A STUDY ON RISK MANAGEMENT OF FOREX TRADING

IN BANK OF INDIA

A SUMMER INTERNSHIP REPORT SUBMITTED TO UTKAL UNIVERSITY IN

PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF
MASTER IN BUSINESS ADMINISTRATION
(FINANCIAL MANAGEMENT) 2017-19

Submitted by:
JYOTRIMAYEE SINGH
Roll No.: -23706V172013
Session: - 2017-19

Under the Guidance of:

Internal Guide: External Guide:

PROF. PRADYOT KESHARI PRADHAN SUBHENDU KUMAR MANDAL
P.G. Department of Commerce Forex Manager
Utkal University, Bhubaneswar Bank of India
Main Branch, Bhubaneswar

MASTER IN BUSINESS ADMINISTRATION (FINANCIAL MANAGEMENT)

P.G. DEPARTMENT OF COMMERCE
UTKAL UNIVERSITY
BHUBANESWAR, ODISHA
 DECLARATION

I, J yotrimayee Singh, hereby declare that this piece of dissertation work entitled “Risk Management of
Forex trading in Bank of India” has been prepared by me under the guidance of Prof. Pradyot Keshari
Pradhan, is an original work submitted to P.G. Department of Commerce, Utkal University. It is a genuine
piece of research work accomplished by me for the summer internship project towards the partial fulfillment
of the requirement for the award of Master in Business Administration. I also hereby declare that this project
report has neither been submitted nor published elsewhere.

Date: Jyotrimayee Singh

Place: Utkal University Roll No- 23706V172013
P.G. Dept of Commerce
 ACKNOWLEDGEMENT

It is a pleasure to acknowledge my debt to all the people involved directly or indirectly, in the development
of this project. This experience will definitely help me in my future endeavors of work.

I now take the opportunity to thank my project guide Mr. Subhendu Kumar Mandal, Forex Manager, Bank
of India, Bhubaneswar branch for his foresight in giving me the opportunity to develop the ideas. I truly
admire his skill and capacity of making clear-cut points for the requirement understanding.

I also extend my gratitude to Prof. Pradyot Keshari Pradhan, P.G. Department of Commerce, Utkal
University for being a constant source of encouragement and guidance required for the completion of the
project.

I would like to thank my parents, who always inspired me and provided necessary functional requirements,
which helped to attain my goal.

My obligations remain to all those people and friends who have directly or indirectly helped me in
successful completion of my project. No amount of words written here will suffice for my sense of gratitude
towards all of them.

Date: Jyotrimayee Singh

Place: Utkal University Roll No- 23706V172013
P.G. Dept of Commerce
 EXECUTIVE SUMMARY

The banking sector is an important pillar of Indian economy. It contributes greatly to the growth of the
economy with vast network of branches all over the country. Allahabad Bank being the oldest joint stock
bank has created many milestones. Despite of all the significant contributions the of the bank, Allahabad
Bank continues to face certain constraints. It thus shows that providing adequate, time loan with proper
repayment is one of the bigger issues for the bank.
To start a new business, every venture needs funding. An entrepreneur usually starts a venture with his own
funds and borrows the rest of his required amount from the bank. Likewise, Allahabad Bank is also trying to
perform this duty in a very systematic manner. Thus the concept of loan has become very popular in the
society for fulfilling the needs. But behind every success there are a lots of work involved in a systematic
way. Loan Appraisal done by bank employees is the same thing behind a successful business organization.
Allahabad Bank being one of the leading nationalized bank trying to create a balance between the surplus
and deficiency of finance in the society. Its branches all over the country are performing this responsibility.
Temple Marg branch of the bank is a live example.
 CERTIFICATE

This is to certify that Ms. Jyotrimayee Singh has undertaken Summer Internship Project (SIP) titled “Risk
Management in Forex Trading of Bank of India” under my guidance and supervision.

This work is result of her original contribution and no part of this work has been submitted elsewhere for
any degree or diploma.

I wish her all success in future endeavor.

PROF. PRADYOT KESHARI PRADHAN

P.G. Department of Commerce
Utkal University, Bhubaneswar
 CERTIFICATE

This is to certify that Ms. Jyotrimayee Singh has undertaken Summer Internship Project (SIP) titled “Risk
Management in Forex Trading of Bank of India” under my guidance and supervision.

This work is result of her original contribution and no part of this work has been submitted elsewhere for
any degree or diploma.

I wish her all success in future endeavor.

SUBHENDU KUMAR MANDAL

Forex Manager
Bank of India
Main Branch, Bhubaneswar
Foreign exchange is the exchange of one currency for another or the conversion of one currency into another
currency. Foreign exchange also refers to the global market where currencies are traded virtually around the
clock.
The foreign exchange market is a decentralized worldwide market. The participants in the foreign exchange
market include central banks, commercial banks, brokers etc. The central banks monitor market movements
and sentiments and intervene according to government policy. The function of buying and selling of foreign
currencies in India is performed by authorized dealers / moneychangers appointed by the RBI. The foreign
exchange department of the major banks are linked across the world on a 24 hour basis. Major commercial
centers are London, Amsterdam, Frankfurt, Milan, Paris, New York, Toronto, Bahrain, Tokyo, Hong Kong
and Singapore.
Foreign exchange dates back to ancient times, when traders first began exchanging coins from different
countries. However, the foreign exchange itself is the newest of the financial markets. In the last hundred
years, the foreign exchange has undergone some dramatic transformations. The Bretton Woods Agreement,
set up in 1944, remained intact until the early 1970s. Trading volume has increased rapidly over time,
especially after exchange rates were allowed to float freely in 1971. In 1971, the Bretton Woods Agreement
was first tested because of uncontrollable currency rate fluctuations, by 1973 the gold standard was
abandoned by president Richard Nixon, currencies where finally allowed to float freely. Thereafter, the
foreign exchange market quickly established itself as the financial market. Before the year 1998, the foreign
exchange market was only available to larger entities trading currencies for commercial and investment
purposes through banks, now online currency trading platforms and the internet allow smaller financial
institutions and retail investors access a similar level of liquidity as the major foreign exchange banks, by
offering a gateway to the primary (Interbank) market.

The FOREX refers to the Foreign Currency Exchange Market in which over 4,600 International Banks and
millions of small and large speculators participate worldwide. Every day this worldwide market exchanges
more than $1.7 trillion in dozens of different currencies. With the current growth rate the market is projected
to grow to more than $1.9 trillion per day by the year 2006. With such volume, one can assume that the
forex market is extremely volatile, changing at a moment’s notice, depending on conditions within that
country.

The foreign exchange market is undisputedly the world's largest market place with the average daily
turnover in excess of US$4 Trillion. Operating 24 hours a day, 5 days a week the foreign exchange market
does not operate on a regulated exchange, therefore is known as an OTC (over-the-counter) transaction.
The global foreign exchange market is the largest and the most liquid financial market in the world, with
average daily volumes in the trillions of dollars. Foreign exchange transactions can be done for spot
or forward delivery. There is no centralized market for forex transactions, which are executed over the
counter and around the clock.

The largest foreign exchange markets are located in major financial centers like London, New York,
Singapore, Tokyo, Frankfurt, Hong Kong and Sydney.
The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX."

One of the prime advantages to trading foreign exchange is the sheer volume of market participants, in turn
creating liquidity which cannot be matched by any regulated exchange - traded product or instrument. Like
trading the share market, in theory the buying and selling of currencies is extremely simple - buy low, sell
high and vice versa; however in practice learning the basics is essential before putting your hard earned cash
on the line.

Forex Exchange Compared to Other Finacial Markets:

So, what is forex trading market, really? The answers are simple – and complex. The basic concept behind
the foreign exchange (or forex) market is for trading currencies, one pair against another. It’s the world’s
largest market, consisting of almost $2 trillion in daily volume and is growing rapidly. The value of one
currency is determined by its comparison to another currency via the exchange rate. The major currencies
traded most often in the foreign exchange market are the euro (EUR), United States dollar (USD), Japanese
yen (JPY), British pound (GBP) and the Swiss franc (CHF). These combine to form the most commonly
traded currency pairs:
• EUR/USD • USD/JPY • GBP/USD • USD/CHF The first currency of a currency pair is the base currency;
the second currency in the pair is the counter currency. One can think of currency pairs as a single unit.
When buying a currency pair, the base currency is being bought, while the counter currency is being sold.
The opposite is true when selling a currency pair. Foreign currency trading is conducted without a central
exchange, but instead is traded over-the-counter (OTC). Unlike other markets, this decentralization allows
traders to choose from a large number of different dealers or brokers with which to place trades. This also
provides the means to compare prices and pip spreads before buying or selling. A number of tools and charts
are used in forex currency trading and the educated trader uses these tools extensively to perform accurate
analysis to determine whether to buy or sell a given currency pair. The forex market is operated in Europe,
Asia and the United States in overlapping shifts, so currencies are constantly traded 24 hours a day. No
single entity has the capability of influencing the market – at least for very long. Currency trading – at its
most basic definition – is the act of buying and selling (trading) different currencies of the world. A typical
scenario might go something like this: A trader is looking at the British pound (GBP) and U.S. dollar (USD).
This is called a currency pair. The GBP is the base currency, and the USD is the secondary currency. News
that the value of the GBP is up from previous reports creates a positive reaction and a spike in the value of
the GBP. This, in turn, will cause a rally on the GBP/USD currency pair. If the opposite occurred, and a
positive announcement for the USD was reported, then the GBP/USD currency pair will fall, or dip. Either
scenario can offer up a profit, depending on which part of the currency pair is bought or sold. The price of
each currency within the pair is determined by a number of factors, such as changes in political leadership,
economic booms or busts, even natural disasters.

Forex Myths Myths, rumors and legends are everywhere. The forex market is not immune. The new forex
trader is likely to be inundated with a number of forex myths, legends and downright falsehoods, so it’s
important to separate fact from fiction before your money leaves your hands. Here is a list of just a few:

Myth 1 - Forex can make you rich quick Think about forex as a journey, and not a destination. There is no
final winning trade; no huge gains; no trade of the century. Advanced strategies like margin trading, options
and futures require a great deal of analysis. Traders make money in the forex market by analyzing trends and
making smart decisions. The gain on each trade is a small step in the direction of his or her long-term goals.
Myth 2 – The forex market is rigged Sometimes you might hear a trader complaining that the market is
against them. Every trade they make is a losing one. They blame the broker, the interbank, the government,
the timing. The truth is this: foreign exchange rates change often and are too volatile to be rigged. Forex
trading is not for the faint-hearted. Blaming everyone but yourself for bad trades will prevent you from
learning and growing as a trader. The only person responsible for your poor trade performance is you.
Myth 3 – The markets move in a predictable, scientific way The junk emails you get from companies trying
to sell their guaranteed, scientific formulas are just that – junk. Anyone who tries to tell you that they have
the market cornered with forex predictions or a single formula is just as crazy as those people who tell you
that you can win the lottery by scientific method. Try doing some paper trading (simulated, such as with a
demo) and find the pattern. It’s not there.

Despite this market’s overwhelming size, when it comes to trading currencies, the concepts are simple. Let’s
take a look at some of the basic concepts that all forex investors need to understand.
Eight Majors
Unlike the stock market, where investors have thousands of stocks to choose from, in the currency market
you only need to follow eight major economies and then determine which will provide the best undervalued
or overvalued opportunities. The following eight countries make up the majority of trade in the currency
market:
United States
Euro zone (the ones to watch are Germany, France, Italy and Spain)
Japan
United Kingdom
Switzerland
Canada
Australia
New Zealand
These economies have the largest and most sophisticated financial markets in the world. By strictly focusing
on these eight countries, we can take advantage of earning interest income on the most creditworthy and
liquid instruments in the financial markets.
Economic data is released from these countries on an almost daily basis, allowing investors to stay on top of
the game when it comes to assessing the health of each country and its economy.
Yield and Return
When it comes to trading currencies, the key to remember is that yield drives return.
When you trade in the foreign exchange spot market (where trading happens immediately or on the
spot), you are actually buying and selling two underlying currencies. All currencies are quoted in pairs,
because each currency is valued in relation to another. For example, if the EUR/USD pair is quoted as
1.2200 that means it takes $1.22 to purchase one euro.
In every foreign exchange transaction, you are simultaneously buying one currency and selling another. In
effect, you are using the proceeds from the currency you sold to purchase the currency you are buying.
Furthermore, every currency in the world comes attached with an interest rate set by the central bank of that
currency's country. You are obligated to pay the interest on the currency that you have sold, but you also
have the privilege of earning interest on the currency that you have bought. For example, let’s look at the
New Zealand dollar/Japanese yen pair (NZD/JPY). Let’s assume that New Zealand has an interest rate of
8% and that Japan has an interest rate of 0.5% In the currency market, interest rates are calculated in basis
points. A basis point is simply 1/100th of 1%. So, New Zealand rates are 800 basis points and Japanese rates
are 50 basis points. If you decide to go long NZD/JPY you will earn 8% in annualized interest, but have to
pay 0.5% for a net return of 7.5%, or 750 basis points.
The forex market also offers tremendous leverage – often as high as 100:1 – which means that you can
control $10,000 worth of assets with as little as $100 of capital. However, leverage can be a double-edged
sword; it can create massive profits when you are correct, but may also generate huge losses when you are
wrong.
Clearly, leverage should be used judiciously, but even with relatively conservative 10:1 leverage, the 7.5%
yield on NZD/JPY pair would translate into a 75% return on an annual basis. So, if you were to hold a
100,000 unit position in NZD/JPY using $5,000 worth of equity, you would earn $9.40 in interest every day.
That’s $94 dollars in interest after only 10 days, $940 worth of interest after three months, or $3,760
annually. Not too shabby given the fact that the same amount of money would only earn you $250 in a bank
savings account (with a rate of 5% interest) after a whole year. The only real edge the bank account provides
is that the $250 return would be risk-free.
The use of leverage basically exacerbates any sort of market movements. As easily as it increases profits, it
can just as quickly cause large losses. However, these losses can be capped through the use of stops.
Furthermore, almost all forex brokers offer the protection of a margin watcher – a piece of software that
watches your position 24 hours a day, five days per week and automatically liquidates it once margin
requirements are breached. This process ensures that your account will never post a negative balance and
your risk will be limited to the amount of money in your account.
Carry Trades
Currency values never remain stationary, and it is this dynamic that gave birth to one of the most popular
trading strategies of all time, the carry trade. Carry traders hope to earn not only the interest rate differential
between the two currencies (discussed above), but also look for their positions to appreciate in value. There
have been plenty of opportunities for big profits in the past. Let’s take a look at some historical examples.
Between 2003 and the end of 2004, the AUD/USD currency pair offered a positive yield spread of
2.5%. Although this may seem very small, the return would become 25% with the use of 10:1 leverage.
During that same time, the Australian dollar also rallied from 56 cents to close at 80 cents against the U.S.
dollar, which represented a 42% appreciation in the currency pair. This means that if you were in this trade –
and many hedge funds at the time were – you would have not only earned the positive yield, but you would
have also seen tremendous capital gains in your underlying investment.
Carry Trade Success
The key to creating a successful carry trade strategy is not simply to pair up the currency with the highest
interest rate against a currency with the lowest rate. Rather, far more important than the absolute spread
itself is the direction of the spread. In order for carry trades to work best, you need to be long in a currency
with an interest rate that is in the process of expanding against a currency with a stationary or contracting
interest rate. This dynamic can be true if the central bank of the country that you are long in is looking to
raise interest rates or if the central bank of the country that you are short in is looking to lower interest rates.
Getting to Know Interest Rates
Knowing where interest rates are headed is important in forex trading and requires a good understanding of
the underlying economics of the country in question. Generally speaking, countries that are performing very
well, with strong growth rates and increasing inflation will probably raise interest rates to tame inflation and
control growth. On the flip side, countries that are facing difficult economic conditions ranging from a broad
slowdown in demand to a full recession will consider the possibility of reducing interest rates.
The Bottom Line
Thanks to the widespread availability of electronic trading networks, forex trading is now more accessible
than ever. The largest financial market in the world offers vast opportunities for investors who take the time
to get to understand it and learn how to mitigate the risk of trading here.
Understanding Forex Trading :
When you are trading Forex you are trading one currency against another. An example would be when you
are trading your Dollars for Euros. Most people have experienced this when visiting another country with a
different currency. Because the rate for which you can trade your money fluctuates over time, it is also
possible to earn money with currency trading. The only rule you have to follow says ‘buy low, sell high’. Of
course this is not as easy as it sounds as you never know in advance what would be considered ‘low’ and
‘high’. However, if you know which factors influence the rate of a currency, you can make predictions about
the future rate of this currency. An important aspect to know when trading is called the ‘spread’ of the
currency. This is the difference between the rate to buy and the rate to sell the currency. This is expressed in
‘pips’, which is the smallest unit of price of a currency: 0.0001 of a currency unit. For example: Tabel 1:
The Bid/Ask of the EUR/USD Bid Ask EUR/USD 1.3507 1.3512 In this case the spread is 5 pips (1.3512 –
1.3507 = 0.0005). This means that if you want to buy US Dollars with Euros, you will receive $1.3507. In
case you immediately trade this back for Euros you will only receive €0.9996. In this case you lost €0.0004
by only changing from one currency to another and back. This is why a low spread is important when
trading, to make sure your money will not all get lost just by trading. Predicting the Forex market The Forex
market is very complicated and affected by many factors. Nevertheless, the price is always a result of all
supply and demand forces.
The demand and supply is influenced by several elements which can be put into three categories:
1. Economic Factors This means the economic conditions and economic policy of a currency zone. The
economic policy includes fiscal policy and monetary policy. The economic conditions consist of
government budget deficits or surpluses, balance of trade levels and trends, inflation levels and
trends and economic growth and health.

2. Political Conditions This influence can be seen very strong during election time. Also in political
unstable countries this is a major influence on the currency price. 3. Market Psychology This is a
major influence in day trading. Currency speculators immediately react to the announcement of a
specific economic number. This often results in a market being ‘oversold’ or ‘overbough’. Methods
of Forecasting the Behavior of the Forex Market Trying to predict a market is a complex exercise
and requires the use a scientific basis rather than guesswork to predict Forex market behavior.
Primarily, there are 2 methods for predicting Forex market trends: • Technical Analysis •
Fundamental Analysis Let’s try and understand how these two approaches work: Fundamental
Analysis Every nation has it’s central bank which is responsible for the well being of the economy.
Central banks watch some economic factors that affect the economy and adjust their economic policy
accordingly. These factors are announced regularly and the exact time of the announcement is known
in advance. These factors are the fundamental indicators of the economy. The most important central
banks are FED of USA, ECB of European Union, BOJ of Japan and BOE of United Kingdom. There
are many fundamental indicators but there are few of them that are called the “market movers”. They
are called so because when they are announced they provide to the market the necessary steam to
move. That happens because they have a great impact on economy and to traders’ positions also. As
I say earlier fundamentals are important economic indicators that influence the direction of the
market. Forex fundamentals are thus important economic numbers that represent the state of the
economy of a certain country/region and therefore the underlying currency. There are thousands of
fundamentals but most of them have very limited influence. For instance, typically, when a
 Fundamental analyst is asked to predict the Forex market rates, would look at existing and expected
interest rates, GDP growth rates, inflationary trends, weather changes affecting agricultural output,
international trade balances, exchange rate policies of the countries involved, capital market status
etc. before saying, “I believe given these indicators, the Forex market ought to be behaving in this
way” and would conclude whether a currency is likely to appreciate or depreciate visa-vis the other
one.
Let’s analize some of this indicators:
1) Interest Rate(IR) Every currency zone has an interest rate that is set by the central bank. This rate is
the most influential number for the forex market. Higher rates makes it more attractive to possess a
certain currency. The interest rate is a reflection of all other economic indicators. View a list of the
interest rate of every major central bank.This is how it looks the worldwide IR. 2) The Gross
Domestic Product (GDP) The GDP is an indicator that values the total market value of all goods and
services produced in a country during a year. This makes it the broadest measure of the state of an
economy. The Foreign Exchange (Forex) market is the biggest market on earth today. It has a daily
turnover of more than 2.5 trillion US$, which is more than 100 times greater than the NASDAQ. The
Forex market is traded 24 hours a day, Monday to Friday. The market consists of trading between
large banks, central banks, currency speculators, multinational corporations, governments and other
financial markets and institutions. 3) Industrial Production The Industrial Production indicator
measures the change in production of a nation’s factories, mines and utilities. The report also covers
the capacity utilizations. It is important as production reacts quickly to the economic state of a
nation. 4) Consumer Price Index (CPI) The CPI is derived from a basket of products over 200
categories. It signals inflation risks and will therefore influence central banks policy concern. 5)
Discover the News Impact on Forex Market. Retail Sales The Retail Sales indicator measures the
total amount spent in retail stores throughout a country. It is an important fundamental because it
signals consumer spending which accounts for a majority of overall economic activity.
Understanding the main aspects of the Fundamentals will help us to gain a bigger picture
understanding of how these factors shape and influence the actions of willing buyers and sellers.
Personally, I do not base my trading decisions on the economic factors alone, but that does not mean
that I choose to ignore the fundamentals altogether either.It can be of great benefit to any market
professional to understand such things and why certain markets have positive and negative
correlations with others and why certain news releases have a greater impact on prices than
others.Always use some kind of economic calendar before placing your trades – I call this looking
left and right before you cross the street. By far, it's better to be safe than sorry.
Technical Analysis :
The Technical analysis method focuses on understanding the prevailing market trends and tries to pinpoint
any reversal of this trend and predict how the Forex market is likely to behave in the future. It is more
statistical in nature in the sense that this method relies heavily on historical data of prices and volumes
traded using charts to understand and interpret the market’s behavior. There are many mathematical tools
available for making such analysis like various indicators, Number Theory, waves, gaps and trends etc.
Technical indicators for Technical Analysis help us in analyzing the following:
Identification of the trend for the currency pair :
Whether the trend for the currency pair is bullish (uptrend) or bearish (downtrend). Or the currency pair is
running sideways (range movement)
Strength of the trend for the currency pair:
If there is a trend (up or down) then whether the trend has strength to continue or it's weak, which may
indicate that a correction or reversal may take place soon.
Resistance and Support levels:
If the currency pair price is falling then at what levels we can expect support and expect a reversal to upward
movement. And If the currency pair is having an uptrend then at what levels we can expect resistance and
can expect a reversal to downward movement. For example let’s suppose a currency pair is having a trend
(up or down) and the trend slows down. Our analysis says that the trend should continue but a correction in
opposite direction may take place... but to what level? Technical analysis indicators like Fibonacci
retracements indicates the possible retracement levels during a reversal or price correction during a
trend.There are too many technical analysis indicators available with various online Forex trading platforms.
Many theories exist and you will probably be familiar with Gann, Elliot wave and Fibonacci and many
traders use them but there not scientific.
 Chapter -3
COMPANY OVERVIEW
Bank of India:
Bank of India (BoI), is a financial services provider commercial bank founded in the 1906 on September
7th. It has its head-quarters in Mumbai, Maharashtra, India. It is a type of a public company providing
retail as well as commercial banking facility to the consumers. Government-owned since nationalization
in 1969, it is one of India's leading banks, with 5086 bank-branches including 306 specialized branches.
These branches are controlled through 54 Zonal offices and 8 national banking groups. There are 60
branches and 5 subsidiaries and 1 joint venture abroad. It is India’s 4th largest PSU bank, after State bank
of India, Punjab National Bank and bank of Baroda. In July 1969 bank of India was nationalized with 13
other banks.
BoI is a founder member of SWIFT (Society for Worldwide Inter Bank Financial Telecommunications)
in India which facilitates provision of cost-effective financial processing and communication services.
The Bank completed its first one hundred years of operations on 7th September 2006 and now it is 111
years young public sector bank. It has occupied and enviable position as compared to its peer banks like
Bank Of Baroda, Punjab National Bank, Canara Bank etc.
History of Bank of India:
1906: Founded with Head Office in Mumbai.
1921: BoI entered into an agreement with the Bombay Stock Exchange to manage its clearing house.
1946: BoI opened a branch in London, the first Indian bank to do so. This was also the first post-WWII
overseas branch of any Indian bank.
1950: BoI opened branches in Tokyo and Osaka.
1951: BoI opened a branch in Singapore.
1953: BoI opened a branch in Kenya and another in Uganda.
1953: BoI opened a branch in Aden.
1955: BoI opened a branch in Tanganyika.
1960: BoI opened a branch in Hong Kong.
1962: BoI opened a branch in Nigeria.
1967: The Government of Tanzania nationalized BoI's operations in Tanzania and folded them into the
government-owned National Commercial Bank, together with those of Bank of Baroda and several other
foreign banks.
1969: The Government of India nationalized the 14 top banks, including Bank of India. In the same year,
the People's Democratic Republic of Yemen nationalized BoI's branch in Aden, and the Nigerian and
Ugandan governments forced BoI to incorporate its branches in those countries.
1970: National Bank of Southern Yemen incorporated BoI's branch in Yemen, together with those of all
the other banks in the country; this is now National Bank of Yemen. BoI was the only Indian bank in the
country.
1972: BoI sold its Uganda operation to Bank of Baroda.
1973: BoI opened a representative office in Jakarta.
1974: BoI opened a branch in Paris. This was the first branch of an Indian bank in Europe.
1976: The Nigerian government acquired 60% of the shares in Bank of India (Nigeria).
1978: BoI opened a branch in New York.
1970s: BoI opened an agency in San Francisco.
1980: Bank of India (Nigeria) Ltd, changed its name to Allied Bank of Nigeria.
1986: BoI acquired Paravur Central Bank (Karur Central Bank or Parur Central Bank) in Kerala in a
rescue.1987: BoI took over the three UK branches of Central Bank of India (CBI). CBI had been caught up
in the Sethia fraud and default and the Reserve Bank of India required it to transfer its branches.
2003: BoI opened a representative office in Shenzhen.
2005: BoI opened a representative office in Vietnam.
2006: BoI plans to upgrade the Shenzen and Vietnam representative offices to branches, and to open
representative offices in Beijing, Doha, and Johannesburg. In addition, BoI plans to establish a branch in
Antwerp and a subsidiary in Dar-es-Salaam, marking its return to Tanzania after 37 years.
2007: BoI acquired 76 percent of Indonesia-based PT Bank Swadesi.
Source: “100 Years Success Story of Bank Of India”
Bank of India’s Mission:
“To provide superior, proactive banking services to niche markets globally, while providing cost-effective,
responsive services to others in our role as a development bank, and in so doing, meet the requirements of
our stakeholders”.
Bank of India’s Vision:
“To become the bank of choice for corporate, medium businesses and up market retail customers and to
provide cost effective developmental banking for small business, mass market and rural markets”.
Quality Policy of Bank of India:
Products and Services of Bank of India:
In spite of being a public sector bank, this bank has got all kinds of products and services, which one can get
in a modern bank. With their firm adherence to the policy of caution and prudence, they have been one of
the leaders in introducing different kinds of innovative banking services and solutions. Following are the
different services offered by B. O. I. in India:
Ancillary Services
Some of the popular supplementary services offered by the bank are as follows:
 Depository Services
 Gold Coin (New)
 Insurance (Domestic travel, health, education etc.)
 Mutual Fund
 Remittance
 Safe Custody
 Safe Deposit Locker
 Star Cash Management Service
Cards
Apart from the normal credit or debit cards, this bank even offers valued visa or master cards to its
worldwide customers. The names of some of the cards offered by this Indian bank are given below:
  Bank of India Master Card
 Bank of India VISA Card
 Gift Card
 Platinum Debit Card
 VISA Electron
Deposit Schemes
BoI offers varied types of deposit schemes like savings accounts, current accounts, salary accounts, fixed
deposits, term deposits, recurring deposits, double benefit deposits, income certificates (Both quarterly and
monthly) and many more. Some of these products are:
 Jai Jawan Salary Plus Accounts (New)
 Star Benefit C. D. Plus Accounts
 Star Diamond Savings Account
 Star Flexi Recurring Deposit Scheme
 Star Power Salary Account
 Star Sunidhi Tax Saving Deposit Scheme
 Star Suraksha S. B. Plus Account
Bank of India Loans
The following are the names of the loans provided by the different branches of B. O. I. located all over the
country:
 Star Autofin
The Scheme provides loan for purchasing 2/4 wheeler vehicles (like car, scooter, motorcycle etc.).
 Star Educational Loan
The Educational Loan Scheme aims at providing financial support from the bank to deserving/
meritorious students for pursuing higher education in India and abroad.
 Star Holiday Loan
To meet the expenses (like airfare/Train/Bus charges, expenses for accommodation, sightseeing,
etc.) for going for pilgrimage/tours/excursions etc. undertaken/to be undertaken by
Self/spouse/children/ parents/family members/close relatives of proponent within India or abroad.
 Star Home Loan
This type of Bank of India Loans provides loans to purchase a Plot for construction of a House, to
purchase/construct house/flat, as well as for renovation/repair/alteration/addition to house/flat,
furnishing of house, Takeover of customer's Housing Loan extended by other Banks/F.Is /NBFCs at
highly flexible and liberal terms and conditions.
 Star I. P. O.
Loan to subscribe to Initial Public Offerings (IPO) including through book-building.
 Star Mortgage Loan
 This scheme provides loan/overdraft facility against mortgage of property at low rate of interest. The
product provides an opportunity to customers to borrow against a fixed asset (mortgage of property)
at a short notice without much paper work/attendant hassles.
 Star Mitra Personal Loan
The objective of this type of Bank of India Loans is to help Physically Challenged persons to
function
independently and the purpose is to purchase durable and sophisticated aids / appliances that
promote their physical and social rehabilitation.
 Star Pensioner Loan Scheme
The target Customers of this type of Bank of India Loans are the Regular Pensioners or Family
Pensioners drawing regular monthly pension through the branch and the eligibility is retired
employees (other than dismissed/compulsorily retired).
 Star Personal Loan
Under the Bank of India Personal Loan system the Star Personal Loan Scheme provides loans to
meet various Personal requirements of customers and their family. Bank offers loans for marriage
expenses, medical expenses, educational expenses, purchase of consumer durables etc. Maximum
quantum of advance is Rs.10.00 lakhs, depending upon the income, with very attractive interest rate
and easy repayment plan.
N.R.I. Banking of BOI
Besides the different deposit schemes for N. R. I.s, this bank in India offers varied other types of
international banking services, some of which are mentioned below:
 F. C. N. R. (Foreign Currency Non-resident) Accounts
 Forex Card
 Integrated Treasury
 N. R. E. (Non-resident External) Accounts
 Star e-Remit
NRI Deposit Schemes
Non Resident Indians (NRIs) have a choice of two schemes for depositing their savings with Bank of India,
which are: -
 Foreign Currency Non Resident (FCNR) Accounts
 Non-Resident External (NRE) Accounts
NRI -Yield Enhancing Scheme
BOI provides Yield Enhancing Schemes for NRIs at their Overseas Branches.

Foreign Currency Deposit Schemes

Eligible Depositors: All individual Indian Residents will be allowed to open such account. However, the
facility will not be available to corporate/partnership firm/trusts, HUF etc. registered / based in India.
Currency of the account: Account will be maintained in GBP, USD and EURO Currencies.
Nature of Account: Fixed Deposit for a period of 1 month (minimum) 3 months, 6 months and 1 year
(maximum).
Minimum amount of Deposit: Minimum amount of deposit will be as follow : USD - 5000/- GBP - 5000/-
Euro – 5000/-.
Online Services
The different kinds of online services offered by B. O. I. are as follows:
 Bill Payment
 Fund Transfer (Inter-bank)
 Internet Banking
 Mobile Banking
 Share Trading
 Tax Payment
 Ticket Booking
Bank of India USA
Bank of India is a premier and one of the oldest Commercial Banks In India, with presence all over India as
also in the world. The Bank was established in September 1906 and has been maintaining a position of pride
among the top 5 commercial banks in the country. Today the Bank has over 2594 branches spread all over
India and 23 branches/offices overseas - in 10 countries, spanning all time zones.

The Bank of India USA branches, New York Branch and San Francisco Agency have been operating in the
USA since December 1978 and December 1977 respectively. Bank Of India has been established in 1906
and is headquartered in Mumbai (Bombay), India with global assets of about USD 22 Billion.

It has a network of over 2524 branches spread over the length and breadth of India. Besides this, Bank Of
India has branches in international commercial centers like London, Tokyo, Singapore, Hong Kong, Paris,
etc. and is well-versed in international trade.

The BOI USA branches, New York and San Francisco have a team of banking professionals who come
from different parts of India. These officers are very well-versed with the intricacies of India-Related Trade
and having had adequate exposure in US, are familiar, confident, and comfortable, Doing Business The
American Way. Since they have good rapport with key personnel in the Banking Sector In India, Bank Of
India is in a position, unlike any other international bank here, to move things in India, should there be snags
for any reason.
Services available at the San Francisco Agency to Send Money in India:
 Export/Import Trade Services
 Import/Export Bills for Collection
 Standby & Commercial Letters of Credit
 Trade Finance
Current Position of Bank of India:
Bank of India key Products/Revenue Segments include Interest & Discount on Advances & Bills which
contributed Rs 27187.86 Crore to Sales Value (69.19 % of Total Sales), Income From Investment which
contributed Rs 9059.92 Crore to Sales Value (23.05 % of Total Sales), Interest On Balances with RBI and
Other Inter-Bank Funds which contributed Rs 2012.21 Crore to Sales Value (5.12 % of Total Sales) and
Interest which contributed Rs 1030.86 Crore to Sales Value (2.62 % of Total Sales)for the year ending 31-
Mar-2017.
The Bank has reported a Gross Non Performing Assets (Gross NPAs) of Rs 62328.46 Crore (16.58 % of
total assets) and Net Non Performing Assets (Net NPAs) of Rs 28207.27 Crore (8.26% of total assets).
For the quarter ended 31-03-2018, the company has reported a Standalone Interest Income of Rs 5919.94
Crore, down -6.49 % from last quarter Interest Income of Rs 6331.06 Crore and down -12.48 % from last
year same quarter Interest Income of Rs 6764.29 Crore. The bank has reported net profit after tax of Rs -
3969.27 Crore in latest quarter.
Overseas business has de-grown by 9.70% during FY 2016-17 compared to last year de-growth of 2.87%.
Global business has grown by 4.38% during FY 2016-17 compared to last year de-growth of 5.19%. Total
Business mix (Deposits Advances) reached at Rs. 9,33,820 crore, a growth of Rs. 39,153 crore. Total
deposits increased by 5.27% to Rs. 5,40,032 crore. Advances increased by 3.18% to Rs. 3,93,788 crore.
Bank of India has been ranked as the 2nd Most Trusted Bank in the PSU Bank category by Economic Times.
Bank of India has been awarded as Best Bank for Managing IT Ecosystem among Large Banks in IDRBT
Banking Technology Excellence Awards for FY 2015-16. Bank also received the Best Bank Award for
Electronic Payments among Large Banks from IDRBT Banking Technology Excellence Awards for FY
2015-16,
During the year Bank has raised Rs.1338 crore by issue of 12,06,60,113 fresh equity shares to Government
of India at the price Rs.110.89 per share. As per Basel III framework, the Bank’s Capital Adequacy Ratio
was 12.14% which is higher than the regulatory requirement of 10.25%
 DOCUMENTARY LETTER OF CREDIT

Need for Documentary Letter of Credit

Normally, in international trade, the exporter may not be ready to take risk of selling his goods abroad unless
he is sure of getting his payment. Likewise, the buyer may not buy goods in international market from an
unknown party due to risk of not meeting his requirements. Both these risks are quiet high, which may
sometime result into major loss. This perception is not congenial to development of international trade.

The seller, therefore, needs an assurance of payment on behalf of the buyer; similarly, a buyer would want
somebody to ensure due performance by the seller as per the contract.

Both the parties can feel satisfied, if a professional intermediate like bank lends his support by issuing
Documentary Credit on behalf of the buyer (importer) in favor of the seller (exporter).

What is a Documentary Credit?

A Documentary Credit is an instrument, which can be used for settling the trade payments. It may be defined
as follows:

“Credit means any arrangement, however, named or described, that is irrevocable and thereby constitutes a
definite undertaking of the issuing bank to honour* a complying presentation.”

* Honour means:

(a) To pay at sight if the credit is available by Sight payment.

(b) To incur a deferred payment undertaking and pay at maturity if the credit is available by deferred
payment.
(c) To accept a bill of exchange (‘draft’) drawn by the beneficiary and pay at maturity if the credit is
available by acceptance.
In common parlance, documentary credit is like a bank guarantee except that the bank guarantee covers a
situation of non-performance of the contract (payment is made when our customer does not perform as per
the contract). Whereas a documentary credit covers a situation where payment is made on performance of
contract. From the definition, we can derive five important features of documentary credits, viz.:

 It is an irrevocable undertaking in writing

 given by a Bank called the Opening Bank
 on behalf of its customer who is the importer or buyer
 to honour bills drawn by a third party who may be the beneficiary or the transferee under the credit
 subject to compliance with terms and conditions of the credit
Parties involved in Letter of Credit:

1. Opener (Importer/Buyer): means the party on whose request the credit is issued.
2. Issuing Bank: means the bank that issued a credit at the request of an applicant or on its own behalf.
3. Advising Bank: means a bank that advises the credit at the request of the issuing bank.
4. Beneficiary (seller/ exporter): means the party in whose favor the credit is issued.
5. Nominated Bank: means the bank, with which the credit is available or any bank in the case of a
credit available with any bank.
6. Confirming Bank: means the bank which guarantees honouring of bills by the Opening Bank under
the credit i.e. if the Opening Bank fails for any reason to honour the Confirming Bank honours,
wherever available.
7. Reimbursing Bank: the bank which pays claims made by the nominated bank after negotiating bills
drawn by the exporter under the credit.
Types of Letter of Credit

1. Irrevocable Letter of Credit: It carries a definite undertaking of the issuing bank to honour the
documents drawn strictly in conformity with the terms and conditions of the credit. It cannot be
amended nor cancelled without the consent of all parties concerned. Any Credit issued will be an
irrevocable credit.
2. Revocable Letter of Credit: this credit can be amended/modified/cancelled any time by the opening
bank without the consent of the beneficiary. Hence, this credit is not a safe credit from the point of
view of the beneficiary. However, in practice, this type of credit is seldom issued. Even though the
credit can be cancelled any time, but the opening bank would be liable to the beneficiary for the
shipments made by him prior to receipt of notice by him about the cancellation of credit by the issuing
bank.
3. Confirmed Letter of Credit: means the bank that adds its confirmation* to a credit upon the issuing
bank’s authorisation or request.
*Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing
bank, to honour or negotiate a complying presentation.
4. Anticipatory Letter of Credit
(a) Red Clause Letter of Credit: In this credit, the issuing bank authorizes nominated bank,
which is in beneficiary’s country, to give pre-shipment credit to the beneficiary. This advance
is given to the beneficiary for purchase of raw-material/processing/packing of the goods to be
exported. It is given at the risk and responsibility of the issuing bank and is unsecured.. The
pre-shipment advance given in this way would be adjusted against the documents tendered by
the exporter for negotiation. This type of L/C is known as `Red Clause Letter of Credit’.
(b) Green Clause Letter of Credit: This credit is an extended version of red clause credit. In
addition to whatever has been given in red clause credit, it covers charges for warehousing
 of goods at the port of shipment, when waiting for ship or space and insurance therefore.
Generally, the advance under this credit is given to the exporter after the goods are lodged in
bonded warehouse and would be adjusted once they are shipped on board. Under this credit,
warehouse warrants are given as a security for the advance.
5. Transferable Letter of Credit: means a credit that specifically states it is “transferable”. A
transferable credit may be made available in whole or in part to another beneficiary (“second
beneficiary”) at the request of the beneficiary (“first beneficiary”).
 Transferring bank means a nominated bank that transfers the credit or, in a credit available
with any bank, a bank that is specifically authorised by the issuing bank to transfer and that
transfers the credit.
 A credit may be transferred in part to more than one second beneficiary provided partial
shipments are allowed.
6. Back-to back Letter of Credit: The beneficiary of the export credit, who is not the manufacturer
of the goods, may approach a bank to open a letter of credit in favour of the manufacturer who is
ready to supply the goods. Such a letter of credit is opened on the strength of the export letter of
credit and hence called back-to-back letter of credit. Such a documentary credit should be opened
only on behalf of the good exporters and suppliers.
7. Revolving Letter of Credit:
 When a buyer wants a regular supply of goods from the foreign/ domestic supplier, he may
approach his banker to open a revolving letter of credit in supplier’s favour.
 When the shipment is made and the documents are drawn on the opener as per the terms of credit,
the documents are negotiated and forwarded to the drawee for payment.
 When the payment is made, the credit is reinstated and made available to the beneficiary on receipt
of the advice from the issuing bank.
 Further negotiations will take place after the advice of reinstatement is received.
 Revolving letter of credit should stipulate maximum drawings under the credit and should have
reinstatement clause.
8. Stand-by Letter of Credit: The very name of this credit suggests that it is not a regular letter of
credit, but a sort of stand-by or back-up credit. These types of credits can be issued in India, but are
very much in vogue in Western Countries, especially in U.S.A in place of guarantee. These credits are
generally used as substitutes for performance guarantee or for securing loans. As per FEMA, now they
can be issued in India for imports of certain category as per FEDAI guidelines. Our exporters can
freely receive standby letter of credit to cover their exports of goods.
 INCOTERMS 2000
INCOTERMS means International Commercial Terms. These terms were first defined by the ICC in 1936
and were revised from time to time to suit the requirement of trade. The terms were last revised in the year
2000 and hence known as INCOTERMS –2000.
These are trade terms commonly used in commercial contracts and accepted by the merchants worldwide.
These terms have got fixed meaning and thus there is no scope for doubts between buyer and seller. The
terms clearly define obligations between the seller and the buyer in respect of the following:
 Giving Delivery / Taking delivery
 Contract of carriage and insurance
 Transfer of risk
 Division of cost
 Notice to the buyer /seller
 Proof of delivery
 Packaging / inspection of goods
Incoterms are abbreviated language of rights and obligations between the two parties to a contract in respect
of the following:
 Functional responsibilities of the two parties at the time delivery of the goods. It pinpoints the cost,
which is to be borne by either the exporter or by the importer.
 Bearing of Risks up to what point should be borne by the exporter in the form of loss of or damage to
goods and from which point on wards, the responsibility passes on to importer?
The International Chambers of Commerce (ICC) has a naming standard and three letter abbreviations for the
13 key INCOTERMS. These are listed below in order of decreasing cost and responsibility to the buyer.
These INCONTERMS can be grouped in to four: E, F, C and D Terms
E terms i.e. Ex Works. Here Seller has minimum obligations
F terms are used when buyer takes the contract of carriage.
C terms are used when seller to make contract of carriage and / or insurance.
D terms are related to arrival contracts.

EXW – Ex works
The seller fulfils his delivery obligation by making the goods available for the buyer at his own premises
(factory, warehouse, place of sale) or at some other particular place where the goods are stored at the time of
the conclusion of the contract. The term also obliges the seller to notify the buyer when and where the goods
will be placed at his disposal. The buyer must take delivery as soon as they have been placed at his disposal
and the risk is transferred from seller to buyer at this very moment.
FRC /FCA – Free Rail Carriage /Free Carriage Air
It is perhaps the most suitable term for cases where it is intended that the buyer should arrange and pay for
the carriage and bear any risks in connection with the unavailability of transport. It could be used for any
type of transport including cases where the mode of transport is not mentioned at all (unnamed transport) or
when combination of different modes is intended (multi-modal transport). The seller fulfils his delivery
obligation by handing over the goods for carriage to the carrier nominated by the buyer. It is prudent to
specify exactly at which point the goods should be handed over, e.g. “FCA NN terminal”. One should not
use any of the F-terms without somehow indicating at which place or port, or within which range and may
render the whole contract invalid because of uncertainty.
FAS-Free Alongside Ship
The seller fulfils his delivery obligation by placing the goods at the ship’s side irrespective of whether this
occurs on the quay or by bringing lighters on to the ship when she is lying on the roads. It is for the buyer to
nominate the ship and the term can only be used when maritime transport or transport on inland waterways
is intended.
FOB – Free on Board
FOB is one of the oldest delivery terms and has traditionally held a dominant position in world trade. The
passage of the ship’s rail is according to FOB decisive for the division of functions, costs and risks between
the seller and the buyer. Again, the rail could under FOB be understood as in imaginary customs border so
that the seller has to clear the goods for export.
As has already been mentioned, additions to FOB may extend the obligations of the seller even after the
FOB-point has been reached, such as by the expressions “FOB stowed” or “FOB stowed and trimmed”,. In
order to clarify that these additions only relate to costs one could also explicitly state “loading costs for
seller’s account” or “Costs for loading, stowage and trimming for seller’s account”. If it is intended that the
seller should also bear the risks connected with these operations, one could add the words “and risks.”
CFR – Cost and Freight
CFR can only be used when the goods are to be carried by sea. Nevertheless, in practice these trade terms
are sometimes used also for carriage by other modes of transport. CFR, like FOB, signifies that the seller
fulfils his delivery obligation by placing the goods onboard the ship. But, as distinguished from FOB, the
seller has the obligation to procure the contract of carriage and pay the freight for carriage to the indicated
arrival point. It is also for the seller to clear the goods for export.
CIF – Cost, Insurance and Freight
The CIF term is – wholly identical with the CFR term with only one exception; namely that according to
CIF the seller’s obligations include the obligation to procure and pay for transport insurance. This is
particularly appropriate since, according to CIF, the seller is only obliged to insure the goods on minimum
conditions, if the parties have not agreed otherwise.
CPT – Carriage Paid to
The CPT term corresponds to CFR insofar as it is based on the main obligation of the seller to hand the
goods over for carriage and procure and pay for the carriage to the agreed delivery point named after the
term. As with all C-terms, the risk of loss of or damage to the goods will pass from the seller to the buyer
already when the goods are handed over to the carrier. But there are many important differences between
CPT and CFR. First, as has already been mentioned, CFR can only be used for maritime carriage. This
follows from the fact that the risk passes when the goods are placed onboard a ship and from the fact that the
seller has to tender such a transport document which is normally only available from sea carriers.
CPT can be used for all modes of transport. According to CPT, buyer will have to bear the risk for the pre-
carriage, while the passing of the risk according to CFR does not occur until the goods are placed onboard
the ship in the port of shipment.
According to CPT, as distinguished from CIP, it is for buyer to arrange his own insurance cover. He would
then have to ensure that he is not without desirable insurance protection for the land carriage in the country
of export. In addition, the buyer must assess any potential risk of delay occurring in connection with the
inland carriage and the transshipment from the means of transport used for the inland carriage to the ship.
Where reliable through transports from door to door by so-called multi-model transport operators (MTOs)
are available, the risk for the buyer to use the term CPT is of course considerably diminished particularly
when such operators are prepared to give guarantees for timely dispatch and arrival of the goods.
CIP – Carriage and Insurance Paid
The CIP term is in every respect wholly identical with the CPT term except with respect to the seller’s added
obligation to procure and pay for insurance.
DES – Delivered Ex Ship
The seller has to make the goods available to the buyer in the ship before discharge and it is for the buyer to
clear the goods for import. The whole cost of discharge will fall upon the buyer. DES is only appropriate
where chartered vessels carry goods.
Under DES it is important to require the seller to give notice to the buyer when the ship is expected to arrive
at the port of discharge, so that the buyer can prepare himself in time for the unloading operations.
DEQ –Delivered Ex Quay
According to the term the seller’s obligations extend until the goods have been discharged on to the quay in
the port of destination. Consequently, the seller must absorb all costs of discharge on to the quay, such as
value added tax (VAT).
DAF – Delivered at Frontier
The DAF term clarify the situation when it is intended that the seller should bear the cost and risk up to the
border in the country of import or possibly in some cases the border of a third country.
DDU – Delivered Duty Unpaid
The seller had undertaken to carry goods all the way to a point in the country of import but without the
obligation to clear the goods for import.
DDP- Delivered Duty Paid
This represents the seller’s maximum obligation whenever the point named after the trade term indicates
delivery at the buyer’s premises. It appears already from the name of this term that it is for the seller to clear
the goods for import and pay customs duties and other official charges levied in connection with the import,
thereby including VAT payable upon import.
 FOREIGN EXCHANGE RATE
What is Foreign Exchange Rate?
A foreign exchange rate is the rate at which one currency is exchanged for another. Thus, an exchange rate
can be regarded as the value of one country’s currency in relation to another currency. An exchange rate is a
ratio between two monies. If 5 UK pounds or 5 US dollars buy Indian goods worth Rs. 400 and Rs. 250 then
pound- rupee or dollar-rupee exchange rate becomes Rs. 80 = £1 or Rs. 50 = $1, respectively. Exchange rate
is usually quoted in terms of rupees per unit of foreign currencies. Thus, an exchange rate indicates external
purchasing power of money.

An exchange rate is the price of a nation’s currency in terms of another currency. Thus, an exchange rate has
two components, the domestic currency and a foreign currency, and can be quoted either directly or
indirectly. In a direct quotation, the price of a unit of foreign currency is expressed in terms of the domestic
currency. In an indirect quotation, the price of a unit of domestic currency is expressed in terms of the
foreign currency.

A fall in the external purchasing power or external value of rupee (i.e., a fall in exchange rate, say from Rs.
80 = £1 to Rs. 90 = £1) amounts to depreciation of the Indian rupee. Consequently, an appreciation of the
Indian rupee occurs when there occurs an increase in the exchange rate from the existing level to Rs. 78 =
£1.

In other words, external value of the rupee rises. This indicates strengthening of the Indian rupee.
Conversely, the weakening of the Indian rupee occurs if external value of rupee in terms of pound falls.
Remember that each currency has a rate of exchange with every other currency.

Flexible Exchange Rates

Most exchange rates are determined by the foreign exchange market, or forex. The exchange rates that
fluctuate on a moment-by-moment basis according to foreign exchange market is called a flexible or floating
exchange rate.

The flexible rates follow what forex traders think the currency is worth. Those judgments depend on a lot of
factors. The three most important are central bank’s interest rates, the country's debt levels and the strength
of its economy.

Fixed Exchange Rates

A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime where a
country's currency doesn't vary according to the forex market. The country makes sure that its currency
value against the dollar, or other important currencies, remain the same. It buys and sells large quantities of
its currency, and the other currency, to maintain that fixed value.
Factors affecting Foreign Exchange Rates:
Foreign Exchange Rate (ForEx Rate) is one of the most important means which determines the relative level
of economic health of a country. A country’s foreign exchange rates provides a window to its economic
firmness, which is why it is constantly scrutinized and examined.
The exchange rate is defined as “the rate at which one country’s currency may be converted into another.” It
may vary daily due to changing market forces of supply and demand of currencies from one country to
another. For these reasons, when sending or receiving money internationally, it is important to interpret
what regulates and affects exchange rates. Some of the leading factors that influence the variations and
fluctuations in exchange rates are mentioned below:
 Inflation Rates: Changes in market inflation leads to changes in currency exchange rates. A country
with a consistently lower inflation rate exhibits a rising currency value while a country with higher
inflation typically sees decline in its currency value, usually followed by higher interest rates.
 Interest Rates: Change in interest rate affects currency value and exchange rate. Forex rates,
interest rates, and inflation are all correlated. Increase in interest rates leads to appreciation in the
value of a country’s currency because higher interest rates provide higher rates to lenders, thereby
attracting more foreign capital, which results a rise in exchange rates.
o Higher interest rates cause an appreciation.
o Cutting interest rates tends to cause a depreciation.
 Country’s Current Account / Balance of Payments: A country’s current account reflects balance
of trade and earnings on foreign investment. It consists of total number of transactions including its
exports, imports, debt, etc. A deficit in current account due to spending more of its currency on
importing products than it is earning through sale of exports causes depreciation. Balance of
payments fluctuates exchange rate of its domestic currency.
 Government Debt: Government debt is public debt or national debt owned by the central
government. A country with government debt is less likely to acquire foreign capital, leading to
inflation. Foreign investors will sell their bonds in the open market if the market predicts
government debt within a certain country. As a result, there will be a decrease in the value of its
exchange rate.
 Terms of Trade: Related to current accounts and balance of payments, the terms of trade is the ratio
of export prices to import prices. A country's terms of trade improves if its exports prices rise at a
greater rate than its imports prices. This results in higher revenue, which causes a higher demand for
the country's currency and an increase in its currency's value. This results in an appreciation of
exchange rate.
 Political Stability & Performance: A country's political state and economic performance can affect
its currency strength. A country with less risk for political turmoil is more attractive to foreign
investors, as a result, drawing investment away from other countries with more political and
 economic stability. Increase in foreign capital, in turn, leads to an appreciation in the value of its
domestic currency. A country with sound financial and trade policy does not give any room for
uncertainty in value of its currency. But, a country prone to political confusions may see a
depreciation in exchange rates.
 Recession: When a country experiences a recession, its interest rates are likely to fall, decreasing its
chances to acquire foreign capital. As a result, its currency weakens in comparison to that of other
countries, therefore lowering the exchange rate.
 Speculation: If a country's currency value is expected to rise, investors will demand more of that
currency in order to make a profit in the near future. As a result, the value of the currency will rise
due to the increase in demand. With this increase in currency value comes a rise in the exchange rate
as well.

All of these factors determine the foreign exchange rate fluctuations. If you send or receive money
frequently, being up-to-date on these factors will help you better evaluate the optimal time for
international money transfer. To avoid any potential falls in currency exchange rates, opt for a
locked-in exchange rate service, which will guarantee that your currency is exchanged at the same
rate despite any factors that influence an unfavourable fluctuation.
DIFFERENT TYPES OF FOREIGN EXCHANGE TRANSACTION AND ASSOCIATED RISKS

A common definition of exchange rate risk relates to the effect of unexpected exchange rate changes on the
value of the firm. In particular, it is defined as the possible direct loss (as a result of an unhedged exposure)
or indirect loss in the firm’s cash flows, assets and liabilities, net profit and, in turn, its stock market value
from an exchange rate move.

The assets and liabilities or cashflows of an enterprise, that are denominated in foreign currencies undergo a
change in their value, as measured in domestic currency, over a period of time, because of variation in
exchange rate. This variability in the value of assets and liabilities or cashflows is referred to as exchange
rate risk. When the value and the maturity dates of assets and liabilities as well as claims and counterclaims
in a foreign currency are matched against each other, then there is no net exposure. In such a situation, there
is no foreign exchange risk. But foreign exchange risk results from an open position - the position can be
either long or short. When an enterprise owns a net claim or an asset in foreign currency, it is said to be
long; and when it has a liability in foreign currency, it is said to be short.
Fluctuations in exchange rates leads to variations in the value of assets and liabilities warrant management
or hedging of risk. The word 'hedging' means taking steps to reduce risk. To manage the exchange rate risk
inherent in firms’ operations, a firm needs to determine the specific type of current risk exposure, the
hedging strategy and the available instruments to deal with these currency risks.
Exchange risk results from the fact that future costs and cashflows are denominated in foreign currencies.
Essentially, it means that if exchange rate changes, it affects the amount of cashflow, converted into
domestic currency. There are three types of exchange risks. These are: (1) Transaction risk, (ii) Translation
or Consolidation risk, and (iii) Economic risk.
Transaction risk
This is the risk of an exchange rate changing between the transaction date and the subsequent settlement
date, i.e. it is the gain or loss arising on conversion.
This type of risk is primarily associated with imports and exports. If a company exports goods on credit then
it has a figure for debtors in its accounts. The amount it will finally receive depends on the foreign exchange
movement from the transaction date to the settlement date.
As transaction risk has a potential impact on the cash flows of a company, most companies choose to hedge
against such exposure. Measuring and monitoring transaction risk is normally an important component
of treasury risk management.
The degree of exposure is dependent on:
(a) The size of the transaction.
(b) The hedge period, the time period before the expected cash flows occurs.
(c) The anticipated volatility of the exchange rates during the hedge period.
The corporate risk management policy should state what degree of exposure is acceptable. This will
probably be dependent on whether the Treasury Department is been established as a cost or profit centre.
Economic risk
Transaction exposure focuses on relatively short-term cash flows effects; economic exposure encompasses
these plus the longer-term affects of changes in exchange rates on the market value of a company. Basically
this means a change in the present value of the future after tax cash flows due to changes in exchange rates.
There are two ways in which a company is exposed to economic risk.
Directly: If a firm's home currency strengthens then foreign competitors are able to gain sales at its expense
because the products have become more expensive (or margins have to be reduced) in the eyes of customers
both abroad and at home.
Indirectly: Even if the home currency does not move in relation to the customer's currency, the firm may
lose competitive position. For example suppose a South African firm is selling into Hong Kong and its main
competitor is a New Zealand firm. If the New Zealand dollar weakens against the Hong Kong dollar the
South African firm has lost some competitive position.
Economic risk is difficult to quantify but a favoured strategy to manage it is to diversify internationally, in
terms of sales, location of production facilities, raw materials and financing. Such diversification is likely to
significantly reduce the impact of economic exposure relative to a purely domestic company, and provide
much greater flexibility to react to real exchange rate changes.
Translation risk
The financial statements of overseas subsidiaries are usually translated into the home currency in order that
they can be consolidated into the group's financial statements. It is the translation not the conversion of real
money from one currency to another.
The reported performance of an overseas subsidiary in home-based currency terms can be severely distorted
if there has been a significant foreign exchange movement.
If initially the exchange rate is given by $/£1.00 and an American subsidiary is worth $500,000, then the UK
parent company will anticipate a balance sheet value of £500,000 for the subsidiary. A depreciation of the
US dollar to $/£2.00 would result in only £250,000 being translated.
Unless managers believe that the company's share price will fall as a result of showing a translation
exposure loss in the company's accounts, translation exposure will not normally be hedged. The company's
share price, in an efficient market, should only react to exposure that is likely to have an impact on cash
flows.
Exchange Risks for Banks
Exchange risk for banks emanates from their activities relating to currency trading, management of risks for
their clients as also the risks of their own balance sheet and operations. Broadly, we can classify these risks
in four categories:
(1) Exchange rate risk,
(2) Credit risk,
(3) Liquidity risk, and
(4) Operational risk.
Exchange Rate Risk
Exchange rate risk relates to appreciation or depreciation of currencies. Every bank that has a long position
in a currency runs a risk of loss if that currency depreciates. Likewise, any bank that has short position in a
currency runs the risk of loss if that currency appreciates. The risk can result from the mismatch of amounts
of assets and liabilities as well as from the mismatch of maturity dates of the assets and liabilities. When an
exchange dealer of a bank takes a position in a currency, he does so on the assumption that the currency is
going to evolve in his favour. The currency, however, may move in the opposite direction resulting in a loss.
In addition, the dealer also runs the risk of interest rate changes. If, for- example, the position taken by the
dealer is financed by a loan which needs to be renegotiated during the period of the position, the dealer is
exposed to a risk, as the interest rate of the borrowed currency may increase. That is why limits are
prescribed by the banks on the total position as well as on the position per currency. These limits depend on
the financial situation of the bank and on its reading of the ensuing risk. Likewise, the position of a dealer
should be closed if he has already suffered a certain amount of loss.
Credit Risk
The second category of risks that banks are exposed to is credit risk. This risk arises from the possibility of a
counterparty making a default. This risk may appear either during the period of contract or at the maturity
date. It can be reduced by fixing the limits of operations per client, based on the creditworthiness of the
client, by incorporating the clauses for rescinding the contract if the rating of counterparty goes down. The
Basle Committee, consisting of the governors of Central banks of G10 observed that the increasing
complexity, diversity and growth in volume of derivative products present increasing challenges for the
management of risk. It makes the following recommendations for containment of risk: (i) constant follow up
on risks, their measurement (quantification), supervision and control, (ii) effective information system, and
(iii) procedures of audit and control.
Liquidity Risk
This is the risk of refinancing. It may happen when a dealer has placed funds for a period longer than that of
the deposits that finance this placement. At the time of refinancing, the interest rate may go up, resulting in a
loss for the dealer. Similarly, in a reverse situation, the dealer may increase his profits.
Operational Risk
This risk is related to the operations of the bank. The bank may be able to limit this type of risk by precisely
identifying the problems: definition of responsibilities, reporting, accountability for operations and so on.

Transaction risk and the operating risk are called cash flow exposure or economic exposure, while the
translation risk is called the accounting exposure.
 FOREIGN EXCHANGE EXPOSURE: A BANK OF INDIA PROSPECTIVE
Foreign Exchange Exposure refers to the risk associated with the foreign exchange rates that change
frequently and can have an adverse effect on the financial transactions denominated in some
foreign currency rather than the domestic currency of the company.

In other words, the firm’s risk that its future cash flows get affected by the change in the value of the foreign
currency, in which it has maintained its balance sheet, due to the volatility of the foreign exchange rates, is
termed as foreign exchange exposure.

It is not only those firms who directly make the financial transactions in the foreign currency denominations
faces the risk of foreign exposure, but also, the other firms who are indirectly related to the foreign currency
is exposed to foreign currency risk.

For example, if Indian company is competing against the products imported from China and if the Chinese
Yuan per Indian rupee falls, then the importers enjoy decreased cost advantage over the Indian company.
This shows, that the companies not having any direct link to the forex do get affected by the change in the
foreign currency.

Foreign currency exposures are generally categorized into the following three distinct types: transaction
(short-run) exposure, economic (long-run) exposure, and translation exposure.
FOREIGN EXCHANGE RISK MANAGEMENT
Exchange rate volatility is unpredictable since there are so many factors that affect the movement of the
exchange rates i.e. economic fundamental, monetary policy, fiscal policy, global economy, speculation,
domestic and foreign political issues, market psychology, rumors, and technical factors. The exchange
rate volatility poses a risk, called foreign exchange risk or currency risk, to business sector in particular,
the importers and exporters or those ones who associate with international businesses.
Although businesses could not control the fluctuation of the exchange rates but they can manage the risk
by using proper hedging tools like Forward, Futures, and Options, in order to manage their revenues and
costs more efficiently.
 LIST OF BANKS WITH THEIR NOSTRO ACCOUNTS WITH MUMBAI OVERSEAS BRANCH

NOSTRO BANK'S
SL
ACCOUNT BANK NAME CURRENCY CURRENCY DETAILS SHORT
NO.
NO FORM

1 5 ANZ BANKING GROUP MELBOURNE AUD AUSTRALIAN DOLLAR ANZBAN MEL

2 16 COMMONWEALTH BKOF AUSTRALIA AUD AUSTRALIAN DOLLAR CWEALT SYD
3 6 TORONTO DOMINION BANK TORONTO CAD CANADIAN DOLLAR TORONT TOR
4 7 UNION BANK OF SWITZERLAND ZURICH CHF SWISS FRANC UBSZU ZUR
5 8 DN DANSKE BANK COPENHAGEN DKK DANISH KRONE DENSK COP
6 9 COMMERZ BANK DUSSELDORF EUR EURO COMRZ DUS
7 36 UNICREDITO ITALIANO MILANO EUR EURO UNICRE MIL
STANDARD CHARTERED BANK
8 35 FRANKFURT EUR EURO STCHB FRA
9 27 BANK OF INDIA PARIS EURO ACCOUNT EUR EURO BOI PAR
GREAT BRITAIN
10 15 NATIONAL WESTMINISTER BANK PLC GBP POUND NATWES LON
GREAT BRITAIN
11 10 BANK OF INDIA LONDON GBP GBP POUND BOI LON
12 11 BANK OF INDIA HONG KONG HKD HONG KONG DOLLAR BOI HOK
13 12 BANK OF INDIA TOKYO JPY JAPANESE YEN BOI TOK
14 37 HSBC BERHAD MALAYSIA MYR MALAYSIAN RINGGIT HSBCMY KUA
15 30 DEN NORSKE BANK OSLO NOK NORWEGIAN KRONE DNORSK OSL
NEWZEALAND BONZLD
16 24 BANK OF NEWZEALAND WELLINGTON NZD DOLLAR WELL
SKANDI
17 13 SKANDINAVISKA ENSKILDA BANKEN SEK SWEDISH KRONA STKM
18 31 BANK OF INDIA SINGAPORE SGD SINGAPORE DOLLAR BOI SIN
19 4 CITI BANK NA NEW YORK USD US DOLLAR CITI NY
ASIAN CURRENCY
20 45 BANK OF CEYLON (SRI LANKA) ACU UNIT BCEYLK
21 34 J P MORGAN CHASE NY USD US DOLLAR JPCHASE NY
22 26 BANK OF INDIA NEW YORK ACCOUNT USD US DOLLAR BOI NY
23 50 BANK OF INDIA NAIROBI KES KENYAN SHILLING BOI NAR
24 14 DEUSTCHE BANK TRUST CO NEW YORK USD US DOLLAR DBT NY
25 74 BANK OF NEW YORK, NEW YORK USD US DOLLAR BONY NY
26 75 WELLS FARGO BANK, N.A. USD US DOLLAR WELLS NY
27 83 STANDARD CHARTERED BANK, NEW YORK USD US DOLLAR STCHB NY
NEWZEALAND
28 89 BANK OF INDIA, NEW ZEALAND NZD DOLLAR BOI NZ
29 90 DEUSTCHE BANK, FRANFURT EUR EURO DEUT FF
 SWIFT OUTWARD MESSAGE TYPES

SWIFT CODES MESSAGE

MT 102- Multiple Customer Credit Transfer
MT 103- Single Customer Credit Transfer
MT 110- Advice of Cheque/Cheques
MT 111- Request for Stop Payment of A Cheque
MT 191- Request for Payment of Charges, Interest and Other Expenses
MT 202- General Financial Institution Transfer
MT 400- Advice of Payment
MT 410- Acknowledgement
MT 412- Advice of Acceptance
MT 416- Advice of Non-Payment & Sol; Non-Acceptance
MT 420- Tracer
MT 422- Advice of Fate and Request for Instructions
MT 430- Amendment of Instructions
MT 491- Request for Payment of Charges, Interest and Other Expenses
MT 700- Issue of a Documentary Credit
MT 705- Pre-Advice of a Documentary Credit
MT 707- Amendment to a Documentary Credit
MT 710/711- Advice of a Third Bank’s Documentary Credit
MT 720/722- Transfer of a Documentary Credit
MT 730- Acknowledgement
MT 732- Advice of Discharge
MT 734- Advice of Refusal
MT 740- Authorisation to Reimburse
MT 742- Reimbursement Claim
MT 747- Amendment to an Authorisation to Reimburse
MT 750- Advice of Discrepancy
MT 752- Authorisation to Pay, Accept or Negotiate
MT 754- Advice of Payment & Sol; Acceptance & Sol; Negotiation
MT 756- Advice of Reimbursement or Payment
MT 760- Guarantee
MT 767- Guarantee Amendment
MT 791- Request for Payment of Charges, Interest and Other Expenses
MT 900- Confirmation of Debit
MT 910- Confirmation of Credit
MT 950- Statement Message
MT 999- Free Format Message
Ref. No.: 2017/18/55 Date:
ZONE: BHUBANESWAR BRANCH:BHUBANESWAR
Beneficiary : RAM’S ASSORTED COLD STORAGE CR:
Applicant: OKAYA AND CO LTD
REQUEST FOR EXPOSURE LIMIT OF USD 186,300.00 RATE 72.00
ON Mitsubishu UFJ Financial Group JAPAN APPRX 1.34 Cr.
BANK OF TOKYO is subsidiary to the extent of 100%
UPTO 19-Aug-18
ZONE REF.:
The zone seeks exposure limit of USD 186300 APPRX. Rs. 1.34 Cr.
We propose to meet the requirement out of limits available with us.
We hereby the position of exposure on the bank is as under:
(Rs in Crore)
A Exposure limit held with us under A category 1400.00
B Exposure sanctioned so far 3.78
C Exposure expired 2.78
D Balance available with us 1399.00
E Present request 1.34
F Net Balance available after allocation 1397.66

Approval from credit angle has to be obtained by Zone/Branch at the appropriate level.
As per the Bank Exposure Policy on Foreign Banks approved by the Board of ………………….
General Manager is empowered to approve the exposure.
Please be guided by the instructions contained in Branch Circular
& Branch Circular No…………………. as per which branches are advised NOT to discount/ negotiate bills under
I/Cs (eve in case where IC is restricted to our Bank) to a non-constituent borrower of non constituent member of
consortium/multiple banking arrangement.
Designated Branches are instructed to strictly adhere to instructions issued in Br……………….. for due diligence,
verification of genuineness of IC etc. for non-constituent borrowers.
In the case of DA bills, purchasing/discounting/negotiating should be undertaken only after receipt of acceptance from
the IC opening bank.
Please ensure availability of matching country exposure limit with the branch.
 Re: Exposure of Indian Banks – Public & Private Sector
And international Banks – Negotiation of bills
Format for LC transaction ANNEXURE I

1 Name of the Country Japan

BANK OF TOKYO-MISTIBUSHI UFJ
(A) Name of the Bank on whom exposure is sought
2 LTD.
(B) SWIFT code of the bank BOTKJPJXXX
(A) Amount of exposure in foreign currency $ 1,86,300.00
3
(B) Amount of exposure in INR Rs. 1,27,00,000/- (Approx)
Details of LC
(i) L/C No. S-321-2018087
(ii) LC issuance date / LC amendment date 22.06.2018
(iii) If amended: Mention the amended details N/A
4 (iv) Tenor (Also mention whether DA/DP) AT SIGHT
(v) L/C expiry date 05.08.2018
IN case LC has expired and acceptance has been
(vi) received from LC issuing bank (PI mention the due N/A
date of payment)
(vii) Reimbursing bank BOTKU33XXX
5 Date up to which exposure is required 19.08.2018
OKAYA AND CO LTD.
(i) Name of the Applicant of LC
SHINJUKU TOKYO JAPAN
M/s RAM’S ASSORTED COLD
(ii) Name of Beneficiary STORAGE LTD. BHUBANESWAR,
ODISHA
6 In case of borrowers – Credit Rating Asset Code,
(iii)
Borrower Risk Grade & conduct of the A/c
In case of beneficiary being a Non-Constituent
Borrower or Non-Constituent Member of a
(iv) N/A
consortium/multiple banking arrangement:- Refer Br.
Cr. 105/169 dt. 27.01.2012
(i) Present outstanding exposure on the bank NIL
Total outstanding exposure taken on the beneficiary for
7 (ii) INR 20.40 Cr.
all transactions of FBN and IBN
(iii) Past experience with the bank SATISFACTORY
Name & contact No. of officer concerned who may
8
contacted in case of query.
All previous bills negotiated for this customer/beneficiary are realized on /before due date
1. We seek approval” A) For exposure as sought by us for the concerned Overseas Bank.
B) To permit us to negotiate the export bill.

BANK OF TOKYO-
Name of the Bank Proposed Exposure Rs 1.27 Crore
MITSUBISHI UFJ:LTD.
Exposure Allotted to ZO by Total outstanding after
NIL Rs 1.27 Crore
HO RMD: proposed Exposures
Preset O/s of Exposure NIL Delegation for approval HO, RMD
 NEW PURPOSE CODES FOR REPORTING FOREX TRANSACTIONS
A. PAYMENT PURPOSES

Gr. Purpose Group Name Purpose Description

No. Code
00 Capital Account S0001 Indian investment abroad -in equity capital (shares)
S0002 Indian investment abroad -in debt securities
S0003 Indian investment abroad -in branches & wholly owned
subsidiaries
S0004 Indian investment abroad -in subsidiaries and associates
S0005 Indian investment abroad -in real estate
S0006 Repatriation of Foreign Direct Investment in India- in equity
shares
S0007 Repatriation of Foreign Direct Investment in India- in debt
securities
S0008 Repatriation of Foreign Direct Investment in India- in real
estate
S0009 Repatriation of Foreign Portfolio Investment in India- in equity
shares
S0010 Repatriation of Foreign Portfolio Investment in India- in debt
securities
S0011 Loans extended to Non-Residents
S0012 Repayment of long & medium term loans with original
maturity above one year received from Non-Residents
S0013 Repayment of short term loans with original maturity upto one
year received from Non-Residents
S0014 Repatriation of Non-Resident Deposits (FCNRB/NRERA etc)
S0015 Repayment of loans & overdrafts taken by ADs on their own
account.
S0016 Sale of a foreign currency against another foreign currency
S0017 Purchase of intangible assets like patents, copyrights, trade
marks etc.
S0018 Other capital payments not included elsewhere
01 Imports S0101 Advance payment against imports
S0102 Payment towards imports- settlement of invoice
S0103 Imports by diplomatic missions
S0104 Intermediary trade
02 Transportation S0201 Payments for surplus freight/passenger fare by foreign shipping
companies operating in India.
S0202 Payment for operating expenses of Indian shipping companies
operating abroad.
S0203 Freight on imports – Shipping companies
S0204 Freight on exports – Shipping companies
S0205 Operational leasing (with crew) – Shipping companies
S0206 Booking of passages abroad – Shipping companies
S0207 Payments for surplus freight/passenger fare by foreign Airlines
companies operating in India.
S0208 Operating expenses of Indian Airlines companies operating
abroad
S0209 Freight on imports – Airlines companies
S0210 Freight on exports – Airlines companies
S0211 Operational leasing (with crew) – Airlines companies
S0212 Booking of passages abroad – Airlines companies
S0213 Payments on account of stevedoring, demurrage, port handling
charges etc.
Gr. Purpose Group Name Purpose Description
No. Code
03 Travel S0301 Remittance towards Business travel.
S0302 Travel under basic travel quota (BTQ)
S0303 Travel for pilgrimage
S0304 Travel for medical treatment
S0305 Travel for education (including fees, hostel expenses etc.)
S0306 Other travel (international credit cards)
04 Communication S0401 Postal services
Services
S0402 Courier services
S0403 Telecommunication services
S0404 Satellite services
05 Construction Services S0501 Construction of projects abroad by Indian companies
including import of goods at project site
S0502 Payments for cost of construction etc. of projects executed by
foreign companies in India.
06 Insurance Services S0601 Payments for Life insurance premium
S0602 Freight insurance – relating to import & export of goods
S0603 Other general insurance premium
S0604 Reinsurance premium
S0605 Auxiliary services (commission on insurance)
S0606 Settlement of claims
07 Financial Services S0701 Financial intermediation except investment banking – Bank
charges, collection charges, LC charges, cancellation of
forward contracts, commission on financial leasing etc.
S0702 Investment banking – brokerage, under writing commission
etc.
S0703 Auxiliary services – charges on operation & regulatory fees,
custodial services, depository services etc.
08 Computer & S0801 Hardware consultancy/implementation
Information Services
S0802 Software consultancy / implementation
S0803 Data base, data processing charges
S0804 Repair and maintenance of computer and software
S0805 News agency services
S0806 Other information services- Subscription to newspapers,
periodicals
09 Royalties & License S0901 Franchises services – patents, copyrights, trade marks,
Fees industrial processes, franchises etc.
S0902 Payment for use, through licensing arrangements, of produced
originals or prototypes (such as manuscripts and films)
10 Other Business S1001 Merchanting services –net payments (from Sale & purchase of
Services goods without crossing the border)
S1002 Trade related services – commission on exports / imports
S1003 Operational leasing services (other than financial leasing)
without operating crew, including charter hire
S1004 Legal services
S1005 Accounting, auditing, book keeping and tax consulting
services
S1006 Business and management consultancy and public relations
services
S1007 Advertising, trade fair, market research and public opinion
polling service
S1008 Research & Development services
S1009 Architectural, engineering and other technical services
S1010 Agricultural, mining and on–site processing services – protection
against insects & disease, increasing of harvest yields, forestry
Gr. Purpose Group Name Purpose Description
No. Code
services, mining services like analysis of ores etc.
S1011 Payments for maintenance of offices abroad
S1012 Distribution Services
S1013 Environmental Services
S1019 Other services not included elsewhere
11 Personal, Cultural & S1101 Audio-visual and related services – services and associated fees
Recreational services related to production of motion pictures, rentals, fees received
by actors, directors, producers and fees for distribution
rights.
S1102 Personal, cultural services such as those related to museums,
libraries, archives and sporting activities; fees for
correspondence courses abroad.
12 Govt. not included S1201 Maintenance of Indian embassies abroad
elsewhere (G.n.i.e.)
S1202 Remittances by foreign embassies in India
13 Transfers S1301 Remittance by non-residents towards family maintenance and
savings
S1302 Remittance towards personal gifts and donations
S1303 Remittance towards donations to religious and charitable
institutions abroad
S1304 Remittance towards grants and donations to other
governments and charitable institutions established by the
governments.
S1305 Contributions/donations by the Government to international
institutions
S1306 Remittance towards payment / refund of taxes.
14 Income S1401 Compensation of employees
S1402 Remittance towards interest on Non-Resident deposits
(FCNRB/NRERA/ NRNRD /NRSR etc.)
S1403 Remittance towards interest on loans from Non-Residents
(ST/MT/LT loans)
S1404 Remittance of interest on debt securities –debentures / bonds
/FRNs etc.
S1405 Remittance towards interest payment by ADs on their own
account (to VOSTRO a/c holders or the OD on NOSTRO
a/c.)
S1406 Repatriation of profits
S1407 Payment / repatriation of dividends
15 Others S1501 Refunds / rebates / reduction in invoice value on account of
exports
S1502 Reversal of wrong entries, refunds of amount remitted for
non-exports
S1503 Payments by residents for international bidding
S1504 Notional sales when export bills negotiated/ purchased/
discounted are dishonored/ crystallized/ cancelled and reversed
from suspense account
 NEW PURPOSE CODES FOR REPORTING FOREX TRANSACTIONS
B. RECEIPT PURPOSES

Gr. Purpose Group Name Purpose Description

No. Code
00 Capital Account P0001 Repatriation of Indian investment abroad in equity capital
(shares)
P0002 Repatriation of Indian investment abroad in debt securities.
P0003 Repatriation of Indian investment abroad in branches &
wholly owned subsidiaries
P0004 Repatriation of Indian investment abroad in subsidiaries
and associates
P0005 Repatriation of Indian investment abroad in real estate
P0006 Foreign direct investment in India in equity
P0007 Foreign direct investment in India in debt securities
P0008 Foreign direct investment in India in real estate
P0009 Foreign portfolio investment in India in equity shares
P0010 Foreign portfolio investment in India in debt securities
including debt funds
P0011 Repayment of loans extended to Non-Residents
P0012 Long & medium term loans with original maturity above one
year from Non-Residents to India
P0013 Short term loans with original maturity upto one year from
Non-Residents to India
P0014 Receipts o/a Non-Resident deposits (FCNRB/NRERA etc.)
ADs should report these even if funds are not “swapped” into
Rupees.
P0015 Loans & overdrafts taken by ADs on their own account. (Any
amount of loan credited to the NOSTRO account which
may not be swapped into Rupees should also be reported)
P0016 Purchase of a foreign currency against another currency.
P0017 Sale of intangible assets like patents, copyrights, trade marks
etc. by Indian companies
P0018 Other capital receipts not included elsewhere

01 Exports (of Goods) P0101 Value of export bills negotiated / purchased/discounted etc.
(covered under GR/PP/SOFTEX/EC copy of shipping bills
etc.)
P0102 Realisation of export bills (in respect of goods) sent on
collection (full invoice value)

P0103 Advance receipts against export contracts, which will be

covered later by GR/PP/SOFTEX/SDF
P0104 Receipts against export of goods not covered by the
GR/PP/SOFTEX/EC copy of shipping bill etc.
P0105 Export bills (in respect of goods) sent on collection.
P0106 Conversion of overdue export bills from NPD to collection
mode
P0107 Realisation of NPD export bills (full value of bill to be
reported)
02 Transportation P0201 Receipts of surplus freight/passenger fare by Indian
shipping companies operating abroad
P0202 Purchases on account of operating expenses of Foreign
shipping companies operating in India
P0205 Purchases on account of operational leasing (with crew) –
Shipping companies
P0207 Receipts of surplus freight/passenger fare by Indian Airlines
companies operating abroad.
Gr. Purpose Group Name Purpose Description
No. Code
P0208 Receipt on account of operating expenses of Foreign Airlines
companies operating in India
P0211 Purchases on account of operational leasing (with crew) –
Airlines companies
P0213 Receipts on account of other transportation services
(stevedoring, demurrage, port handling charges etc).
03 Travel P0301 Purchases towards travel (Includes purchases of foreign TCs,
currency notes etc over the counter, by hotels, hospitals,
Emporiums, Educational institutions etc. as well as amount
received by TT/SWIFT transfers or debit to Non-Resident
account).

P0308 FC surrendered by returning Indian tourists.

04 Communication P0401 Postal services
Services
P0402 Courier services
P0403 Telecommunication services
P0404 Satellite services
05 Construction Services P0501 Receipts for cost of construction of services projects in India
06 Insurance Services P0601 Receipts of life insurance premium
P0602 Receipts of freight insurance – relating to import & export of
goods
P0603 Receipts on account of other general insurance premium
P0604 Receipts of Reinsurance premium
P0605 Receipts on account of Auxiliary services (commission on
insurance)
P0606 Receipts on account of settlement of claims
07 Financial Services P0701 Financial intermediation except investment banking – Bank
charges, collection charges, LC charges, cancellation of
forward contracts, commission on financial leasing etc.
P0702 Investment banking – brokerage, under writing commission
etc.
P0703 Auxiliary services – charges on operation & regulatory fees,
custodial services, depository services etc.
08 Computer & P0801 Hardware consultancy/implementation
Information Services
P0802 Software consultancy/implementation (other than those
covered in SOFTEX form)
P0803 Data base, data processing charges
P0804 Repair and maintenance of computer and software
P0805 News agency services
P0806 Other information services- Subscription to newspapers,
periodicals, etc.
P0807 Off site Software Exports
09 Royalties & License P0901 Franchises services – patents,copy rights, trade marks,
Fees industrial processes, franchises etc.

P0902 Receipts for use, through licensing arrangements, of

produced originals or prototypes (such as manuscripts and
films)
10 Other Business P1001 Merchanting Services – net receipt (from sale and purchase of
Services goods without crossing the border).
P1002 Trade related services – Commission on exports/imports.
P1003 Operational leasing services (other than financial leasing and
without operating crew) including charter hire
P1004 Legal services
Gr. Purpose Group Name Purpose Description
No. Code
P1005 Accounting, auditing, book keeping and tax consulting
services
P1006 Business and management consultancy and public relations
services
P1007 Advertising, trade fair, market research and public opinion
polling services
P1008 Research & Development services
P1009 Architectural, engineering and other technical services
P1010 Agricultural, mining and on –site processing services –
protection against insects & disease, increasing of harvest
yields, forestry services, mining services like analysis of ores
etc.
P1011 Inward remittance for maintenance of offices in India
P1012 Distribution Services
P1013 Environmental Services
P1019 Other services not included elsewhere
11 Personal, Cultural & P1101 Audio-visual and related services – services and associated
Recreational services fees related to production of motion pictures, rentals, fees
received by actors, directors, producers and fees for
distribution rights.
P1102 Personal, cultural services such as those related to
museums, libraries, archives and sporting activities and fees
for correspondence courses of Indian Universities/Institutes
12 Govt. not included P1201 Maintenance of foreign embassies in India
elsewhere (G.n.i.e.)
P1203 Maintenance of international institutions such as offices of
IMF mission, World Bank, UNICEF etc. in India.
13 Transfers P1301 Inward remittance from Indian non-residents towards family
maintenance and savings
P1302 Personal gifts and donations
P1303 Donations to religious and charitable institutions in India
P1304 Grants and donations to governments and charitable
institutions established by the governments
P1306 Receipts / Refund of taxes
14 Income P1401 Compensation of employees
P1403 Inward remittance towards interest on loans extended to non-
residents (ST/MT/LT loans)
P1404 Inward remittance of interest on debt securities –debentures /
bonds /FRNs etc.
P1405 Inward remittance towards interest receipts of ADs on their
own account (on investments.)
P1406 Repatriation of profits to India
P1407 Receipt of dividends by Indians
15 Others P1501 Refunds / rebates on account of imports
P1502 Reversal of wrong entries, refunds of amount remitted for
non-imports
P1503 Remittances (receipts) by residents under international
bidding process.
 NEW PURPOSE CODES FOR REPORTING FOR FOREX TRANSACTIONS
C. COVER PAGE PURPOSES

Gr. Purpose Group Name Purpose Description

No. Code
99 Cover Page Total P0091 Purchase from Reserve Bank of India (Currency-wise Totals)
P0092 Purchase from other ADs in India (Currency-wise Totals)
Purchase from Overseas banks & correspondents (Currency-
P0093 wise Totals)
debit from the vostro a/c of overseas bank or correspondents
P0094 (Country-wise Totals)
P0095 Aggregate Purchases at Branches (Currency-wise Totals)
Exports (Totals) {N/P/D + Collection bills Realised during
Fortnight + Advance received during Fortnight} (Purchases
P0100 from Public against exports (Currency-wise Totals)}
Purchases from Public against third country exports (Currency-
P0144 wise Totals)
P1590 receipts below Rs. 5,00,000 (Currency-wise Totals)
P1591 Non-Exports equivalent & above Rs. 5,00,000
S0091 Sales to Reserve Bank of India (Currency-wise Totals)
S0092 Sales to other ADs in India (Currency-wise Totals)
Sales to Overseas banks & correspondents (Currency-wise
S0093 Totals)
credit to the vostro a/c of overseas bank or correspondents
S0094 (Country-wise Totals)
S0095 Aggregate Sales at Branches (Currency-wise Totals)
Sales to Public against Imports into other countries (Currency-
S0144 wise Totals)
S0190 Imports below Rs. 500000 (Currency-wise Totals)
S0191 Imports equivalent & above Rs. 5 Lakhs (Currency-wise Totals)
S1590 Non-Imports payment below Rs 500000 (Currency-wise Totals)
Non-Imports equivalent & above Rs. 5 Lakhs (Currency-wise
S1591 Totals)
Opening Balance (Debit Balance in Mirror/Debit Balance in
Cover Page Balance P2088 Vostro)
Closing Balance (Debit Balance in Mirror/Debit Balance in
P2199 Vostro)
Opening Balance (Credit Balance in Mirror/Credit Balance in
S2088 Vostro)
Closing Balance (Credit Balance in Mirror/Credit Balance in
S2199 Vostro)