill is generally issued in three copies. One copy each is for the carrier, consignee and the consignor. Post Parcel Receipt Post parcel receipt evidences the receipt of goods for exports by the post office and it is also NOT treated as a document of title. Mates Receipt Mates Receipt is issued by the Chief of Vessel after the cargo is loaded. It contains Name of shipping line Vessel Name Port of loading Port of discharge Place of delivery Marks and numbers Number and kind of containers Description of goods Container status/seal number Gross weight Condition of cargo at the time of its receipt on board the vessel Shipping bill number and date. The mate receipt is of a transferable nature and must be presented immediately at the shipping companys office to be exchanged into Bill of Lading. Marine Insurance In the International trade, when the goods are in transit, they are exposed to marine perils. Marine Insurance is intended to protect the exporter/importer against the risk of loss or damage to goods in transit due to marine perils.
In India Marine insurance is governed by the following laws:

1. The Indian Contract Act 1872 2. The Marine Insurance Act 1963 3. The Insurance Act 1938 4. The Insurance Rule 1939 5. The Indian Stamp Act 1899 6. Exchange Control Regulation relating to General Insurance 7. Common Laws

8. Marine Insurance Practice

Marine Insurance includes following types: 1. Insurance of goods in transit by various modes of transport (e.g. Sea, Land, Air, Rail

etc.) 2. Insurance of Ships (e.g. merchant vessels, passenger vessels etc.) 3. Insurance of ship during construction 4. Insurance of ship during breakage 5. Freight Insurance In India and in majority of countries of the world the clauses drafted by institute of London underwriters (ILU) are in vogue. There are about 225 clauses in this set. There are other clauses also in world market like American Clauses or Deutsch Clauses.
For general cargo there are two types of clauses based on mode of transport.

Transit by Sea Transit by Air i) Institute Cargo Clauses(C) Institute Cargo Clauses(A) ICC (A) ICC (C) ii) Institute Cargo Clauses(B) (Excluding carriage by post) ICC (B) iii) Institute Cargo Clauses(A) ICC (A) The scope of cover under ICC(C), ICC (B) & ICC (A) ICC(C) Loss or damage subject to (i) Fire or explosion (ii) Vessel or craft being stranded, grounded, sunk or capsized (iii) Overturning or derailment of land conveyance (iv) Collision/contract of vessel, craft or conveyance with external object other than water. (v) Discharge of cargo at port of distress (vi) General average sacrifice (vii) Jettison ICC (B) above (I) to (vii) points plus the following: (viii) Earthquake, volcanic eruption (ix) Washing Overboard (x) Entry of sea, lake or river water into vessel, craft, hold, conveyance, container, lift van or place of storage (xi) Total loss of any package lost overhead or dropped whilst loading onto, or unloading from, vessel or craft. ICC (A) above (I) to (xi) points plus the following: (i) Rainwater damage (ii) Piracy (iii) Malicious damage (iv) Rough handling (v) Breakage, leakage, denting, scratching etc

(vi) Heating, sweating (vii) Just by external factors (viii) Country damage (ix) Theft, pilferage and non delivery (x) Hook and sling damage (xi) Contamination (xii) Oil damage (xiii) All other accidental loses/ damage to cargo ICC (Air) is similar to ICC (A) but it does not cover General Average or Salvage Charges which are peculiar to sea transit. Exclusions applicable to all ICC (C), (B) & (A) 1. Willful misconduct of insured 2. Ordinary leakage, ordinary loss in weight or volume, ordinary wear and tear of cargo. 3. Insufficiency or unsuitability of packing or preparation of cargo 4. Inherent vice or nature of cargo 5. Insolvency or financial default of owners, managers, characters or operators of the vessels. Un-seaworthiness of the vessel or craft and unfitness of vessel, craft, conveyance, containers or lift vans. 6. Deliberate damage 7. Nuclear losses 8. War Risk 9. Strike, Riots, Civil commotion and terrorism Insurance is mandatory when goods are shipped on CIF basis. As soon as the goods are ready for shipment, the exporter has to buy Insurance. Total Amount to be Insured = Invoice Value + 10%of the Invoice value Bill of exchange Bill of exchange is also known as Draft. A bill of exchange is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to or to the order of a person or to the bearer of the instrument. A bill of exchange contains an order from the creditor to the debtor to pay a specified amount to a person mentioned therein. - Drawer is the person who draws the bill. - Drawee is the person who accepts the bill and agrees to pay. - Payee is the person who receives payment. Sight draft or Draft drawn at first sight or On demand or On presentation The exporter expects the importer to make immediate payment upon the presentation of the draft. Usance Draft or Usance Bill or Demand Draft

Draft is drawn for payment at a date later than presentation. The bill of exchange or Draft is drawn in a set of two. Each one bears a reference to the other. When any of the drafts is paid, the second draft becomes null and void. NTR (Notification and Transfer of Receivables This form is used only for factoring. All the documents are enclosed along with this form. The form is to legally notify the Export Factor of the invoices submitted for factoring. Export Declaration Forms As per the Exchange Control Regulations, exporters are required to submit declaration in one of the following prescribed forms to the prescribed authority before any export of goods from India is made. The prescribed forms are given below:
Form GR

Exports to all countries made other than by Post. This is prepared manually. This is similar to GR Form except that it is issued by certain offices of customs where electronic systems are in place. Exports to all countries by Parcel Post, except when made on Value Payable or Cash on Delivery basis. To be used for declaring software exports through data communication links and receipt of royalty on the software packages/products exported.

Form SDF

Form PP

Form SOFTEX

1) The GR form is the most important document as far as the regulators are concerned. The GR Form gives the following: - the exact amount of Foreign Exchange coming into India at a specific date. - Control and regulation of exports from India - To estimate the balance of Payments situation of the country The details of the GR form are to be reported to RBI on a fortnightly basis. The GR form is to be released to RBI after the foreign currency is received into India. Authorized dealers India are not supposed to accept any documents unless the GR form accompanies the export documents. Shipping Bill Shipping Bill is an important document required by the Customs Authorities for allowing shipment. It is prepared by the exporter and it contains: Name of the vessel, Master or agents, flag

 Port at which goods are to be discharged Country of final destination Exporters name and address Details about packages Number and description of goods Marks and numbers Quantity FOB price, real value as defined in the Sea Customs Act Whether Indian or Foreign merchandise to be re-exported Total number of packages with total weight Value and the name and address of the Importer. The Shipping Bills are of following types. Duty-free shipping Bill: This type of Shipping Bill is printed on white paper and used for the goods for which neither duty nor cess is applicable. It is also used for the goods manufactured out of materials imported under the duty-free import. Dutiable Shipping Bill: This type of shipping bill is used for the goods subject to export duty/cess, which is either
ii)

entitled or not entitled for drawback. This shipping bill is used separately in respect of which export duty is levied on the basis of (a) market price and (b) tariff assessed value, and printed on yellow paper for all goods except mica and jute. Drawback Shipping Bill: If the export of goods is simultaneously by duty free and/or subject to export duty/cess, this type of shipping bill is compulsorily to be used whether alone or along with any other shipping bill. This type of shipping bill is printed on the Green paper. Shipping Bill for Shipment Ex-bond: In case of goods imported for re-export and kept in-bond, this type of shipping bill is used which is printed on yellow paper. Certificate of Origin It is issued by a recognized Chamber of Commerce, Export Promotion Council or Government Department.

It certifies that the goods are of Indian origin and are manufactured in India. It is also required by exporter to categories its product under get concession/ exemptions on duties from the government. Manufacturers Certificate In addition to the certificate of origin, some countries require Manufacturers Certificate stating that: - the goods exported by him are manufactured in India - the goods does not contain any raw material or components imported into India from other country G.S.P. Certificate The EEC countries comprising France, Germany, Belgium, Netherlands, Italy, UK, Ireland, Denmark and Greece have adopted the Generalized System of Preferences (GSP). Under his system, manufacturers and semi-manufacturers from developing countries including India will be entitled to a concessional rate of import duty in these countries. The Government of India has authorized the Export Inspection Council of India and its various agencies to issue the GSP Certificate. Certificate of Inspection:Certificate of Inspection is issued by the Inspection Agency concerned, certifying that the consignment has been inspected as required under the Export (Quality Control & Inspection) Act, 1963 and satisfies the conditions relating to quality control and inspection as applicable to it and is certified export worthy. In addition to this certificate, some countries need Clean Report-of-findings under a certificate of SGS. (SGS is a company who inspects the goods and gives a certificate to that effect). Transshipment Bill India Singapore USA

Port of

Intermediate

Final Port of

Loading

Port

Destination

In the word Transshipment - Trans stands for transfer and Shipment means cargo i.e. when cargo is transferred from one ship to another it is called as Transshipment. Sometimes shipping companies do not have direct ship service to the port of discharge. In such cases, goods are taken by one vessel (ship) to a port from where they are transferred to another vessel for delivery to port of discharge. Transshipment Permit The transshipment permit is the permission for transshipment of goods from the vessel on which the same are booked originally to another for export.

FOREIGN EXCHANGE MARKETS

THE EXCHANGE RATE SYSTEM IN INDIA
BALANCE OF TRADE AND BALANCE OF PAYMENT

It is customary to classify a countrys foreign currency receipts and foreign currency payments under two broad headings 1. 2. Current account transactions Capital Account transactions

Current Account Transactions

Current account transactions relate to export and import of trade goods taking place in the country. It also includes invisible transactions like services rendered by companies, purchase of books, subscription to foreign courses, foreign travel related expenses, etc. The difference between all the inflows minus all the outflows on the current account is called
BALANCE OF TRADE.

It is customary to report all imports on CIF basis and all exports on FOB basis for calculating balance of trade. Invisibles comprises of items other than that of merchandise trade. Some of the more important items under this head are travel, transportation, books and periodicals, dividend payments, etc.
Capital Account Transactions

Capital Account comprises of short-term and long-term international borrowings and lending. Examples are acquisition of assets in a foreign country, external borrowings, repayment of external borrowings, investment or disinvestments in shares of overseas companies, payment of interest on foreign borrowings, etc.

The difference between all the inflows minus all the outflows on the current account plus capital account is called the BALANCE OF PAYMENT. A negative on the Bop means tells you whether a country is a debtor (owes money) or a creditor (has to receive money) vis--vis the rest of the world. India always had a negative BoP position since independence. India also had a negative Balance of Trade position till date. This means that the Indian Imports has always been more than its Exports. Counter Trade Countries facing balance of payments difficulties (negative BoP i.e. deficit and growing over a period of time) encourage counter trade as a means of financing exports. Under counter Trade, imports are paid for, not in convertible currencies but in the form of goods. We have been invoicing all our exports to the communist countries in Non-Convertible Indian Rupees and these are used to finance our imports from those countries. In other words, counter trade can be termed to the barter system of trade. Counter Trade is said to be cost effective and loaded against the countries having balance of payment difficulties. It was widely believed that the goods imported by the erstwhile communist countries against Rupee payment terms were sold to other countries against payment in hard currencies, thus depriving India of valuable foreign exchange. Countries requesting for country trade, who may have to import essential goods from abroad, may have to export more of their goods at cheap rates, so as to meet counter trade obligation. In reality, they may be paying much more for the same goods imported under Barter than they would have paid in free foreign exchange. Convertibility of Indian Rupee A currency is said to be convertible if its holder can convert it, at any time, into any other generally acceptable foreign currency without any restriction from the monetary authorities.
Following are most commonly used, accepted currencies in India. GBP USD EUR JPY AUD SGD CAD Great Britain Pounds U S Dollars Euro Japanese Yen Australian Dollars Singapore Dollars Canadian Dollars

Convertible on the current account

When you say that rupee is fully convertible on the current account, it means that for all the current account transactions, you can convert FCY into INR and vice versa freely without any restrictions / approval from the monetary authorities (RBI / Ministry of Finance).
Example: If you want to make import payments in USD, you can convert equivalent Rupees

into USD and remit the amount. You need not take RBI approval for the same.
Example: Similarly, if you receive export payments in USD, you can convert the amount in

USD into equivalent Rupees without any RBI approval. In India, Rupee is fully convertible on the current account, but partially convertible on the capital account. i.e. you require prior RBI approval to remit money for capital account transactions. The restrictions are put on convertibility of rupee to ensure that it does not become a channel for flight of capital from country.
Rupee can be

Fully Convertible
Rupee is Fully convertible for following transactions:
Travel Business travel Travel for Medical purpose For Education For Pilgrimage Transportation Freight on imports Freight on exports Shipping remittance by foreign/ India companies Insurance Premium, commission & payments Services like Bank charges, commission, Soft/Hardware consultancy services, Computer services, Technical fees Transfers like gifts, donation etc. Income on NRI deposits, loans, dividends etc.

Partially Convertible
Rupee is partially convertible for Capital account transactions e.g.
Investments In Shares abroad by residents In debt securities abroad by residents In real estates abroad by residents Repatriation Of foreign investments in shares, debt markets Of foreign investments in subsidiaries/ branches, in real estates Repayment Long term/ Medium term loans, NR deposits, short term
loans etc.

Non-Convertible
Not Applicable

Foreign Exchange Market

To convert Rupee into foreign currency or vise-versa, exchange rate is involved. The market, which deals with exchange rate mechanism for conversion of currencies, is called Foreign Exchange Market (FOREX). There is no physical Forex market like the Stock Exchange, but its participants and players determine it. Participants purchase and sell foreign currency for the various transactions, which affect the demand/supply of FCY and Rupee. This demand and supply determines to some extent the exchange rate. Factors determining the Exchange Rate of a currency
Following factors determine the exchange rate of a currency vis--vis another currency.

Balance of Payments Local Interest Rates Monetary Policy Exchange Control Regulations Inflation Central Bank Intervention Speculation Demand / Supply of a currency Players in FOREX Market
Following are the players in a FOREX market.

Participants purchasing and selling foreign currency for the various purposes Commercial banks, Merchant banks, Investment Banks, Co-op Banks, Merchants, Moneychangers, tourist, etc. RBI purchase and sell foreign currency to control demand/supply of FCY/ Rupee, to control rupee value compared to other currencies and for foreign currency reserves.
The Exchange rate in a Forex market is quoted for the following four types of transactions:

- For Purchase of foreign currency cash the rate quoted is called as TT Buying rate - For Sale of foreign currency cash the rate quoted is called TT Selling Rate - Rate quoted for Negotiation of an Export Bill is called Bill Buying Rate - Rate quoted for Negotiation of an Import Bill is called Bill Selling Rate * cash does not mean only hard currency, but also amount to be remitted out / received by way of a Telegraphic Transfer. TT Buying rate
Quoted when a bank pays rupee equivalent to a customer after getting

Bill Buying rate

Quoted when a bank negotiates an export bill and there is no cash

TT Selling rate
Quoted when a bank pays FCY to a customer after getting equivalent

Bill Selling rate

This is opposite of Bill Buying where payment is made for

FCY from him

transaction taking place immediately, but cash will be received at a later date. Types of transactions Purchase/discount of bills and other instruments

rupees from him

import bills.

Types of transactions Clean inward remittance Conversion of proceeds of export bill realized. Cancellation of outward TT, DD, MT, PO

Types of transactions Outward remittance in foreign currency (TT/MT/ PO, DD) Cancellation of forward contracts Bill purchased returned unpaid Bill purchased transferred to collection account

Types of transactions Transactions involving transfer of proceeds of import bills.

Types of Exchange Rates

Following are the different types of Exchange Rates
Cash Rate

A Cash transaction is the one in which delivery of foreign exchange takes place immediately. I.e. if you have USD with you and go to a bank for conversion into INR, the bank will convert FCY at a rate and give you INR immediately. The transaction as well as settlement is complete immediately on the same day. Such types of transactions are called as cash transaction and the rate quoted is called as cash rate.
TOM Rate

A TOM transaction is the one in which delivery of foreign exchange takes place the next day. i.e. If you expect to get USD tomorrow, you may book a rate today and give USD to bank tomorrow. The Bank will give you INR tomorrow. This means that you have done the transaction today, but the settlement is done the next day. Such types of transactions are called as TOM transactions and the rate quoted is called as TOM rate.
Spot Rate

A Spot transaction is the one in which delivery of foreign exchange takes place the third working day. i.e. If today is 11th June and you expect to get USD on 14th June, you may book a rate today and give USD to bank on the 14th. The Bank will give you INR on the 14th. This means that you have done the transaction today, but the settlement is done the

third working day. Such types of transactions are called as spot transactions and the rate quoted is called as the spot rate.
Forward Rate

A Forward transaction is the one in which delivery of foreign exchange takes place at a future date, which is greater than the third working day.
Deal Date Today Today Today Today Value Date Today Tomorrow Third working day Any day after the third working day

Cash Rate Tom Rate Spot Rate Forward Rate

How are Forward rates calculated? Forward Rates are calculated based on the following formula: Forward Rate = Spot Rate +/- Margin If Forward rate is more than Spot rate, then the local currency is quoting at a premium If Forward rate is less than Spot rate, then the local currency is quoting at a discount Eg: If today is 15 June and the spot rate of today is 49. You want a forward rate as of 15 July. The bank gives you 49.50. As the forward is more than the spot, rupee is quoting at a premium. The premium is 49.50 49.00 = 0.50. Thus the premium is 50 paise. Eg: If today is 15 June and the spot rate of today is 49. You want a forward rate as of 15 July. The bank gives you 48.75. As the forward is less than the spot, rupee is quoting at a discount. The discount is 48.75 49.00 = -0.25. Thus the discount is 25 paisa.
How are Premium / Discount quoted?

Whether there is a premium or a discount depends upon the Interest rate difference between two countries to which the currency relates. Eg Interest Rate Difference India 10% p.a. 5%p.a. USA 5% p.a.

Since USA interest rate is lower than that of the India INR is quoted at premium of 5% p.a. i.e. 42paise (0.05/12). Lower the interest rate higher is the premium quoted. Premium means that the FCY quoted will be more expensive and so a seller will have to pay more of his own currency. The quoted margin should be added to the spot rate to get the forward rate.

Discount means that the FCY quoted will be cheaper and so a seller will get less of his own currency. The quoted margin should be deducted to the spot rate. Par, which means there will be no change.

Forward Contract
Suppose you export today on 15 June. Your buyer is expected to pay USD on 15 July. The forward rate as

on 15 July is 49.50. However, you do not book a forward rate and the spot rate becomes 40 on 15 July. Your buyer pays you and your bank converts at 49 because you did not book a forward rate on 15 June. You lose 50 paise. If you had booked a forward rate, you would have got 49.50 and could have hedged the exchange rate risk. This booking of a forward rate is legalized under The Indian Contracts Act and the underlying contract is called as a Forward Contract. Forward Contract is thus a hedging tool available to Indian corporate to safeguard against adverse movement in exchange rates. The rate at which a currency can be bought or sold at a future date can be fixed today thus effectively fixing the costs of imports or export receivables due at a future date. It thus renders debtors and creditors free from the risk arising out of exchange rate fluctuations. Authorised Dealers have been delegated powers to book forward contracts subject to the following conditions: 1. 2. 3. 4. 5.
6.

Forward facility can be extended to resident customers only. Forward cover can be for genuine transactions only and not for speculative transactions. AD should satisfy himself that the party for whom the forward cover is being booked is in fact exposed to exchange risk. While booking a forward contract, ADs should verify the necessary documents to ensure authenticity of the transaction. The underlying transaction should be firm and not anticipated or speculative in nature. A customer transaction can be covered in whole or in part. The period and extent to which cover can be obtained may be left to the customer though the cover should ordinarily match the maturity of the original transaction.

Option Forward In a forward contract, the settlement of currencies is at a fixed date in future. In our above example, if a forward contract is booked as on 15 July, the money should be delivered to the bank on the 15th. In case the money is not delivered, the contact is cancelled with some penalties. In an option forward contract a further period, of say 30 days, is given to make the settlement. I.e. you can deliver the money any time between 15 July to 15 Aug and you will

get the same rate booked by you. This further period is called as an option period and the contract is called as an option forward contract. How does GTF book Forward Contracts? GTF books forward contracts through Standard Chartered bank. Forward Contracts are applicable usually for prepayments in INR only. In case it is required to book a forward contract, following will be done: - The forward rate as on the due date of the invoice will be booked and the invoice value will be converted at that rate. - The forward contract will be booked with an option forward of 30 more days. This is done to avoid cancellation of the contract in case the money is not received on due date. - If the money is received in our account by the option forward date, the forward rate will be used to convert the received amount. - If the money is not received in our account by the option forward date, (i.e. by the 30th day after the due date), the forward contract is crystallized and the money will then be converted at the days spot rate. In such case, all exchange rate gains / losses / cancellation charges will have to be borne by the seller.
-

In case the money is received before the due date, corresponding premium (excess premium from the date of receipt of funds till the due date) will be deducted.

Invoice Shipping Date Date

Due Date 30 Days

Option Forward Date

All incidental charges including stamp duty, if any, for booking and cancellation of forward contracts will have to be borne by the seller.
Examples of Forward Rate There can be three situations:

Money comes on the due date Money comes after the expiry of the contract period Money comes before the due date
Money comes on the due date:

Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You get the following rates:

30 Days

Invoice Date 5 July Spot Rate 49

Due Date 5 Aug Fwd Rate 49.50

Option Forward Date 5 Sep

If the money comes to you on the due date i.e. 5 Aug or any time between 5 Aug to 5 Sep, the bank will give you 49.50. Money comes after the option forward period: Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You get the following rates:
30 Days

Invoice Date 5 July

Due Date 5 Aug

Option Fwd Date 5 Sep

Money Recd 15 Sep

Spot Rate 49

Fwd Rate 49.50

Spot Rate 49.80

If the money comes to you on, say, 15 Sep. The bank will cancel the forward contract on 5 Sep and will levy penal charges as follows: Penal Charges = (Spot Rate as on 5 Sep Fwd Rate taken as on 5 Sep) = 0.30 on the full invoice value. The penal charges are levied because the money has not been received on option forward the due date and the bank has to borrow money from the market to crystallize its commitment.
Money comes before the due date:

Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You get the following rates:
30 Days

Invoice Date 5 July

1 Aug

Due Date 5 Aug

Option Fwd Date 5 Sep

Spot Rate 49

Fwd Rate 49.25

Fwd Rate 49.50

If the money comes to you on, say, 1 Aug. The bank will now charge the actual premium from 5 July to 1 August and will convert at 49.25. The customer will not get 49.50. In other words, the bank will calculate the fwd premium from 1 Aug to 5 Aug, which is , say, 0.25. This is the excess premium and will be deducted from the actual forward rate booked. i.e. 49.50 0.25 = 49.25 will be charged.

Nostro / Vostro Accounts

Nostro Account

When you deal in foreign currency, the currency is required to be held in the country to which it belongs. This means that you cannot keep USD in a bank in India. USD is a local currency of United States of America and hence the USD should be kept in USA. Therefore if any bank in India wants to deal with, say, USD, the Indian bank will have to open a current account with a bank in USA, and deposit USD there. The Indian bank then can use the USD deposited in the current account of the US Bank and make transactions. This current account opened by an Indian Bank is called as a Nostro Account.
Definition

A foreign currency account maintained by a bank in India with a foreign bank in a foreign country in its currency is called as a Nostro Account. (Our Account with You, in your currency in your country.)
Eg State Bank of India, Mumbai branch opening a USD current account with Chase

Manhattan Bank, New York branch is called a USD Nostro Account.

Eg Punjab National Bank, Mumbai branch opening a GBP current account with Barclays

Bank, London branch is called a GBP Nostro Account. As you may understand that a USD account cannot be opened in London as USD is not the local currency of UK.
Vostro Account

An INR Account opened by a foreign bank with an Indian bank in India is called as a Vostro Account. (Your Account with Us in our currency in our country). Eg Chase Manhattan Bank, New York branch opening a INR current account with State Bank of India, Mumbai branch is called a INR Vostro Account. LIBOR

LIBR stands for London Interbank Offered Rate. It is a benchmark giving an indication of the average rate at which a leading bank can obtain unsecured funding in the London interbank market for a given period, in a given currency. It therefore represents the lowest real-world cost of unsecured funding in the London market. It is produced for ten currencies with 15 maturities quoted for each - ranging from overnight to 12 months - thus producing 150 rates each business day. E.g.: - If you want to borrow, say, USD 1M from Standard Chartered London, they will quote you LIBOR + 2% (say). [Nostro Account opened by Indian bank at foreign center in foreign currency Vostro Account opened by foreign bank in India in Indian Rupee.]

Foreign Exchange Management in India Foreign exchange management comes under the jurisdiction of Ministry of Finance (MOF) M.O.F. operates in the market through the following three institutions: 1. 2. 3. RBI Customs Enforcement Directorate

Until 31st May 2002, all foreign exchange management in India was governed by Foreign Exchange Regulation Act 1973 (FERA). On 1st June 2002, FERA was replaced by Foreign Exchange Management Act 1999 (FEMA).
Following are 4 points of difference between FERA and FEMA FERA Objective was to conserve foreign exchange Under FERA offense was punishable Under FEMA burden of proof was on accused NRI was not acceptable as per IT act FEMA Objective is to manage foreign exchange Under FEMA offense is compoundable Under FEMA burden of proof is on Enforcement department NRI is acceptable as per IT act as well as defined by FEMA

[According to IT act NRI is a person who is outside India for more than 182 days out of 365 days of previous financial year for any employment or financial gain]

Under FERA/FEMA M.O.F. has instructed RBI to do foreign exchange management? RBI has delegated powers to Authorised Persons i.e. Authorised Dealers and Authorized Moneychangers.
Authorised Dealers

Authorised Dealers (ADs) are those entities which are authorized by The Reserve Bank of India to deal in Foreign Currency. They are usually Banks, but can be companies like Thomas Cook, or even us. Authorised Moneychangers In order to provide facilities for encashment of foreign currency to visitors from abroad i.e. foreign tourist, RBI has granted license to certain established firms, hotels and other organizations permitting them to deal in foreign currency notes, coins & travelers cheques.
These are of two types: 1.

Fully Fledged Moneychangers They are authorized to undertake both purchase and sell transaction with public. Restricted Moneychangers They are authorized only to purchase foreign currency i.e. notes coins and travelers cheque. These purchases/ collections has to be surrendered to an Authorized dealer/ Full Fledged Moneychangers.

2.

Following three institutes plays important role in Foreign Exchange Management

2.I. FEDAI Foreign Exchange Dealers Association in India

2.II.

It is a bankers association licensed by RBI to deal in foreign exchange It is an advisory body to RBI. All rules governing Import- Export foreign exchange management is decided by FEDAI. i.e RBI gives guidelines while FEDAI decides rules. All the operational issues are discussed during association meet and put up to RBI. It conducts educational training programs for bank officers. ICC was established in 1999 and its office is based in Paris It aims at standardizing rules governing operations of Documentary Credits know as UCPDC.

ICC International Chamber of Commerce

It works towards trade liberalization based on free and fair competition. It maintains laison with United Nations. Enjoys the status of first category consultant with UNO.

ICC has brought all countries at a common platform of understanding on documents. The UCP 600 has come into effect from July 1, 2007 onwards and UCP 600 has a number of substantial changes that affect not only how banks will determine compliance, but also how contracts for sales utilizing Letter of Credits should be written. Some of the new articles in UCP 600 have adopted practices in International Standard Banking Practices (ISBP) and followed principles of International Standby Practices (ISP 98), besides providing new articles in examination, documentation and other aspects for issuing the letters of credits for banks involved in foreign exchange. "UCP" is the common reference for the Uniform Customs and Practice for Documentary Credits. The objective of the UCP is to create a set of contractual rules that would establish uniformity to conflicting national regulations. The Uniform Customs and Practices (UCP) for Documentary Credits were first issued in 1933 by the International Chamber of Commerce. The purpose was to overcome conflicting national laws on letters of credit as well as to bring about uniformity in banking practices. The rules have been revised a number of times. The recent revision, UCP 600, took more than three years of consultation and the Consulting Group, which comprised more than 40 representatives from 26 countries proposed changes to the various drafts. During its 24-25 October 2006 meeting, the ICC Commission on Banking Technique and Practice approved new UCP 600 rules for documentary credits. UCP 600 vs. UCP 500 UCP 600, which came into effect on July 1, 2007, incorporates a number of changes from the UCP 500 that was followed by banks for more than a decade till June 2006. These changes include: A reduction in the number of articles from 49 to 39

New articles on "Definitions" and "Interpretations" providing more clarity and precision in the rules A definitive description of negotiation as "purchase" of drafts of documents The replacement of the phrase "reasonable time" for acceptance or refusal of documents by a maximum period of five banking days New provisions allow for the discounting of deferred payment credits Banks can now accept an insurance document that contains reference to any exclusion clause

Some of the important changes in UCP 600 and their implication for banks in handling letter of credit transactions are highlighted below:

UCP 600 does not apply by default to letters of credit issued after July 1st 2007. A statement needs to be incorporated into the credit (LC), and preferably also into the sales contract that expressly states it is subject to these rules. Article 1 of UCP 600 also leaves open the possibility for either party to exclude the application of any part of UCP 600 as long as the exclusion is stipulated in the credit.
Following 3 documents of ICC are statutory requirement in India (a) UCPDC 500 Uniform customs and practice for documentary credit. Effective

from 01-01-1994. All L/Cs are opened as per UCPDC recommendations.

(b) URC 522 Uniform rules for Collection. Effective from 01-01-1996. e.g

Bills sent on collection basis.

(c) URR 525 [Bank to Bank transactions]. Uniform rules of reimbursement.

Effective from 01-07-1996.

Obligations of an Authorised Dealer

RBI has stipulated various obligations as far as handling and reporting of export documents as well as dealing in foreign currency is concerned. Some of the important obligations are highlighted below: The export documents are to be accompanied by a GR Form. The ADs should number these forms in running sequence on a calendar year basis. These numbers should be 7 digit number prefixed by the type of finance granted. Eg If Export documents are negotiated, the serial should no. will be N0000001, etc. If Export documents are purchased, the serial should no. will be P0000001, etc. The export documents should be submitted to the AD within 21 days from the shipment date. If not, then the exporter should give valid reason for the delay and the AD should be satisfied with the reason. If the exporter could not ship the goods declared on the GR, then a short shipment certificate is to be attached with the GR. The GR should mention the name of the AD through which the FCY will be received.

The GR form details are to be reported by the AD to RBI on a fortnightly basis. i.e. All documents handled by the AD in a fortnight (1st to 15th of the month and 16th to last day of the month) should be reported to the RBI within 7 days from the close of the fortnight.

The AD will release the original GR to RBI only when the full amount declared on the GR is realized. If not part payment will be reported to RBI. (Full payment means 90% of the invoice value should be realized. 10% deduction is allowable)

 If the buyer pays less due to discount given to the buyer, the same should be declared on the GR before shipment. Or else the deduction becomes unauthorized. If any commission is payable to the buyers agent, the same should be declared on the GR before shipment. The full FCY value declared on the GR should be realized within 180 days from the shipment date. If not, then approval for extension in time limit is to be taken from RBI.

Retail Banking Operations

The creation of an institutional structure, usually called the foreign exchange market. This is a market where one countrys currency can be exchanged for other countries. Contrary to what the term might suggest, the foreign exchange market actually is not a geographic location. It is an informal network of telephone, telex, satellite, facsimile, and computer communications between banks, foreign exchange dealers, arbitrageurs, and speculators. The market operates simultaneously on three tiers: 1. Individuals and corporations buy and sell foreign exchange through their commercial banks. 2. Commercial banks trade in foreign exchange with other commercial banks in the same financial center. 3. Commercial banks trade in foreign exchange with commercial banks in other financial centers.
The first type of foreign exchange market is called the retail market, and the last two are

known as the interbank market.

We must first understand the organization and dynamics of the foreign exchange market in

order to understand the complex functions of global finance. This chapter explains the roles of the major participants in the exchange market, describes the spot and forward markets, discusses theories of exchange rate determination (parity conditions), and examines the roles of arbitrageurs. PARTICIPANTS IN THE EXCHANGE MARKET The foreign exchange market consists of a spot market and a forward market. In the spot market, foreign currencies are sold and bought for delivery within two business days after the day of a trade. In the forward market, foreign currencies are sold and bought for future delivery. There are many types of participants in the foreign exchange market: exporters,

governments, importers, multinational companies (MNC), tourists, commercial banks, and central banks. But large commercial banks and central banks are the two major participants in the foreign exchange market. Most foreign exchange transactions take place in the commercial banking sector. Commercial Banks Commercial banks participate in the foreign exchange market as intermediaries for customers such as MNCs and exporters. These commercial banks also maintain an interbank market. In other words, they accept deposits of foreign banks and maintain deposits in banks abroad. Commercial banks play three key roles in international transactions: 1. They operate the payment mechanism. 2. They extend credit. 3. They help to reduce risk. Operating the payment mechanism The commercial banking system provides the mechanism by which international payments can be efficiently made. This mechanism is a collection system through which transfers of money by drafts, notes, and other means are made internationally. In order to operate an international payments mechanism, banks maintain deposits in banks abroad and accept deposits of foreign banks. These accounts are debited and credited when payments are made. Banks can make international money transfers very quickly and efficiently by using telegraph, telephone, and computer services. Extending credit Commercial banks also provide credit for international transactions and for business activity within foreign countries. They make loans to those engaged in international trade and foreign investments on either an unsecured or a secured basis. Reducing risk The letter of credit is used as a major means of reducing risk in international transactions. It is a document issued by a bank at the request of an importer. In the document, the bank agrees to honor a draft drawn on the importer if the draft accompanies specified documents. The letter of credit is advantageous for exporters. Exporters sell their goods abroad against the promise of a bank rather than a commercial firm. Banks are usually larger, better known, and better credit risks than most business firms. Thus, exporters are almost completely assured of payment if they meet specific conditions under letters of credit.

RESIDENT FOREIGN CURRENCY (DOMESTIC) ACCOUNT

Resident individuals can open, hold and maintain a foreign currency account i.e. Resident Foreign Currency (RFC) (Domestic) Account with authorized branches.
OPENING OF ACCOUNTS

Branches authorized to handle foreign exchange business can maintain RFCD Accounts. In case, request for opening of RFCD Account is received by other branches, the same may be opened at the nearest authorized branch or at the designated link branch. The Account Opening Form for opening of Current Account of individuals in rupees is to be used for opening these Accounts by affixing a stamp RFCD Account.
TYPES OF ACCOUNTS

The Account can be opened in form of Current Account and no interest will be payable on this account. RFCD accounts at present can be opened in three currencies i.e. Pounds Sterling, US Dollars and Euro.
JOINT ACCOUNTS

The account can be opened in the name of Residents individuals singly or in joint names with eligible persons:PERMISSIBLE CREDITS

Foreign exchange acquired in the form of currency notes, bank notes and travellers cheques from the sources specified hereunder: a. was acquired by him while on a visit to any place outside India by way of payment for services not arising from any business in or anything done in India; or b. was acquired by him, from any person not resident in India and who is on a visit to India, as honorarium or gift or for services rendered or in settlement of any lawful obligation;
c.

Was acquired by him by way of honorarium or gift while on a visit to Represents the unspent amount of foreign exchange acquired by him

any place outside India.

d.

from an authorised person for travel abroad. e. As gift from a close relation, as defined in section 6 of the Companies Act, 1957. f. By way of earning through export of goods/services or as royalty, honorarium or by any other lawful means. g. Representing the disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADRs/GDRs under the

sponsored ADR/GDR Scheme approved by the Foreign Investment Promotion Boards of Government of India. h. By way of earnings received as the proceeds of life insurance policy claims/maturity/surrender values settled in foreign currency from an insurance company in India permitted to undertake life insurance business by the Insurance Regulatory and Development Authority.
PERMISSIBLE DEBITS

Debits to the account shall be for the payment towards current/capital account transactions in accordance with existing regulations under FEMA applicable to resident Individuals.
MINIMUM BALANCE

The RFCD Account may be opened subject to maintenance of minimum balance of USD1000 or its equivalent, presently. There will be no upper ceiling on balances held in these accounts.
CHEQUE BOOK FACILITY

Branches shall issue cheque book to RFCD Account holders for making payments for permitted purposes in terms of existing provisions of Foreign Exchange Management Act 1999. Cheque book facility may be permitted subject to maintenance of minimum balance of USD 1000 or its equivalent, presently in these accounts. Branches shall issue rupee cheque book to RFCD account holder by affixing a stamp on top of the cheques RFCD Account.
LOANS/OVERDRAFTS

No loan/overdraft shall be permissible against balances held in RFCD Accounts.

ACCOUNTING PROCEDURES

The accounting procedure for maintenance of RFCD account shall be the same, which is applicable to FCNR (B) accounts.
PROCEDURAL GUIDELINES

Funds held in RFCD Accounts can be freely converted into Indian Rupees at the prevailing TT buying rate. However, these funds are not allowed to be sold or transferred to accounts of other residents in India. The branches shall report purchase of currency to the Position Maintaining Offices. Branches shall make all eligible payments in foreign currency by issuing drafts, traveller cheques or TT etc. by debiting the RFCD Account with the notional amount.

In case of remittances received in currencies other than the designated currency, the authorised branches may convert foreign currency into the designated currency for placing deposit in RFCD account scheme at the risk and cost of the depositor. Branches are advised to obtain cross rates from the concerned PMO in case of such transactions. In case, a customer surrenders foreign currency notes for opening of RFCD Account, charges for issuing drafts in foreign currency by surrendering the currency notes to Full Fledged Money Changers will be borne by the customer. Notional rates of foreign currencies advised by International Banking Division through foreign exchange circulars are to be used for maintaining these accounts. In case of remittances made in foreign currency where Bank does not earn any exchange income, charges as applicable in case of EEFC accounts may be recovered from the customer.
CHANGE OF STATUS

Balances in these accounts may be allowed to be credited to NRE/FCNR (B) account, at the option /request of the account holders consequent upon change of their residential status from resident to non-resident.

REPORTING IN WEEKLY STATEMENT OF AFFAIRS

The funds held in these accounts should be shown along with figures of RFC deposits in the Annexure to the Weekly Statement of Affairs. The deposit figures should not be clubbed with NRE/FCNR (B) deposits.
RECONCILIATION OF BALANCES At the end of each quarter, PMOs shall send a statement of RFCD Accounts as per their

records to the concerned branches for reconciliation purposes. The branches upon receiving the statement shall tally the same as per their records and in case of any difference/discrepancy, the matter shall be taken up with the concerned PMO. Whenever there is a change in notional rate of the foreign currency, the balance of RFCD funds shall immediately be revalued in terms of revised notional rate and the rupee balance be reconciled with respective PMOs.

Foreign Exchange Derivative Instruments in India

Foreign Exchange Forwards

Authorised Dealers (ADs) (Category-I) are permitted to issue forward contracts to persons resident in India with crystallized foreign currency/foreign interest rate exposure and based on past performance/actual import-export turnover, as permitted by the Reserve Bank and to persons resident outside India with genuine currency exposure to the rupee, as permitted by the Reserve Bank. The residents in India generally hedge crystallized foreign currency/foreign interest rate exposure or transform exposure from one currency to another permitted currency. Residents outside India enter into such contracts to hedge or transform permitted foreign currency exposure to the rupee, as permitted by the Reserve Bank.
Foreign Currency Rupee Swap

A person resident in India who has a long-term foreign currency or rupee liability is permitted to enter into such a swap transaction with ADs (Category-I) to hedge or transform exposure in foreign currency/foreign interest rate to rupee/rupee interest rate.
Foreign Currency Rupee Options

ADs (Category-I) approved by the Reserve Bank and Ads (Category-I) who are not market makers are allowed to sell foreign currency rupee options to their customers on a back-toback basis, provided they have a capital to risk weighted assets ratio (CRAR) of 9 per cent or above. These options are used by customers who have genuine foreign currency exposures, as permitted by the Reserve Bank and by ADs (Category-I) for the purpose of hedging trading books and balance sheet exposures.
Cross-Currency Options

ADs (Category-I) are permitted to issue cross-currency options to a person resident in India with crystallized foreign currency exposure, as permitted by the Reserve Bank. The clients use this instrument to hedge or transform foreign currency exposure arising out of current account transactions. ADs use this instrument to cover the risks arising out of market-making in foreign currency rupee options as well as cross currency options, as permitted by the Reserve Bank.
Cross-Currency Swaps

Entities with borrowings in foreign currency under external commercial borrowing (ECB) are permitted to use cross currency swaps for transformation of and/or hedging foreign currency and interest rate risks. Use of this product in a structured product not conforming to the specific purposes is not permitted. Currency derivatives with the rupee as one leg were introduced with some restrictions in April 1997. Rupee-foreign exchange options were allowed in July 2003. The foreign exchange derivative products that are now available in

Indian financial markets can be grouped into three broad segments, viz., forwards, options (foreign currency rupee options and cross currency options) and currency swaps (foreign currency rupee swaps and cross currency swaps).

ABOUT SWIFT ALLIANCE MESSENGER

Company information SWIFT is a member-owned cooperative through which the financial world conducts its business operations with speed, certainty and confidence. More than 10,000 financial institutions and corporations in 212 countries trust us every day to exchange millions of standardised financial messages. This activity involves the secure exchange of proprietary data while ensuring its confidentiality and integrity. Our role is two-fold. We provide the proprietary communications platform, products and services that allow our customers to connect and exchange financial information securely and reliably. We also act as the catalyst that brings the financial community together to work collaboratively to shape market practice, define standards and consider solutions to issues of mutual interest. SWIFT enables its customers to automate and standardise financial transactions, thereby lowering costs, reducing operational risk and eliminating inefficiencies from their operations. By using SWIFT customers can also create new business opportunities and revenue streams. SWIFT has its headquarters in Belgium and has offices in the world's major financial centres and developing markets. SWIFT provides additional products and associated services through Arkelis N.V., a wholly owned subsidiary of SWIFT, the assets of which were acquired from SunGard in 2010. SWIFT does not hold funds nor does it manage accounts on behalf of customers, nor does it store financial information on an on-going basis. Governance at SWIFT SWIFT is a cooperative society under Belgian law and is owned and controlled by its shareholders. The shareholders elect a Board of 25 independent Directors, which governs the Company and oversees the management of the Company. The Executive Committee is a group of full-time employees headed by the Chief Executive Officer.

Board committees
The Board has six committees:

The Audit and Finance Committee (AFC) is the oversight body for the audit process of SWIFT's operations and related internal controls. It commits to applying best practice for Audit Committees to ensure best governance and oversight in the following areas:
o o o o o o o

Accounting; Financial reporting and control; Legal and Regulatory oversight; Security; Budget, finance and financial long-term planning; Responsibility and liability/Code of conduct; and Audit oversight.

The AFC meets at least four times per year with CEO, CIO, CFO, General Counsel and Chief Auditor, or their pre-approved delegates. The Committee may request presence of any member of SWIFT staff at its discretion. External auditors are present when their annual statements/opinions are discussed and when the Committee deems appropriate.

SWIFT History
2012 SWIFT embraces change SWIFT appointed as supplier for Target2 Securities. Sanctions Screening launched. Milestone of 20 million messages is reached on 31 May. SWIFT welcomes its first ever board member from China. Gottfried Leibbrandt, Head of Marketing succeeds 212 countries YTD | Lzaro Campos as CEO of SWIFT on 1 July. Sibos is held in Osaka. 1,139 billion messages YTD 2011 A stronger and more innovative SWIFT Launch of SWIFTRemit, the first truly global platform for person-to-person payments solution providing cost-efficient framework and consistent service quality. SWIFT launches SWIFTRef, a family of products that aims to eliminate

10,118 live users | 210 costly payment errors arising from bad data, and increase straight-throughcountries | 4,431 billion processing. Launch of SWIFT Index, a new global economic barometer that can act messages as an advance indicator of Gross Domestic Product (GDP). Five new market infrastructures in Latin America join SWIFT. Innotribe Mumbai, 200 delegates explored the specific issue of the future of mobile banking for the unbanked. Construction of OPC CH started. The FIN Renewal programme is progressing to schedule with the communications infrastructure completed in 2011. SWIFT is awarded the Solidaritest Award for Business in recognition of SWIFTs social initiatives. India and Korea, 20 years on SWIFT. SWIFT increases impetus behind Go Local initiatives. Sibos is held in Toronto. 2010 First acquisition in SWIFT history SWIFT acquires Sungards AMH business named Arkelis, which extends SWIFTs portfolio in high-end messaging and services. 30,000 laptops deployed to date in collaboration with One Laptop Per Child (OLPC). Kick off of SWIFT2015 9,705 live users | 209 strategy. 3SKey is introduced to help corporate treasurers manage all their banking countries | 4,032 billion relationships with a single, multi-network personal digital identity. SWIFT FIN messages publishes ISO 20022 for Dummies, more than 15,000 copies are distributed by the end of 2010. ISO 15022 message standards are certified as Sharia-compliant for Islamic Finance. 30 years anniversary of SWIFT in Hong Kong, Japan and Singapore. Acquired: Biggest ever Sibos: 8,900 attendees in Amsterdam. 2009 Efficiency is paramount SWIFT opens Seoul office. Launch of Innotribe to enable collaborative innovation in financial services. 400 organisations order Alliance Lite. SWIFT works directly with customers and partners such as Bloomberg to develop new products and 9,281 live users | 209 services. Launch of Standards Developer Kit, which makes it cheaper and more countries | 3,76 billion efficient to build and maintain standards implementation for both ISO 20022 and FIN messages MT messages. Sibos is held in Hong Kong. 2008 A smarter and simpler SWIFT Distributed Architecture programme completes Phase One successfully. Launch of Alliance Lite, a complete solution giving rapid access to the SWIFT network. Launch of Alliance Integrator, a new product that reduces the effort for customers 8,830 live users | 209 moving additional business flows onto SWIFT and reduces the work involved in countries | 3,855 billion implementing the yearly standards release. SWIFT records two peaks in the same FIN messages week in the message traffic 16,327,668 messages on Wednesday 23 January and 16,550,075 messages on Friday 25 January: a first in SWIFT history. First live SEPA (Single Euro Payments Area) Credit Transfers is sent from major European banks over SWIFTNet on 28 January 2008. SWIFT celebrates its 35th anniversary. Sibos is held in Vienna.

SWIFT offices

SCOPE OF STUDY: The Principle of an autonomous monetary policy, a control over the exchange rate and free capital movements cannot be achieved simultaneously.
Today, majorly transactions of Foreign Exchange have wider area than previous days

by which trade between countries takes place. The study will assist to understand the foreign exchange operations easy and effectively to reader. This shows the Indian system of Forex transactions by exporters and importers
Foreign exchange day-trading has good liquidity. The Forex currency exchange

market is the biggest financial market around the globe today.

 Traders can choose their most feasible time to do trading business with Forex daytrading, as it is a 24/7 market. The high liquidity of Forex is combined with a real 24hour market. In the Forex market, there are no limitations to sell currencies short, not like in stocks, which have to be sold, at short currencies, on an upscale.
IT is evidently to the interest of mankind that made the trade between different

countries easily, presently universally banks are using software named as SWIFT ALLIANCE MESSENGER helping to send and receive the foreign trade transactions. To raise the value of the national exchange for the sake of improving the terms of trade.

Objective(s) of the study:

To know about the how Indian government role in growing trade exchange and in money transfer schemes. What are the roles of banks in managing the business of foreign exchange? What are the factors affecting the countrys exports and imports? Why Indian government is closely concerned with the foreign exchange and trade transactions? What are the laws relating to regulate the foreign trade business? What are the risks in trade and in exchange of payments/amount remitted by N.R.I in favour of person living in India?

What are reasons to make KNOW YOUR CUSTOMERS norms important in trading?

RESEARCH METHODOLOGY
This study is an explanatory research into the foreign exchange operations with respect to the various kinds of services provided by the different financial institutions under the guidance/instructions of the RESERVE BANK OF INDIA. The behavior of different users of Forex services is viewed in the Indian context. The Indian foreign exchange market is developing very fast along with the modern management lines and the importance of the investment and satisfaction of his desires as the ultimate move of trade transactions is being realized by more and more business firms engaged in import and export, merchant trade, currency transactions services, treasury services along with the foreign institutional investment opportunities. Globally, the importers and exporters in turn, are becoming more

and more aware of the exchange market in which he undertakes the purchasing and selling of goods. To stop the speculation, black-money flow and corrupt practices are on the target of RESERVE BANK OF INDIA by implementing the checks of FOREIGN EXCHANGE MANAGEMENT ACT, 1999 are increasing significant concern as with business institutions knowledge for good trade practices and improvement in countries economy, are becoming more and shrewder. The present study is to study the FORIGN EXCHANGE OPERATIONS with special reference to the Importers, Exporters, dealings in treasury operations, money remittances under the jurisdiction/ operations of PUNJAB NATIONAL BANK. (A number of dimensions namely the basis of educational background, age, occupation, marital status, income etc.)

HYPOTHESIS
The truth in any field can be established by scientific research which involves the number of steps and the time devoted by researcher to do justice with their own practices. Formulation of hypothesis is one of the important steps in scientific research methodology.
A hypothesis can be defined as a proposition which can be put to test to determine validity.

The study is concerned with the factors that influence the operations involves in the foreign exchange. It is widely believed that in foreign exchange operations number of factors depends upon the geographical differentiation, demographical behaviour of importing and exporting nations and demand in the different nations and also the foreign exchange policy of that country plays an important role in exchange dealings/processes.

The proposed study is aimed at verifying these impressions. To operationally the study the following hypothesis were formulated to be tested through the questionnaire and personal interviews:1) There is a difference in the nature and demand of Foreign Trade Market Business:-

There is a geographical difference between the countries and in the trends and their culture i.e. views it is differently.
2) Difference exists in the investment and product selection by both Importers and

Exporters country.
3) There exists difference w.r.t. Choice of different trade tariffs applied by Indian

Government in the different parts of country: Factors like income and suitability while making investment. Impact on income Tax. (As some only purchase to avert tax.) Influence of portfolio services providers. 4) There exist economic status differences in the behavior of natives of country.

Methodology Methods of Data Collection:Every Projects successfulness and significance is based on the material gather by the researcher from the different reliable resources and by proper using of the data gathering tools and techniques. DATA:Data is the basic unit in statistical studies. Statistical information like census, population variables, health statistics, and road accidents records are all developed from data. Data is a collection of facts, figures such as values or measurements. It can be numbers, words, measurements, observations or even just descriptions of things.

Data can be defined as the quantitative or qualitative values of a variable. Data is thought to be the lowest unit of information from which other measurements and analysis can be done. Data in itself cannot be understood and to get information from the data one must interpret it into meaningful information. There are various methods of interpreting data. Data sources are broadly classified into primary and secondary data. Data is one of the most important and vital aspect of any research studies. Researches conducted in different fields of study can be different in methodology but every research is based on data which is analyzed and interpreted to get information. Types of data:Primary Data:Data that has been collected from first-hand-experience is known as primary data. Primary data has not been published yet and is more reliable, authentic and objective. Primary data has not been changed or altered by human beings; therefore its validity is greater than secondary data. In the words of WESSEL, Data originally collected in the process of investigation are known as primary data. The concerned investigator is the first person who collects the information. The primary therefore, first hand information. Secondary Data:Secondary data are those which are already in existence, and which have been collected for some other purpose than the answering of the question in hand. The review of literature in nay research is based on secondary data, mostly from books, journals and periodicals. According to WESSEL, Data collected by other persons are called secondary data . These data are therefore, called second hand data. Obviously since these data are already been collected by somebody else, these are available in the form of published or unpublished reports. The data gather in this project is based on both Primary sources and Secondary Sources of Information the data analysis is based on the primary or firsthand information gathers from various Banks, Private Money Transfers and Importer and Exporter. All the other is collected from the books, websites and brochures given by the bank on the services they are providing to their customers.

Limitations
In this report an attempt has been made to understand the concept of Forex operations in dealing room and scrutinize about the various complexity of procedures they followed for the flow of work between handling the transactions made by PNB bank on the behalf of their potential customers. The problem rises then, when gap occurs in the paper work done by both importers and exporters i.e. Letter of credit Bill of Lading, Invoice, Packing list, G.R.E Certificate, and other information provided by the customer or authorised branch to CENETRELISED BANK OF TRADE & FINANCE is not matching and sometimes also

at the time of the realization of the payment by both in the favour of importer and exporter or vice-versa whether bank is debiting or crediting the amount made by the parties. The governments foreign trade policy is also plays crucial role in incumbent for exports and the deposits made by N.R.Is and N.R.Es in whether in NOSTRO-VOSTRO account. Today all of banking operations based on the technology, but there is also very huge risk of data and information loss or theft, they should have is properly contained or not, because many times it is seen that hackers hacked the data and sites of the institutions. Due to which organizations fails to meet with their clients need. It is general quote that risk is everywhere but with the time some discrepancies can be removing. RISK is the entire factor for PROFIT. If organization is able to overcome the problems no, there is success at every step.

Analysis & Interpretation

Every research project always basis a strong cause of problem which give out the excellent results from the existing research by implementing the proper techniques and tools of data interpretation always the need of good research work. The above research projects data is based on the secondary data which given by the Organization (Punjab National Bank), the brochures and the also the some of the copies of system originated documents as a specimen copies. The data resulted that the Punjab National Bank is one the leading industry in foreign exchange services they are providing the customer satisfying services. Operationally work of Punjab National Bank is very strong as according to the other banks. Their exchange

procedure is so simple. Globally, banking following the SWIFT software as a whole in which they send and receives the message of receipt and payments of import and export. The internal operations are very strongly applicable to K.Y.C norms as well as for the source of funds. The bank maintained the standardised format according to their software FINCALE which is characterized by the complete solutions for banking industry. Banks also have flexibility to their regular and potential customers who have strong businesses and deposit with the bank. All the banks follow the R.B.I guidelines in foreign exchange and also in foreign trade. The import and exports of goods takes places under the FEMA guidelines which are mandatory to importers and exporters.

Que: - 1 Are you aware about the Commercial banks/ Indian Govt. undertaking banks?

Interpretation: - As In India Banking Industry are on very strong position, Undoubtly people of the country are very much aware about the banking operations by which they are fulfilling their personal as well as business.

Que: - 2. Are you Exporter / Importer of the goods?

Interpretation: - All we know in India Exports are more than Imports, Business Houses has been successful in creating their image on international front. In context this exporters engages more in export services. On other hand, importers imports that material which easily and cheaply available from international market. Left, respondent deals in domestic market.

Que: -3 In which country you deal for Products/ Services and Technology Transfer?

Interpretation: - Today India is one of the strongest economy in world and trade practices of India are more with the Europe then with Singapore, U.A.E, China and with other continenst.

Que: -4 You have any Letter of Credit with Your Bank for Foreign Trade Services?

Interpretation: - Letter of credit is more crucial tool in Foreign Trade for fund exchange. 56% business persons deals with foreign Importer and Exporter with the Letter of Credit.

Que: - 5 Which Indian banks you prefer for your business transactions?

Interpretation: - Indian Banks are very much involved in the foreign exchange operations, especially the participation of government banks. Also the foreign banks are very active participants in the foreign exchange business. In above graph PNB bank is leader among other banks i.e. are Bank of Baroda, Bank of India and the Hdfc bank.

Que: -6 What is mode of the transport you use for Import/ Export?

Interpretation: - Transportation of goods in foreign trade and % of transshipment by waterways is more than airways slightly. Both are very much crucial transport modes in trade.

Que: - 7 Which companys software you use for Money Transfer?

Interpretation: - For the Foreign Exchange transactions above companies are the key player in the currency exchange or conversion. U.A.E exchange is less like in among dealers; Money gram is less preference than Western Union Money transfer which is leading player in this area.

Que: - 8 Which Company Charges more commission on Money Transfer?

Interpretation: - In the money transfer business commission charged by companies Westren Union Money Transfer is ahead in highly commission charges from their customers, as compares to other two companies.

Que: - 9 From which areas people deals most in Money Transfer?

Interpretation: - Transactions in Semi-urban area are more than urban and rural areas.

Que: - 10 Are you satisfied with the services of private money transferees?

Interpretation: - Most of the people are satisfied with the services in their areas provided by the private money transferees. Only small proportions of people are not satisfied with their services. People say that private service providers charge more than the banks.

Que: - 11 From which area your received the most order regarding Import /Export?

Interpretation: - In Export and Import business most of the orders from the urban areas because of full awareness and the lots business opportunities. Rural is least in both Import & Export.

Que: - 12 Are the Importer / Exporter uses the Letter of Credit?

Interpretation: - Letter of Credit is most reliable Source of fund transfer between the Importers and Exporters. So, that most of the Exporters and Importers prefer the Letter of credit.

Recommendations / Suggestions

1.

Indian Government should take special recommendations to boost To enter in the international trade both importer and exporter should be Indian Ministry of trade and commerce should be more concerned for There should me more flexibility of operations to take deposits from Under the Guidelines of RESERVE BANK OF INDIA Risk Management

the exports as in Indian context to increase their foreign currencies reserves.

2.

known to the foreign trade market in which they are dealing.

3.

own exporters to promote their business in foreign countries.

4. N.R.Is and N.R.Es. 5.

Committees in every financial institution to review the different types of risk in their organization.
6. Free Trade Agreements (FTAs) are an important element of trade

strategy sought to enhance our presence in new and emerging markets to increase our market share. 7.
8.

Encourage domestic manufacturing for inputs to export industry and

Promote technological Up-gradation of exports to retain a competitive

reduce the dependence on imports. edge in global markets.

9.

Persist with a Strong market diversification strategy to hedge the risks Provide incentives for manufacturing of green goods recognizing the

against global uncertainty.

10.

imperative of building capacities for environmental sustainability

Conclusion
Every operation of banking industry regulates by bankers of bank i.e. is R.B.I applied liberalized approach for issuing the licences to banks and other institutions to act as Authorised Dealers in the foreign exchange market to provide services to the business houses, various money transfer companies working at international level. In keeping with the move towards liberalisation, the Reserve Bank has undertaken substantial elimination of licensing, quantitative restrictions and other regulatory and discretionary controls by implementing the FEMA, 1999 checks and the checking of the documents on the port by Custom departmrnts. Reserve Bank has also provided the exchange facility for liberalised travel abroad for purposes, such as, conducting business, attending international conferences, undertaking technical study tours, setting up joint ventures abroad, negotiating foreign collaboration, pursuing higher studies and training, and also for medical treatment. From the above research it concludes that OPERATIVE FUNCTIONS of Punjab National Bank is very efficiently working as compare to other Indian banks.

References / Bibliography:Books:A. VARSHNEY, P.N, 2007, BANKING LAW AND PRACTICE, SULTAN CHAND & SONS, NEW

DELHI. CHAPTER-19 Letter Of Credit. B. PAIN, PARDIP K, 2010, INTERNATIONAL BANKING, MACMILLAN PUB. INDIA LTD, NEW DELHI.
Journals: http://cscjournals.org/csc/manuscript/Journals/IJBRM/volume3/Issue1/IJBRM-64.pdf

Websites: http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12252#CON http://www.worldscibooks.com/economics/8052.html http://dgft.gov.in/exim/2000/policy/ftpplcontentE1213.pdf http://dgft.gov.in/exim/2000/Mspeech1213E.pdf

ANNXEURE

Specimen: - Letter of credit ___________ _____________________________

Swift Input Sender Bank: - PUNJAB NATIONAL BANK Lajpat Nagar, New Delhi Receiver Bank: - Bank Of America New York.

_________________________________________
27: Sequence of total 1/1 40 A: Form of Document Credit Irrevocable 20: Documentary Credit number 1496FLC00037/12 31C: Date of issue 120515 40E: Applicable rules UCP LATEST VERSION 31D: Date & Place of Expiry 120617 CHINA 50: Applicant Force Polymers Pvt. Ltd. 10th km stone, Hardwar-Delhi road, Bahadrabad, Hardwar, Inida 59: Beneficiary name & address XFLP CHEMICAL CO. LTD. ROOM B701-705, HUAQIAO YINZUO BUILDING, 1 NORTH DAQIAO ROAD PUKOU DISTRICT, NANJING CHINA 32B: Currency code, Amount Currency : USD (US Dollor) Amount #33, 040. # 41A: Available with BY-FI BIC ABOCCNBJ100 AGRICULTURE BANK OF CHINA, THE (JIANGSU BRANCH) NANJING CN BY NEGOTIATION 42C: DRAFTS AT AT DAYS FROM BILL OF LADING DATE BEING 100 PCT DRAWN 42D: DRAWEE NAME & ADDRESS PUNJAB NATIONAL BANK BRANCH AHMEDPUR HARDWAR, INDIA. 43P: Partial Shipment NOT ALLOWED 43T: Transshipment ALLOWED 44E: Port of Loading/airport of dep. Any port of china

44F: Port of discharge / airport of dep. NIHAVA SHEVA PORT, INDIA. 44C: Latest date of Shipment 12/05/27 45A: Description of goods &/or Services covering shipment of CRUDE OIL 30000 Lt. (300 DRUMS OF 100 LT. EACH) AND AS PER PERFORMA ONVOICE NO. FGHLJN20120510P DATED 10.05.2012. Terms CIF NHAVA SHEVA, INDIA. 46A: DOCUMENTS REQUIRED 1. FULL SET 3/3 ORIGINAL SHIPPED ON BOARD OCEAN SHIPPING COMPANYS BILL OF LADING TO ORDER BANK ENDORSE OR MADE OUT TO ORDER OF PUNJAB NATIONAL BANK, BRANCH AHMEDPUR HARDWAR, INDIA. MARKED FREIGHT PREPAID AND NOTIFY THE APPLICANT. 2. SIGNED COMMERCIAL INVOICE(s) IN THREE COPIES QUOTING THE GOODS SUPPLIED ARE OF CHINA ORIGIN AS PER PURCHASE ORDER OF THE APPLICANT BEARING NO. FPL/PUR/0145/12-13 DTAED 08.05.2012. MATERIALS ARE FREELY IMPORTABLE ASPER INDIAS FOREIGN TRADE POLICY 2009-2014. 3. PACKING LIST IN 06 COPIES. 4.ONE COMPLETE SET OF NON NEGOTIABLE DOCUMENTS TO BE SENT TO APPLICANT WITH INVOICE,PACKING LIST, BL/AIRWAY BILL,CERTIFICATE OF ORIGIN VIA FAX OR COURIER WITHIN 07 WORKING DAYS FROM THE DATE OF SHIPMENT. BENEFICIARY CERTIFICATE TO THIS EFFECT MUST ACCOMPANY THE ORIGINAL DOCUMENTS. 5. INSURANCE IS COVERED BY THE APPLICANT IN INDIA PARTICULARS OF SHIPMENT FOR INSURANCE PURPOSE TO BE SENT TO APPLICANT QUOTING THEIR COVER NOTE/POLICY NO.0830000748 OF TATA AIG GENERAL INSURANCE COMPNAY LTD.THROUGH FAX/EMAIL. PROOF OF COPY OF FAX/MAIL IS TO ACCOMPANY THE DOCUMENTS. 6.IN CASE SHIPMENT BY SEA - CERTIFICATE FROM SHIPPING COMPANY OR THEIR AGENT TO THE EFFECT THAT THE CARRYING VESSEL IS REGULAR LINEER, SEA WORTHY AND NOT MORE THAN 20 YEARS OLD. 7. IN CASE SHIPMENT BY SEA - HEALTH CERTIFICATE ISSUED BY GOVERNMENT OF HONGKONG AND CERTIFIED BY VETERINARY DOCTOR. F47A: Additional Conditions 1.ORIGINAL DOCUMENTS TO BE SENT TO US IN ONE SETS BY DHL, BY REGISTERED AIRMAIL AT PUNJAB NATIONAL BANK INTERNATIONAL BANKING BRANCH, 8TH FLOOR, DCM BUILDING, 16, BARAKHAMBA ROAD, NEW DELHI- 110001,INDIA. 2.ALL DOCUMENTS SHOULD BE IN ENGLISH OR ACCOMPANIED BY ENGLISH TRANSLATION. 3.DOCUMENTS OF FOLLOWING NATURE ARE NOT ACCEPTABLE:

IN CASE OF AIR SHIPMENT A.AIR CONSIGNMENT NOTE ISSUED BY FREIGHT FORWARDER. B.AIR WAY BILL ISSUED PRIOR TO DATE OF CREDIT. C.THIRD PARTY AIRWAY BILL. D.HOUSE AIRWAY BILL.

IN CASE OF SEA SHIPMENT A.SHORT FORM BILL OF LADING/BLANK BACK BILL OF LADING. B.BILL OF LADING ISSUED PRIOR TO DATE OF CREDIT. C.THIRD PARTY BILL OF LADING. D.CONTAINING A PROVISION THAT GOODS CAN BE CARRIED ON DECK. E.CHARTER PARTY BILL OF LADING. F.CONTAINING THE INDICATION INTENDED OR SIMILAR QUALIFICATION. IN RELATION TO THE VESSEL OR OTHER MEANS OF TRANSPORT OR PORT OF LOADING OR PORT OF DISCHARGE. 4.ITEMS SHOULD BE SUITABLY PACKED IN AIRWORTHY/SEAWORTHY PACKING

TO WITHSTAND SHOCKS WHATSOEVER DURING LOADING,UNLOADING AND TRANSIT. 5.DOCUMENTS PRESENTED WITH DISCREPANCY(IES) WHETHER INDICATED OR FOUND IS SUBJECT TO A HANDLING FEE FOR USD50.00 WHICH IS PAYABLE BY THE BENEFICIARY AND WILL BE DEDUCTED FROM PROCEEDS UPON PAYMENT. 6.ALL APPARENT SPELLING MISTAKES IN LC TEXT ARE ACCEPTABLE EXCEPT IN DESCRIPTION OF GOODS AND AMOUNT OF GOODS. 7.FOR DISCREPANT DOCUMENTS, NOTWITHSTANDING ANY PRIOR NOTICE OF REJECTION BY US, WE MAY IN OUR SOLE JUDGEMENT REFER THE DISCREPANCIES TO THE APPLICANT FOR ACCEPTANCE AND WE RESERVE THE RIGHT TO RELEASE THE DOCUMENTS TO APPLICANT AGAINST THEIR ACCEPTANCE/PAYMENT WITHOUT PRIOR NOTICE TO THE PRESENTER UNLESS WE RECEIVE DIFFERENT DOCUMENT DISPOSAL INSTRUCTIONS FROM THE PRESENTER BEFORE SUCH RELEASE. F71B: Charges ALL BANK CHARGES OUTSIDE INDIA ARE ON ACCOUNT OF BENEFICIARY. F48: Period for Presentation WITHIN 21 DAYS FROM THE DATE OF SHIPMENT BUT WITHIN THE VALIDITY OF LC. F49: Confirmation Instructions WITHOUT F78: Instr to Payg/Accptg/Negotg Bank WE SHALL REMIT THE PROCEEDS TO YOU UPON RECEIPT OF CREDIT COMPLIED DOCUMENTS AS PER UCPDC600. WE HEREBY ENGAGE WITH DRAWERS AND/OR BONAFIDE HOLDERS THAT DRAFT UNDER AND NEGOTIATED WITH CREDIT TERMS WILL BE DULY HONOURED.THE AMOUNT OF EACH DRAFT MUST BE ENDORSED ON REVERSE OF THE CREDIT BY THR NEGOTIATING BANK. F57A: 'Advise Through' Bank - FI BIC BSCHHKHH BANCO SANTANDER, S.A. HONG KONG BRANCH (HEAD OFFICE IN HONG KONG) HONG KONG HK F72: Sender to Receiver Information /TELEBEN/PL ADVISE THE LC TO THE //BENEFICIARY AND ACKNOWLEDGE //RECEIPT Report Footer Number of Entities: 1 End of report

Questionnaire
Name of Respondent__________________________________, Address___________________________ ______________________________, City____________________, Contact No_____________________.

1. Are you aware about the Commercial banks/ Indian Govt. undertaking banks? Yes No 2. Are you Exporter / Importer of the goods? Exporter Importer NILL 3. In which country you deal for Products/ Services and Technology Transfer? United State of America China Singapore United Kingdom Russia Europe United Arab Emirates 4. You have any Letter of Credit with Your Bank for Foreign Trade Services? Yes No 5. Which Indian bank you prefer for your business transactions? Bank of Baroda Union Bank of India Bank of India Punjab National Bank HDFC 6. What is mode of the transport you use for Import/ Export? Airway Waterway 7. Which companys software you use for Money Transfer? Western Union money Transfer Money Gram UAE Exchange 8. Which Company Charges more commission on Money Transfer? UAE Exchange Western Union money Transfer Money Gram 9. From which areas people deals most in Money Transfer? Rural Urban Semi-Urban 10. Are you happy with the services of private money transferees? Yes No 11. From which area your received the most order regarding Import /Export? Urban Rural Semi-Urban

12. Are the Importer / Exporter uses the Letter of Credit? Yes No