Вы находитесь на странице: 1из 108

A STUDY ON FOREIGN EXCHANGE MANAGEMENT IN IMPORT AND

EXPORT TRADE

PROJECT REPORT

(A Report Submitted in Partial Fulfilment of the Requirements for the Degree of

Master of Business Administration in Pondicherry University)

Submitted by

Karthikeyan R A

Enrollment No: 0214470101

MBA: Operations & Supply Chain Management

Under the guidance of

Mr. Muthuraman MBA M.Phil management studies in Vels University

Visiting Faculty - Pondicherry University Twinning Program

DIRECTORATE OF DISTANCE EDUCATION

PONDICHERRY UNIVERSITY

PONDICHERRY – 605014

April 2016

CERTIFICATE OF THE GUIDE


1
This is to certify that the Project Work titled “FOREIGN EXCHANGE
MANAGEMENT IN IMPORT AND EXPORT TRADE” is a bonafide work of
KARTHIKEYAN R A, Enrollment No: 0214470101 carried out in partial fulfilment for
the award of degree of MBA Operations and Supply Chain Management of
Pondicherry University under my guidance. This project work is original and not
submitted earlier for the award of any degree / diploma or associate ship of any other
University / Institution.

Place: Chennai (Signature of the Guide)

Date: Mr. Muthuraman MBA M.Phil

(Management studies in Vels University)

2
STUDENT DECLARTION

I, Mr. Karthikeyan R A hereby declare that the project work which titles “FOREIGN
EXCHANGE MANAGEMENT IN IMPORT AND EXPORT TRADE” is the original
work done by me and submitted to the Pondicherry University in partial fulfillment of
requirements for the award of Business Administration of Operations and Supply Chain
Management. This is a record of original word done by me under the supervision of Prof.
Mr Muthuraman.

Enrollment No: 0214470101

Date:

Signature of the student

3
ACKNOWLEDGEMENT

Firstly, I would like to thank the Almighty for helping me throughout this project. He
provided me the strength to complete it successfully.

I convey my deep gratitude and sincere thanks to the Director of the PULC – Twinning
Programme at Loyola College, Chennai for giving me an opportunity to do a research
project on finding out the “Challenges Faced by the Organization during Recruitment”.

I take immense pleasure in thanking the faculty Mr. Muthuraman, project guide for
giving me proper guidance, timely advice, support and also for his active involvement
throughout the course of this project work.

A special and heartfelt thanks to all my friends who helped me in the completion of this
project in all the ways they could. Thank you.

Place : Chennai Karthikeyan R A

Date :

ABSTRACT
4
Foreign Exchange can be defined as the system or process of converting one national
currency into another and of transferring the ownership of money from one country to
another. Foreign Exchange can also be said as that section of Economic Science that
deals with the means and methods by which rights to wealth in one country’s currency
are converted into rights to wealth in terms of another country’s currency.

In this definition the term ‘currency’ includes not only such notes and coins as are legal
tender, but also all instruments – credit instruments – which are capable of being used as
currency, such as bills of exchange, promissory notes, cheques, drafts, airmail transfers,
telegraphic transfers and all other instruments which convey to the holder a right to
wealth.

Foreign trade takes place between different sovereign countries having different
monetary units, different rules and regulations governing foreign trade, different legal
system .Hence exporters and importers participating in trade have their own compulsions.
Thus, the exporters want money for the goods exported or services provided in the
currency of the country he resides, the importer on the other hand can pay for the goods
imported in the currency of the country .This is where foreign exchange comes into play
and helps convert one currency into another and smoothen the flow of international trade
and monetary resources. This project titled “A Study on Foreign Exchange
Management in Import and Export Trade” is aimed at studying about the
organizations foreign exchange services and solutions provided by them to many of their
customers.

CHAPTER 1

5
INTRODUCTION

The foreign exchange market does not have a physical market place called the foreign
exchange market. It is a mechanism through which one country's currency can be
exchange i.e. bought or sold for the currency of another country. The foreign exchange
market does not have any geographic location. The market comprises of all foreign
exchange traders who are connected to each other through out the world. They deal with
each other through telephones, telexes and electronic systems. The foreign exchange
market operates twenty four hours a day during the business week; the only time it is
silent is after the New York market closes on Friday afternoon and before the Sydney
market opens on Monday morning (which would be Sunday evening New York time).

This project titled “A Study on Foreign Exchange Management in Import and Export
trade” is aimed at studying about the organisation’s foreign exchange services and
solutions provided by them to many of their customers. Various information like, which
are the parties involved in foreign exchange, what all documents required for foreign
exchange is collected.

Then some of the Import and Export bills of the various companies were analysed, like
what are the requirements of the customers, at the same time it helped the companies
involved in export and import to improve the services provided by them.

6
PRIMARY OBJECTIVE:

To Study the Foreign Exchange Management in Import and Export trade.

SECONDARY OBJECTIVES:

 To study the different aspects involved in Forex Trading with the latest trends

 To understand the foreign exchange mechanism

 To study the systematic process Forex operation and its risks

 To analyze the functions of keeping stock of currencies by companies involved in


export and import

 To suggest best strategies to companies involved in Forex and import, Export

SCOPE OF THE STUDY

This project titled “A Study on Foreign Exchange Management in Import and Export
trade” is aimed at studying about the organisation’s foreign exchange services and
solutions provided by them to many of their customers. Population includes the
employees and customers of companies involved in export and import in Chennai. In this
study we had taken the exchange rates, import and export of the India with the other
countries.

7
NEED FOR THE STUDY

Foreign trade takes place between different sovereign countries having different
monetary units, different rules and regulations governing foreign trade, different legal
system .Hence exporters and importers participating in trade have their own compulsions.
Thus, the exporters want money for the goods exported or services provided in the
currency of the country he resides, the importer on the other hand can pay for the goods
imported in the currency of the country .This is where foreign exchange comes into play
and helps convert one currency into another and smoothen the flow of international trade
and monetary resources.

8
REVIEW OF LITERATURE

Foreign Exchange

Foreign Exchange can be defined as the system or process of converting one national
currency into another and of transferring the ownership of money from one country to
another. Foreign Exchange can also be said as that section of Economic Science that
deals with the means and methods by which rights to wealth in one country’s currency
are converted into rights to wealth in terms of another country’s currency.

In this definition the term ‘currency’ includes not only such notes and coins as are legal
tender, but also all instruments – credit instruments – which are capable of being used as
currency, such as bills of exchange, promissory notes, cheques, drafts, airmail transfers,
telegraphic transfers and all other instruments which convey to the holder a right to
wealth.

Foreign Exchange Market

The Foreign Exchange market plays the part of a clearing house through which purchases
and sales of foreign currencies are offset against each other. The foreign exchange
market, however, is not a ‘market’ in the concrete sense of the term or a geographical
entity.

This term is used in an abstract sense only, meaning a number of buyers and sellers
systematically in contact with each other for the purpose of transacting foreign exchange
business. This is the sense in which the term ‘market’ is used in Economics.

9
 The Retail Market is a market in which travelers and tourists exchange
currencies through currency notes or traveler’s cheque.

 The Wholesale Market is a market wherein exchange of currencies takes place


thorough commercial banks, investment banks, corporations, central banks and
various institutions. So, this market is also termed as interbank market

The Primary Price Makers or professional dealers make a two way market to each other
and to their clients i.e. they will quote a two way price and be prepares to take either the
buy or the sell side. This group includes mainly commercial banks and some large
investment dealers. A few large corporations have also assumed the role of primary
dealers.

Primary price makers perform an important role in taking positions off the hands of a
dealer or corporate customer and then offsetting these by doing an opposite deal with
another entity, which has a matching requirement.

Eg. – a primary dealer will sell USD against the euro to one corporate customer, carry
the position for a while and offset it by buying USD against the euro from another
customer or professional dealer.

10
The primary price makers consist of three types of tiers or segments.

 In the First Tier there are a few giant multinational banks that deal in a
large number of currencies, in large amounts and often deal directly with
each other without using brokers.
 In the Second Tier are large banks that deal in a smaller number of
currencies and use the services of brokers more often.
 Lastly, there are small local institutions, which make the market in a very
small number of major currencies against their home currency.

In retail market, there are entities, which make foreign exchange prices but do not make a
two-way market. They are Secondary Price Makers. These types of entities are often
driven by prices decided by Primary Price Makers.

Functions of Foreign Exchange Market

The Foreign Exchange department is a high-specialized department in a bank. A wide


variety of services are rendered by a foreign exchange department. The principal function
is the transfer of funds & currency from one nation to another. Broadly, the functions of a
foreign exchange department may be classified as follows -

Financing Exports

 The financial needs of the exporter right from the moment he conceives of the
project and till he realizes export proceeds are provided by banks.
 The exporter may be eligible to receive cash incentives from the Government on
exports.

11
Financing Imports

 Letters of credit are issued by banks on behalf of their importer - customers.


 The opening of the Letter of credit by the bank, whereby id undertakes to make
payment to the exporter on shipment, enables the importer to conclude the deal
with ease.
Remittance Facilities

 An importer in India has to pay the overseas exporter. Similarly, an Indian


exporter has to receive payment from abroad.
 An Indian who is now employed abroad may like to remit funds for maintenance
of his family in India. The payment into or from India can be arranged through
any of the credit instruments.

Dealing in Foreign Exchange

 Banks buy and sell foreign exchange form and to the public. To carry out this
function banks have to keep sufficient stock of foreign exchange.

Furnishing Credit Information

 With a network of correspondent relationship with banks, abroad, a bank in India


is in a position to furnish business information to exporter and importer in India.

12
THE ORETICAL BACKGROUND

What is Exchange rate?

Countries of the world have been exchanging goods and services amongst themselves
from time immemorial. With the invention of money, the rigors and problems of barter
trade have disappeared. The barter trade has given way to exchange of goods and services
for currencies instead of exchange for goods and services.

As every sovereign nation has a distinct national currency, international trade has
necessitated exchange of currencies and this exchange of currencies necessitated
exchange rate. Like any other commodity, the price of one unit of foreign currency can be
stated in terms of domestic company. Thus, the rate of exchange means the price of one
currency in terms of another country.

For instance, the price of US Dollar can be expressed in terms of Indian Rupees. If US
Dollar 1 = INR 48.50(as on August 28, 2002), it means the exchange rate of US Dollars
and Indian Rupees is 1: 48.50. Exchange rates are normally quoted in terms of a buying
rate, a flat rate, and a selling rate. The buying rate is that which a bank will pay for a
foreign currency. The selling rate is the rate a bank will charge for the currency, and the
flat rate is an average of the buying and the selling rates. In other words, the exchange
rate is said to be the rate at which a number of units of one currency can be exchanged for
a number of units of another currency.

Some Important Terms

Fixed Exchange Rate System

In a fixed exchange rate system foreign central banks stand ready to buy and sell their
currencies at a fixed price in terms of dollars.

13
Intervention

Intervention is the buying or selling of foreign exchange by the central bank. Foreign
exchange market intervention occurs when a government buys and sells foreign exchange
in an attempt to influence the exchange rate.

Flexible Exchange Rate System

In a flexible exchange rate system, the central banks allow the exchange rate to adjust to
equate the supply and demand for foreign currency. The terms flexible and floating rates
are used interchangeably. In a system of Clean Floating Rate, Central Banks stand aside
completely and allow exchange rates to be freely determined in the foreign exchange
markets. Under a Managed or a Dirty floating rate, Central banks intervene to buy and
sell foreign currencies in attempts to influence exchange rates.

Devaluation

Devaluation takes place when the price of foreign currencies under a fixed rate regime is
increased by official action. The outfall of this is that the foreigners pay less for the
devalued currency and the residents of the devaluing currency pay more for foreign
currencies.

Depreciation

A change in price of foreign exchange under flexible exchange rates is referred to as


currency depreciation or appreciation. A currency depreciates when, under floating rates,
it becomes less expensive in terms of foreign currencies. The reverse results in
appreciation. If the exchange rate falls, the domestic currency is worth more; it costs
fewer domestic currencies to buy a unit of foreign currency.

Factors Influencing FOREX Rates:

14
POLITICAL FACTORS

The political factors influencing exchange rates include the established monetary policy
along with government action or inaction on items such as the money supply, inflation,
taxes, and deficit financing. Active government intervention or manipulations, such as
central bank activity in the foreign currency markets, also have an impact. Other political
factors influencing exchange rates include the political stability of a country and its
relative economic exposure (the perceived need for certain levels and types of imports).
Finally, there is also the influence of the International Monetary Fund.

Foreign exchange rates can be affected in the long and short term by political factors such
as:

 The type of economic policies pursued by the government


 The amount of uncertainty in the political situation

Economic
Political

Influences
on

Exchange
rate

People

15
 The regulatory policies followed by central banks and/or other regulatory
bodies.
 Central bank intervention in the FX market to strengthen or weaken its
currency

ECONOMIC FACTORS

Economic factors affecting exchange rates include hedging activities, interest rates,
inflationary pressures, trade imbalances, and EuroMarket activities. Irving Fisher, an
American economist, developed a theory relating exchange rates to interest rates. This
proposition, known as the Fisher Effect, states that interest rate differentials tend to
reflect exchange rate expectations.

In this category there are four factors to be considered:

 Relative interest rates


 Purchasing power parity (PPP)
 Economic conditions
 Supply and demand for capital

Relative Interest Rates

Large investors can easily switch investments between different currencies so it is


important for them to compare the returns from investments in different currencies to
make sure they obtain the best investment performances.

If an investor can receive a higher interest rate by lending money in a foreign currency
than he can by lending money in his domestic currency, it makes sense for that investor to
lend in the foreign currency. Comparing interest rates in different currencies in this way is
called comparing relative interest rates.

16
However, as the FX rate may vary over the tenor of the loan, the investor is exposed to
the risk that the foreign currency may be depreciate against the domestic currency by
more than the difference between the two interest rates. In this case, the investor will
make a loss by lending in foreign currency. In fact, currencies with higher interest rates
tend to appreciate against other currencies because more investors buy the high –interest
currency in order to chase the higher returns.

Purchasing Power Parity (PPP)

Purchasing power parity is the measure of the relative purchasing power of different
currencies. It is measured by the price of the same goods in different countries, translated
by the FX rate of that country’s currency against a ‘base currency’, usually the dollar. The
concept behind purchasing power parity is that if goods are cheap in one country it pays
to export them to another country where they are more expensive.
If the equivalent amount of currency purchases exactly the same amount of goods in
every country then international trade is no longer profitable. That is, every currency is in
purchasing power parity.

Economic Conditions
FX exchange rates are affected in the long-term by a country’s economic conditions and
trends such as:

 Balance of payments
 Economic growth
 Rate of inflation
 Money supply
 Unemployment figures
 Rates of taxation

17
Supply and demand for capital

Capital flows to a country where investors see opportunities. Some countries need capital
and offer appropriate interest rates – others have a surplus of money and so have lower
interest rates. However, investors do no always invest purely for high interest rate returns.
For example, Japanese car and electronic manufacturers have invested in manufacturing
operations in the USA and Europe to overcome tariff and quota problem.

PSYCHOLOGICAL FACTORS

Psychological factors also influence exchange rates. These factors include market
anticipation, speculative pressures, and future expectations. A few financial experts are of
the opinion that in today’s environment, the only ‘trustworthy’ method of predicting
exchange rates is by “gut feel”.

Market Sentiment
Short term changes in FX rates are often a result of what market participants call market
sentiment. This is the perception traders have of the short term prospects for the
movement in the currency. Market sentiment is usually said to be ‘positive’ or ‘negative’.
A currency will normally strengthen relative to other currencies on positive sentiment and
weaken relative on other currencies on negative sentiment.

Traders act as news about a given economy. Often, traders will anticipate a news report or
significant government announcement by buying and selling the currency before the
news is actually reported. Sentiment affects how the currency moves when the news
really breaks. For example, if the market sentiment is positive ahead of the Government’s
announcements of GDP figures, the currency will probably rise in anticipation of the
figures being announced. If the government’s GDP figure is less than the market was
expecting, the currency will fall, even if the GDP figure is still good news for the
economy.

18
Technical Analysis
Many market participants trade on the basis of past price movements. This is because
they believe past market moves, rather than economic fundamentals or news, predict
future market moves. This practice is called technical analysis. Technical analysis
highlights the trends in the market based on the assumption that market participants will
react in the same way today as they did in the past.

Uniform Customs and Practices for Documentary Credit (UCPDC):

The Uniform Customs and Practices for Documentary Credit (UCPDC) were evolved by
the International Chamber of Commerce to define a set of rules governing letters of credit
which can be universally accepted by all the participating countries. The UCPDC first
appeared in 1933, but did not get universal acceptance. It was revised in 1962, 1974,
1983 and 1993 and almost all the countries have adopted it. This have paved the way for
a common understanding of the terms by all parties involved, namely ,banks, insurance
companies, shipping companies, traders, etc.

In short a “Documentary Credit is an undertaking issued by a bank, on behalf of the


buyers (importers) ,to seller(exporter), to pay goods and /or services ,provided that the
seller presents documents which comply fully with the terms and conditions of the
credit.”

These are advantages to both the buyer and seller when settlement is arranged by
documentary letter of credit. Firstly, the buyer knows that payment will only be made if
the documents received comply strictly with the terms and conditions of the credit as
stipulated by the buyer. Secondly, the seller knows that payment will be received
provided the terms and conditions of the credit are strictly complied with.

19
The International chamber of Commerce, Paris, has recently finalised the transaction of
UCPDC from UCP 500 to UCP 600.Hence, effective 01 st July 2007; all Documentary
Credit will be governed as per article of UCP 500 .The main aims of the ICC in revising
the provisions were to:

 Reduce misinterpretations
 Reduce the number of articles by clubbing them and deleting the repetitive ones.
 Define the articles in much clearer and simplified language
 Take advantage of technology.

a) Types of Documentary Credit:

1. Revocable letter of credit:

A revocable credit is one, which can be amended or cancelled at any time without prior
notice or warning to the seller .It involves risks to the beneficiary, as the credit may be
amended or cancelled while the goods are in transit and before correct documents are
presented. The seller of goods would face the problem of obtaining payment directly
from the buyer. A revocable credit gives the buyer maximum flexibility ,as it can be
amended or cancelled without prior notice to the seller up to the moment of presentation
of documents to the bank at which the issuing bank has made the credit available for
payment.

2. Irrevocable letter of credit:

An irrevocable credit cannot be amended or cancelled without the agreement of the


issuing bank, the confirming bank (if the credit is confirmed) and the seller
(beneficiary).An irrevocable credit gives the seller great comfort of payment but is really
only dependent upon undertaking of bank abroad .

The buyer can request the advisory bank to add its confirmation to an irrevocable credit if
he is not satisfied with the assurance of the credit issuing bank. If the advisory bank
20
agrees, the irrevocable credit becomes a confirmed irrevocable credit .For adding
confirmation; the bank will charge commission, which may have to be paid by seller.

A confirmed irrevocable credit gives the seller a double assurance of payment ,since a
bank in the sellers country has now added its own undertaking in addition to that of the
issuing bank to pay for the documents drawn under the letter of credit ,provided of
course, the documents are drawn strictly in compliance with the terms of credit.

3. Unconfirmed letter of credit:

Advising Bank has no engagement or responsibility as regard payment, even conforming


document are presented. The Advising Bank will make a decision on ability to effect
payment at the time of presentation of documents. The beneficiary will need to assess the
country risk concerned before continuing with handling of the credit .It should always be
remembered that whilst a bank has issue credit .It might not be able to secure the foreign
exchange in order to meet its obligation

4. Confirmed letter of credit:

The confirmation constitutes the undertaking of that bank in addition to that of the issuing
bank, to effect payment upon presentation at its counter of conforming documents.
Therefore in the event the issuing bank to effect payment upon presentation at its counter
of conforming documents. Therefore in the events of the issuing bank not being in a
position to honour its obligation, the confirming bank will effect payment to beneficiary
as prescribed in the credit terms.

21
5. Red Clause and Green clause Credit:

A red clause L/C contains a clause printed in red, authorising the negotiating bank to
grant advances to the exporter for purchase, processing and packing of goods. This
advance from bill is recoverable with interest from bill tendered under the credit. A green
clause L/C is an extension of the red clause credit and covers storage of the goods in
name of the bank. Both red and green clause credits have been extensively used in
Australian wool trade.

6. Sight Credit:

A credit available by sight payment usually allows the nominated bank to debit account
of the issuing bank on the presentation of the conforming document. A draft payable sight
may be called for, drawn on the nominated bank. In the case of a confirmed credit the
nominated bank is nearly always the confirming bank.

22
5.7 THE DOCUMENTARY CREDIT LIFE CYCLE:

Presentation of Documents and Payment:

1. Agreement between buyer and seller

2. Buyers applies for issue of a documentary credit

3. Buyers bank issues documentary credit

4. Issuing bank communicates issue of documentary credit

5. Advising bank communicates issue of LC to beneficiary


23
6. Advising bank adds its own confirmation

7. Beneficiary receives L/C

8. Request for amendment of L/C to the applicant

9. Applicant requests issuing bank for amendment

10. Amendment communication to advising bank.

11. Advising bank communication amendment.

12. Confirming bank communication amendment

13. Beneficiary confirms acceptance of amendment.

14. Presentation of documents to bank.

15. Scrutiny of documents.

16. Discrepancies in documents.

17. Negotiation, acceptance, payment

18. Reimbursement to negotiating bank.

19. Examination by issuing bank

20. Delivery of documents to the buyer

21. L/C utilised, liability reduced.

22. Charges paid.

24
DOCUMENTS
In foreign exchange transaction various documents used are as follows:

6.1 Bill of Exchange:

A bill of exchange is a negotiable instrument and can be defined as a document in


writing drawn by the seller on the buyer for a stated sum of money .A bill of exchange
may be drawn on the issuing bank or another drawee bank, but not the importer. Article 9
of the UCPDC makes it clear that where a credit call for bill of exchange on the importer
(applicant), banks will consider these as additional documents. In foreign trade a bill of
exchange is also referred to as a draft.

D/A means document against acceptance ,which means the collecting bank will deliver
all the documents to the drawee on the acceptance of the bill of exchange. The payment
will be made on the due date by the drawee. D/P means documents against payment;
hence in this case unless the payment is made the collecting bank will not release the
document to the drawee of bill.

Commercial invoice:

A commercial invoice is the most comprehensive commercial document among the entire
set of export document or bills .It is the only document in the whole set that carries
complete information about the specific commercial transaction between the buyer and
seller. A commercial invoice although not a negotiable instrument is also a claim for
payment of goods under the term of the commercial contract. It is addressed to buyer by
the seller and signed by the seller. In addition a detailed description of the goods together
with unit prices total amount payable showing discount or advance payment made if any,
terms of payment ,weight and packing details ,shipping details and marks .It serves as a
checklist to all concerned and help to identify a particular consignment. It is also used as
main evidence in any assessment of custom duty.

25
Packing list:

A packing list is usually accompanies an invoice if there are several packages in one
consignment. A packing list identifies the content of each package and also its weight
marking and measurement .As the name suggests the list for the convenience of
inspection agency at the point of import or cartoon open a selected package, if needed.
Packaging list are often required by the importing country for custom inspection .The
details of the goods contained in the packing list must agree in general terms with those
in other document. It must also be signed where ever necessary.

Certificate of inspection:

A certificate of inspection lends a considerable degree of comfort to the importer with


regard to the specification of the goods being purchased .Importer can thus safeguard
their interest by arranging for the goods to be inspected by a reputed, independent
organisation prior to shipment. The inspection certificate forms a part of the document
presented by the exporter to the negotiating bank .The certificate of inspection usually
contains details such as weighs measurement ,composition ,quality ,packaging and bear
the signature and seal of the inspecting organisation.

Bill of lading:

In international trade shipping occupies an important place as a mode of transport. The


document evidencing the carriage of goods by sea is called the bill of lading .A bill of
lading is a document issued by the shipping company or its agent acknowledging the
receipt of goods for carriage ,which are deliverable to the consignee or assignee in the
same condition as they were received.

26
A bill of lading is all of the following:

1. Evidence of contract of carriage.


2. Receipt of goods received by the carrier.
3. A document of title to goods, that is, a right to receive the goods therein
mentioned.

Certificate of Origin:

This is a declaration that specifies the country of origin of goods. They are called by the
countries wishing to identify the origin of all imported goods for their own reason, i.e.
statistical analysis, policy decisions or where there are quotas or other importer
restrictions in force or to qualify for special rate of custom duty.

It contents normally include:

1. The name and address of the consignor and occasionally the name and address of
the manufacture if different.
2. The name and address of the consignee usually the buyer or issuing bank. If the
bill of lading is issued to order it may also contain the actual buyer name and
details.
3. The country of origin of the goods which may not necessarily be the country from
which it’s being shipped.
4. The mode of transport may be optional but if completed must show the details of
the transport document.
5. The number of package, gross or net weight, relevant shipping marks and
description of goods which should confirm to other documents.

27
Bill of Entry:

Bill of entry is the documents which are issued by custom department for import of goods
and when goods can enter in the importer country .These documents specially detailed
includes shipper name, importer and exporter name and details, goods declaration and
custom duty explanation and authority sign of clearness of goods.

GR form/SDF form/SOFTEX form:

GR form means General form, SDF means Statutory Declaration form, and these
documents are issued for declaration of exports. Every transaction can be properly
declared by custom or government so that they can issue those form that declared all
document export goods permission by government or department. When we export
certain type of software that time we can use softex form so that proper valuation of
software and all declaration related that goods can be specified, for the export process
this documents are essential.

EXCHANGE RATE SYSTEM IN INDIA


Initially the Indian Re was under the fixed exchange rate system linked to the British
pound . As sterling become more volatile, it came to pegged to basket of currency. Then
with a view to making US$ directly available to authorized dealer for meeting their
customer requirement, RBI commenced the sale of US$ for spot delivery with effect from
2nd Feb1987

Abolition Of Sterling Rate Schedule

The abolition of system of regulating exchange rates through the sterling rate schedule
enabled the banks to quote exchange rates to customer on the basis of on going market
rates. Its abolition put an end to era of fixed exchange margins. RBI brought in a system
where by Authorized Dealers could have an opportunity to change rates eve in the course
of day if such changes were warranted by market force.

28
Segregation of Interest Element

RBI on Jan1984 delinked the interest from exchange rate. Banks started quoting
exchange rate on the basis of ongoing market rates. Interest for transit period, usance
period & grace period where applicable was calculated separately & recovered from the
customer at the time of discounting / negotiating / purchasing the bill, with this the AD
were precluded from foregoing interest.

Liberalized Exchange Rate Management

The BOP crisis witnessed by country during 90-91, a committee was set up to look in to
various issue involved which recommended that there should be two markets, one market
in which a portion of total transaction would be settled at official exchange rate and at the
other market for the balance of portion the rates would be based on supply / demand
factors. Thus, the LERMS came in to effect from 1st March 92

Unified Exchange Rate System

Effective from 1st March Government of India replaced dual exchange rate system by the
unified exchange rate system. The earners of foreign exchange now get their entire
export, converted in to Indian rupee at the market rate. Authorized Dealers are free to
retain the entire foreign exchange receipts with them for permissible transactions. RBI
will buy / sell foreign currency spot from AD only in cover of their actual merchant
transaction & not for covering their anticipated purchase.

29
TYPES OF TRANSACTIONS AND SETTLEMENT DATES

TYPES OF TRANSACTION

Spot Transaction Forward Transaction

Spot Transaction

In a spot market, transactions are settled “on the spot”. Once a trade is agreed upon, the
settlement – i.e. the actual exchange of money for goods – takes place with the minimum
possible delay (latest within two days).

E.g - When a person selects a shirt in a shop and agrees on a price, the settlement
(exchange of funds for goods) takes place immediately. That is a spot market.

There are two real–world implementations of a spot market:

 Rolling settlement
 Real-time gross settlement (RTGS).

Rolling Settlement

In rolling settlement, trades are netted through one day, and settled x working days later;
this is called T + x rolling settlement.

For example: With T+5 rolling settlement, trades are netted through Monday, and the net
open position as of Monday evening is settled latest by Friday evening.

30
Real-Time Gross Settlement (RTGS)

In RTGS, all trades settle in a few seconds with no netting. Rolling settlement is a close
approximation, and RTGS is a true spot market. Today the equity market in India, for the
major part, is not a spot market.

For example: the bulk of trading on NSE takes place with netting from Wednesday to
Tuesday, and then settlement takes place five days later. This is not a spot market. The
“international standard” in equity markets is T+3 rolling settlement. But the
currency market in India is RTGS.

Forward Transaction

In a forward contract, two parties irrevocably agree to settle a trade at a future date, for a
stated price and quantity. No money changes hands at the time the trade is agreed upon
for maturity.

E.g. Suppose a buyer L and a seller S agree to do a trade in 100 grams of gold on 31 Dec
2001 at Rs.5,000/tola. Here, Rs.5,000/tola is the “forward price of 31 Dec 2001 Gold”.
The buyer L is said to be long and the seller S is said to be short. Once the contract has
been entered into, L is obligated to pay S Rs. 500,000 on 31 Dec 2001, and take delivery
of 100 tolas of gold. Similarly, S is obligated to be ready to accept Rs.500,000 on 31 Dec
2001, and give 100 tolas of gold in exchange. The deal will not effect from the spot
market as on Dec. 31, 2001.

31
SETTLEMENT DATES

 Settlement of the transactions takes place by transfers of funds between the two
parties. The day on which these transfers are affected is called the settlement date
or the value date.
 To effect the transfer, banks in the countries of the two currencies involved, must
be open for business. The relevant countries are called settlement location.
 The locations of the two banks involved in the trade are the dealing locations,
which need not be the same as settlement locations.

Eg. – a London bank can sell Japanese yen against US dollar to a Paris
bank. Settlement locations may be New York and Tokyo, whole dealing
locations are London and Paris. The transaction can be settled only on a
day on which both US and Japanese banks are open.

Depending upon the time elapsed between the transaction date and the settlement date,
foreign exchange transactions can be categorized into spot and forward transaction. Apart
from these two categories, a third category called swaps is a combination of a spot and
forward transactions or two forward transactions.

 In a Spot Transaction, the settlement or value date is usually two business days
ahead for European currencies or the yen traded against the dollar.

E.g. – if a London bank sells yen against dollar to a Paris bank on


Monday, the London bank will turn over a yen deposit in Japan to the
Paris bank on Wednesday and the Paris bank will transfer a dollar deposit
in US to the London bank on the same day.

 To reduce credit risk in spot transaction both transfers should take place on the
same day.

32
Taking the previous example – if the following Wednesday happens to be a
bank holiday on either Japan or US, the value date is shifted to the next
available business day, in this case Thursday. If Wednesday is a holiday
both in UK and France, settlement is again postponed to Thursday.

 In a Forward Transaction, the value date is based on usance. The rate for
forward transaction is decided by adding Forward premium/discount to the spot
rate prevailing as at value date.

 To arrive at the maturity date, first find the value date for a spot transaction
between the same currencies done on the same day and then add one calendar
month to arrive at the value date.
Eg, - for a one month forward transaction entered into on , say June 20,
the corresponding spot value date is June 22, one-month forward value
date is July 22, two month forward is August 22 and so on.

Standard forward contract maturities are 1,2,3,6,9 and 12 months. The value dates are
obtained by adding the relevant number of calendar months to the appropriate spot value
date.

FOREIGN EXCHANGE RATES


An exchange rate quotation is the price of a currency stated in terms of another. For e.g.
A/ B, where currency B is being sold or bought with its value being expressed in terms of
currency A. Currency B is referred to as the base currency.

Various kinds of quotes are classified as follows

33
AMERICAN Vs EUROPEAN QUOTE

American quote is the number of dollar expressed per unit of any other currency while a
European quote is the number of units of any other currency expressed per dollar

e.g.- DM1.6665/$- European quote

$1.6698/Re- American quote

DIRECT Vs INDIRECT QUOTE

A direct quote is the quote where the exchange rate is expressed in terms of number of
units of the domestic currency per unit of foreign currency & indirect quote is a quote
where rate is expressed in terms of number of units of foreign currency for a fixed
number of units of domestic currency

e.g. direct quote: Rs / $ 30.720/30.7409

Indirect quote: $/100Rs 3.2530/50

BID & ASK RATE

The rate at which bank is ready to buy a currency will be different from the rate at which
it stands ready to sell that currency. These rates are called bid & ask rates respectively.
Mid rate is the arithmetic mean of bid & ask rate . The difference between bid & ask rate
is known as spread

eg: Rs / $ 42.53/42.57

42.53 bid rate

42.57 ask rate

34
INTERBANK VS MERCHANT QUOTE

Merchant quote is the quote given by bank to its retail customer. A quote given by one
bank to another is interbank quote

INVERSE QUOTE

For every quote A/B there exist an inverse quote B/A

eg DM/$: 1.6663/1.6668

implied ($/DM) bid=1/(DM/$)ask

implied ($/DM) ask=1/(DM/$)bid

Implied inverse rate

$/DM =0.5999/0.6001

Implied B/A quote

1/(A/B) ask/1/(A/B)bid

CROSS RATES

In foreign exchange market one can calculate the exchange rates between two currencies
with the third currency as the intermediate currency.

E.g - DM/Rs rate will be calculated through DM/$ quote $/Rs quote. The DM/Rs rate
calculated is called a cross rate or synthetic rate

35
PURCHASING POWER PARITY
 According to this theory, the price level (changes in the price level) in different
countries determine the exchange rates of these countries currency
 The basic tenet of this principle is that the exchange rate between various
currencies reflect the purchasing power of these currency
This tenet is based on the law of one price.

LAW OF ONE PRICE

According to this, in equilibrium condition the price of a commodity has to be same


across the world. Also according to this law the domestic currency price of a commodity
in various countries when converted in to common currency at the ruling spot exchange
rate is the same through out the world.

i.e.

Pa= S(A/B) * Pb

Pa- Price of commodity x in country A

Pb-Price of commodity in country B

S(A/B)-spot exchange rate of the two countries currency

36
There are three forms of Purchasing Power Parity

Absolute form of PPP

If the law of one price were to hold good for each & every commodity then it will follow
the -

Pa =S(A/B)*Pb

Where Pa & Pb prices of same basket of goods & services in country A&B

S(A/B)= Pa/Pb

According to this equation, the exchange rate between two countries currency is
determined by the respective price levels in the two countries.

It is difficult to test the theory empirically, as the indexes used in different countries to
measure the price level are not comparable

Relative Form of PPP

It talks about the link between the changes in spot rates and in price level over a period of
time. According to this theory changes in spot rate over a period of time reflect the
changes in the price level over the same period in the concerned economies.

Expectation form of PPP

The expected % change in the spot rate is equal to the difference in the expected inflation
rates in the two countries. This theory assumes that speculators are risk neutral & markets
are perfect.

37
Reasons for Purchasing Power Parity not holding good

 Constraints on Movement of commodities


 Price Index construction
 Effect of the statistical method employ

FOREIGN EXCHANGE PRODUCTS

EXPORT IMPORT FINANCE

Exchange Control Regulations on Exports

 Statutory basis for exchange control


 Importer-exporter code number
 Export declaration forms
 Exemptions from declarations
 Appropriate export declaration form
 Prescribed time
 Prescribed method
 Submission of export documents
 Extension of time limit
 Follow-up of overdue export bills
 Reduction in invoice value
 Change of buyer
 Dispatch of shipping documents
 Advance remittance

38
Exchange Control Regulations on Imports

 Obligations under FERA in import transactions


 Importer exporter code number
 Importability of goods
 Payment for imports
 Interest on import bills
 Advance remittances
 Postal imports
 Import through couriers
 Import under foreign loans/credits arranged by government
 Evidence of import
 Conditions of opening letter of credit
 Handling of import bills
 Submission of statement

LETTER OF CREDIT
A country rarely, if ever, produces everything it needs. This means that countries are
dependent upon one another for those products that they need but which they themselves
do not produce. The various steps covering the movement of goods between countries the
payment for such goods and the relationship between the parties involved form the basis
of international trade.

39
Following are the recognized methods of effecting payments under international trade.

ADVANCE PAYMENT

 When the buyer’s credit is doubtful or the political or economic environment in


the buyer’s country is unstable seller may demand advance payment, which will
be to his advantage.

 Without any assurance for supply of goods, blocking his capital prior to receipt of
goods or services the buyer will be at a disadvantageous position.

OPEN ACCOUNT

 By an arrangement between the buyer and the seller manufactured goods will be
delivered to the buyer directly or to his order and the buyer will pay at the end of
the agreed period.

 This type of trading requires a high degree of trust between buyer and seller and it
will be more advantageous to the buyer.

BILLS ON COLLECTION BASIS

 It is an arrangement by which the seller after shipping the goods submits the
documents to his bank as agent for collection.

 Documents are presented to the buyer through the correspondent bank of the
seller’s bank, which will be released upon buyer’s payment of the amount
specified.

40
DOCUMENTARY CREDITS (LETTERS OF CREDIT)

 It is one of the most convenient methods of settling payments in international


trade.
 It provides complete financial security to the seller of goods.
 The seller may not know the credit worthiness of the buyer and the prevailing
regulations in the country of the buyer.
 But once a Letter of Credit is established by the buyer’s bank on behalf of the
buyer in favor of the seller and the seller submits the set of required documents to
the opening bank or the nominated bank, seller is assured of payment.
 Buyer also gets the advantage of his banker’s assistance in closely scrutinizing the
documents and only after receiving the relevant documentary evidence from the
seller by the banker nominated in the credit the nominated banker releases
payment.

OPERATION OF LETTER OF CREDIT

 Based on the agreement entered into between buyer and seller, buyer approaches
his bank to open a letter of credit in favor of the seller of the goods in the other
country.
 As per the terms of the contract and the application given by the applicant to the
opening bank establishes the Letter of Credit and forwards the same to its
correspondent in the seller’s country which advises the Letter if Credit to the
beneficiary.
 At times at the insistence of the seller the buyer requests his bank to make
available the confirmation of a bank in the seller’s country.
 In such a case, the bank, which adds its confirmation, becomes a confirming bank.
 The bills received under the Letter of Credit will be negotiated by this bank which
will claim reimbursement from the bank mentioned in the Letter of Credit for this
purpose.
 The documents will then be sent to the opening bank which will hank over the
documents to the opener after recovering the value from him.
41
TYPES OF LETTER OF CREDIT

REVOCABLE – IRREVOCABLE CREDIT

 A letter of credit may be revocable or irrevocable. If there is no indication of this


reference the credit will be deemed as irrevocable.
 A Revocable Credit may be amended or cancelled at any moment without prior
notice to the beneficiary. However, the issuing bank is bound to reimburse the
negotiating bank for the negotiations made prior to receipt of such notice.
 The Irrevocable Credit is a definite undertaking of the issuing bank and cannot be
amended or cancelled without the agreement of the issuing bank, the confirming
bank and the beneficiary.

CONFIRMED CREDIT

 When another bank adds its confirmation on the irrevocable letter of credit at the
specific request of the issuing bank, it becomes a confirmed credit and it
constitutes a definite undertaking of the confirming bank in addition to the issuing
bank.
 All credits need not be confirmed credits.

TRANSFERABLE CREDIT

 A letter of credit is transferable only if the issuing bank expressly designates it.
 The beneficiary in such credit has the right to request the nominated bank to
transfer the credit in full or parts in favor of one or more second beneficiaries into
another party or more than one party if partial shipment is permitted.
 The transferable credit can be transferred once unless otherwise stated.

RED CLAUSE CREDIT

42
 This credit bears a clause in red color authorizing the nominated bank to allow
advance to the beneficiary/seller prior to shipment to meet his pre-shipment credit
requirements.
 GREEN clause credits in addition to permitting pre-shipment advance also
provides expenses relating to storage charges before shipment.

BACK TO BACK CREDIT

 In case it the exporter is not the actual manufacture and he gets his work done by
the sub-suppliers and if the sub-suppliers demand letter of credits in their favor,
the exporter who has received a letter of credit for export, approaches his banker
to establish second set of letters of credit on the basis of the export letter of credit
received by him.
 The second set of credit opened by a bank at the request of the exporter is known
as back to back credit.
 The beneficiary of the original letter of credit will become the applicant for the
second set of credit.

43
REVOLVING CREDIT

 In a revolving credit the amount of drawing is re-instated and made available to


the beneficiary again up to the agreed period of time on notification of payment
by the applicant or merely on submission of documents.
 The maximum value and period up to which the credit can be revolved will be
specified in the revolving credit.
 The re-instatement clause and the maximum amount of drawings under the credit
should always be incorporated in revolving credit.

DEFERRED PAYMENT CREDITS AND ACCEPTANCE CREDITS

 Under deferred payment credit the amount is payable in installments for a


stipulated longer period.
 Usually a part is paid in advance and the balance is payable in agreed installments
in terms of conditions of the letter of credit

44
CHAPTER 2

RESEARCH METHODOLOGY
Most professions carry out research internally. It is just not limited to group of skills but
has a broader sense as it involves careful examination of professional work from various
aspects. Research involves more of questioning to ascertain the information related to
your working to find a solution to improve professional service offered by suggesting
necessary changes after logically assessing the information ascertained.

Research methodology is actually an analytical approach to solve research related


problems. It is a part of studying the aspect of carrying out research scientifically
although not expressed clearly. The study involves various steps adopted by a researcher
to analyze the research problem by considering logic behind the same. It is not only
important to know various techniques and methods of research but also methodology.
Researchers should have the ability to develop certain tests or indices to suggest a
solution to the research problem. One has to understand assumptions on which various
techniques are based along with standard set of rules that apply to decide on the
procedures and techniques.

Qualitative research focuses more on precisely understanding “real world setting [where]
the researcher does not attempt to manipulate the phenomenon of interest” (Patton,
2001: pg. 39). Quantitative research is noticeably different from qualitative research that
states “any kind of research that produces finding not arrived at by means of statistical
procedures or other means of quantification” (Strauss and Corbin, 1990: pg. 17).

Both Qualitative and Quantitative research methods have been chosen by me for this
study. This method has been developed by collecting and analyzing unstructured
information using manual methods.

45
Nature of the study: The study is descriptive in nature.

Study Design: In this study we had taken the exchange rates, import and export of the
India with the other countries.

Population: Population includes the employees and customers of companies involved in


export and import Chennai.

Sample Size: The sample size for the study is 100

Sampling techniques: Convenient Sampling Method

Tools used for data collection

Primary Data: Questionnaire survey

Secondary Data: Data was collected through various websites such as provided by
Chennai Custom Government, RBI websites etc.

Tools used for data analysis:

Percentage analysis

Chi square test

CHAPTERIZATION
46
The following is the framework of the chapters to be drawn in this research

Chapter 1: Introduction

a. Introduction to the study


b. Rationale of the study
c. Aim & Objectives of the study
d. Limitations of the study
Chapter 2: Review of Literature

a. Literature Survey
b. Conceptual Framework of the study
Chapter 3: Profiles

a. Organizational Profile
b. Industry Profile unit 1
Chapter 4: Research Methodology data analysis

a. Research Design
b. Data Collection Process
c. Sampling Technique
d. Sampling Tool
Chapter 5: Data Analysis & Interpretation

a. Percentage Analysis
b. Hypothetical Analysis
Chapter 6: Findings & Conclusion

a. Findings of the study


b. Suggestions & Recommendations
c. Conclusions
Appendix & Bibliography

CHAPTER 3

INDUSTRY PROFILE
47
Capital market is a market for raising capital. It is an organized market for meeting long
term financial needs of the companies. In India, companies are the important of business
organization. These companies, particularly public limited companies raise long term
capital by selling securities such as shares, debentures or bonds. These companies are
public & private sector companies. A rural investor in the country seldom buys these
securities from the companies. The players in the capital market are thus, borrowers of
money who demand funds and the lenders of money who supply funds. Borrowers are
joint stock companies and lenders are public i.e. investors. There are intermediaries who
deal with the lenders on one hand and the borrowers on the other hand.

The capital market is divided into two parts:

1. Primary market, and


2. Secondary market.
In case of primary market the companies directly sale securities
to the investors in order to raise long term capital. There is a
public issue of securities through prospectus. These securities are made to buy or sell
these securities through the stock market which is known as secondary market. In the
secondary market the securities already issued by the companies are exchanged. This
market also deals with securities of the central government, state governments and
financial institutions such as IFCI, IDBI, SIDBI and SFCs.

History of capital market


The history of the capital market in India dates back to the eighteenth century when East
India Company securities were traded in the country. Until the end of the nineteenth
century, securities trading were unorganized and the main trading centers were Mumbai,
Kolkata. Of the two, Mumbai was the chief trading center wherein bank shares were the
major trading stock. Mumbai stock exchange was recognized in May 1927 under the
Mumbai securities contract control 1925. In the 1950’s century textiles, Tata steel,
Bombay dyeing, National rayon, Kohinoor mills where the favorite scrip’s of speculators.

In the 1970’s, Badla trading was resumed under the disguised form of hand-delivery
contracts to revive the capital market. However, the capital market received another
48
severe setback on 6th July 1974, when the Government promulgated the dividend
restriction ordinance. The 1980’s witnessed an explosive growth of securities market in
India. The decade of 1980s was characterized by an increase in the number of stock
exchanges, listed companies, and paid – up capital and market capitalization. The 1990s
will go down as the most important decade in the history of capital market of India.
Liberalization and globalization were the new terms coined and marketed during this
decade. Emergence of SEBI as a regulator of capital market invited more concentration
of investors.

In its broadest sense, an investment is a sacrifice of current money or other resources for
future benefits. Numerous avenues of investment are available today. You can either
deposit money in a bank or purchase a long-term government bond or invest in the equity
shares of a company or contribute to a provident fund account or buy a stock option or
acquire a plot of land or invest in some other form.

The two key aspects of any investment are time and risk. The sacrifice takes place now
and is certain. The benefit is expected in the future and tends to be uncertain. In some
investments (like government bonds) the time element is the dominant attribute. In other
investments (like stock options) the risk element is the dominant attribute. In yet other
investments (like equity shares) both time and risk are important.

CHAPTER 4

DATA ANALYSIS & INTERPRETATION

TABLE 1

49
AGE GROUP OF RESPONDENT

Options No of respondent Percentage %

Less than 20 Years 3 4%

21 – 25 Years 13 17%

26 – 35 Years 22 29%

36 – 50 Years 14 19%

More than 50 Years 23 31%

Total 75 100%

Inference:

4% of the respondents are less than 20 years of age, 17% of them are 21-25 years old,
29% of them are 26-35 years old, 19% of the respondents are between 36-50 years of age
and the rest 31% of the respondents are more than 50 years old.

CHART 1

AGE GROUP OF RESPONDENT

50
TABLE 2

GENDER OF THE RESPONDENTS

51
Options No of respondent Percentage %

Male 22 29%

Female 53 71%

Total 75 100%

Inference:

29% of the respondents are male and the rest 71% of them are female respondents

CHART 2

GENDER OF THE RESPONDENTS

52
\

TABLE 3

TYPE OF THE COMPANY

53
Options No of respondent Percentage %

Merchant exporter 17 23%

Manufacturer exporter
27 36%

Importer
17 23%

Others
14 19%

Total 75 100%

Inference

22% of the respondents are merchant exporters, 36% of the respondents are manufacturer
exporter, 23% of them are importers and the rest 19% of them are other type of
companies

CHART 3

TYPE OF THE COMPANY

54
TABLE 4

THE COMPANY’S SHIPMENT PER ANNUM


55
Options No of respondent Percentage %

20ft 16 21%

40ft/40’high cube
59 79%

Total 75 100%

Inference

21% of the respondents said their shipment per annum is 20ft and the rest 79% of them
said it is 40ft/40’ high cube

CHART 4

THE COMPANY’S SHIPMENT PER ANNUM

56
57
TABLE 5

YEARS OF EXPERIENCE IN EXPORT

Options No of respondent Percentage %

< 5 Years 17 23%

5 – 15 years
26 35%

15 – 25 years
19 25%

> 25 years
13 17%

Total 75 100%

Inference:

23% of the respondents are having more than 5-15 years of experience in logistics
business, 35% of the respondents are having 15-25 years, and 25% of the respondents are
less than 5 years experienced and 17% are having more than 25 years of experience in
logistics business.

58
CHART 5

YEARS OF EXPERIENCE IN EXPORT

59
TABLE 6

FREQUENCY OF SHIPMENTS

Options No of respondent Percentage %

Yearly 18 24%

Monthly 26 35%

Weekly 18 24%

Daily 13 17%

Total 75 100%

Inference:

From the above table 24% of the respondents involved in yearly shipments, 35% of the
respondents use monthly shipments, 24% ship weekly and 17% send daily shipments

60
CHART 6

FREQUENCY OF SHIPMENTS

61
TABLE 7

PURPOSE OF FOREIGN EXCHANGE

Options No of respondent Percentage %

Personal 17 23%

Official
58 77%

Total 100 100%

Inference:

23% of the respondents do FOREX for personal purposes and the rest 77% of them said
they do it for official reasons.

62
CHART 7

PURPOSE OF FOREIGN EXCHANGE

63
TABLE 8

FOREIGN EXCHANGE TRANSACTION INVOLVED IN

Options No of respondent Percentage %

Selling 34 45%

Buying
41 55%

Total 75 100%

Inference:

45% of the respondents do selling transaction in foreign exchange, 55% of the


respondents do buying in foreign exchange

64
CHART 8

FOREIGN EXCHANGE TRANSACTION INVOLVED IN

65
TABLE 9

FREQUENCY OF FOREX

Options No of respondent Percentage %

Every Month 15 20%

Once in Three
26 35%
Months

Once in Six Months 13 17%

Only in the Last


21 28%
Quarter of the Year

Total 75 100%

Inference:

20% of the respondents said they involve in Forex every month, 35% of them said once
in 3 months, 17% of them said once in 6 months, 28% of them said only in the last
quarter of the year they do forex.

66
CHART 9

FREQUENCY OF FOREX

67
TABLE 10

MOST IMPORTANT FACTOR CONSIDERED AT THE TIME OF FOREX

Options No of respondent Percentage %

Risk 5 7%

Return 2 3%

Both 68 91%

Total 75 100%

Inference:

7% of the respondents said risk is considered at the time of Forex, 3% of them said they
will consider return and the rest respondents said both risk and returns are considered.

68
CHART 10

MOST IMPORTANT FACTOR CONSIDERED AT THE TIME OF FOREX

69
TABLE 11

AWARENESS OF DIFFERENT STRATEGIES AVAILABLE IN FOREIGN


EXCHANGE

Options No of respondent Percentage %

Yes 55 73%

No
20 27%

Total 100 100%

Inference:

73% of the respondents said they are aware of different strategies available in foreign
exchange, 27% of them said it is not required.

70
CHART 11

AWARENESS OF DIFFERENT STRATEGIES AVAILABLE IN FOREIGN


EXCHANGE

71
TABLE 12

FINANCIAL ADVISOR OF THE RESPONDENT

Options No of respondent Percentage %

Self 17 23%

Relatives 12 16%

Friends 24 32%

Financial Consultants 22 29%

Total 75 100%

Inference:

23% of the respondents said they their own self advisors, 16% of them said their relatives
are their advisors, 32% of them said friends and the rest 23% of the respondents said
financial consultants are their advisors.

72
CHART 12

FINANCIAL ADVISOR OF THE RESPONDENT

73
TABLE 13

YEARS OF RELATIONSHIP WITH COMPANIES INVOLVED IN EXPORT AND


IMPORT

Options No of respondent Percentage %

Less than 6 Months 23 31%

6 months – 2 Years 34 45%

2 years – 5 Years 10 13%

More than 5 Years 8 11%

Total 75 100%

Inference:

31% of the respondents having relationship with companies involved in export and
import regarding foreign exchange for less than 6 months, 45% of the respondents’
relationship is between 6 months to 2 years, 13% of the respondents are in-between 2-5
years and the rest 11% of the respondents are having more than 5 years of experience.

74
CHART 13

75
YEARS OF RELATIONSHIP WITH COMPANIES INVOLVED IN EXPORT AND
IMPORT

76
TABLE 14

AWARENESS OF FACILITIES PROVIDED BY COMPANIES

Options No of respondent Percentage %

Strongly agree 7 9%

Agree 26 35%

Neither Agree nor disagree 32 43%

Disagree 3 4%

Highly Disagree 7 9%

Total 75 100%

Inference:

9% of the respondents strongly agree that they are fully aware of the facilities provided
by companies involved in export and import, 35% of them agree this, 43% of the
respondents neither agree nor disagree this, 4% of the respondents disagree this and the
rest 9% of the respondents strongly disagree this

77
CHART 14

FOREIGN AWARENESS OF FACILITIES PROVIDED BY COMPANIES

78
TABLE 15

FOREIGN EXCHANGE SERVICE CUSTOMER WANTS

Options No of respondent Percentage %

Foreign currency 26 35%

Wire transfer
12 16%

Foreign currency
demand draft 27 36%

Traveler’s cheque
10 13%

Total 75 100%

Inference:

35% of the respondents say that they want service from the foreign exchange is for the
currency, 16% of the respondents say that they wire transfer, 36% of the respondent says
that they want foreign currency demand draft, 13% of the respondents says that they need
travelers cheque option.

79
CHART 15

FOREIGN EXCHANGE SERVICE CUSTOMER WANTS

TABLE 16
80
SATISFACTION LEVEL WITH THE FOREIGN EXCHANGE RATES

Options No of respondent Percentage %

Highly Satisfied 21 28%

Satisfied 17 23%

Neutral 35 46%

Dissatisfied 2 3%

Highly Dissatisfied 0 0%

Total 75 100%

Inference:

28% of the respondents are highly satisfied with the foreign exchange rates, 23% of the
respondents are satisfied with the service, 46% of the respondents are neutral in the
exchange rates, and 3% of the respondents are dissatisfied with the foreign exchange
rates

81
CHART 16

SATISFACTION LEVEL WITH THE FOREIGN EXCHANGE RATES

82
TABLE 17

SATISFACTION LEVEL WITH THE ACCESSIBILITY OF THE BRANCH


VISITED

Options No of respondent Percentage %

Highly Satisfied 14 19%

Satisfied
20 27%

Neutral
32 43%

Dissatisfied
7 9%

Highly Dissatisfied
2 2%

Total 75 100%

Inference:

19% of the respondents are Highly satisfied with accessibility of the branch visited, 27%
of the respondents are satisfied with the branch visited, 43% of the respondent are neutral
in the branch visited, 9% of the respondents are dissatisfied with the branch visited, 2%
of the respondents highly dissatisfied with the accessibility of the branch visited

CHART 17
83
SATISFACTION LEVEL WITH THE ACCESSIBILITY OF THE BRANCH
VISITED

TABLE 18

SATISFACTION WITH THE STAFF’S ABILITY OF UNDERSTANDING THEIR


REQUIREMENT

Options No of respondent Percentage %

Highly Satisfied 16 21%

84
Satisfied 14 19%

Neutral 41 55%

Dissatisfied 4 5%

Highly Dissatisfied 0 0%

Total 75 100%

Inference:

21% of the respondents are highly satisfied with the staff’s ability of understanding their
requirement, 19% of the respondents are satisfied, 55% of the respondents are neutral,
5% of the respondents are dissatisfied with this

85
CHART 18

SATISFACTION WITH THE STAFF’S ABILITY OF UNDERSTANDING THEIR


REQUIREMENT

86
TABLE 19

SATISFACTION WITH THE ACCURACY IN DOCUMENTATION

Options No of respondent Percentage %

Highly Satisfied 16 21%

Satisfied
20 27%

Neutral
29 39%

Dissatisfied
9 12%

Highly Dissatisfied
1 1%

Total 75 100%

Inference:

21% of the respondents are Highly satisfied with the accuracy in documentation, 27% of
the respondents are satisfied, 39% of the respondent are neutral, 12% of the respondents
are dissatisfied,1% of the respondents are highly dissatisfied

87
CHART 19

SATISFACTION WITH THE ACCURACY IN DOCUMENTATION

88
TABLE 20

SATISFACTION WITH THE CLARIFICATION GIVEN TO THEIR QUERIES

Options No of respondent Percentage %

Highly Satisfied 10 13%

Satisfied
11 15%

Neutral
41 54%

Dissatisfied
11 15%

Highly Dissatisfied
2 3%

Total 75 100%

Inference:

13% of the respondents are highly satisfied with the clarification given to their queries,
15% of the respondents are satisfied, 54% of the respondents are neutral, 15% of the
respondents are dissatisfied, and 3% of the respondents are highly dissatisfied

89
CHART 20

SATISFACTION WITH THE CLARIFICATION GIVEN TO THEIR QUERIES

90
TABLE 21

SATISFACTION WITH THE TIME TAKEN BY THE STAFF TO COMPLETE


THEIR REQUIREMENT

Options No of respondent Percentage %

Highly Satisfied 16 21%

Satisfied
7 9%

Neutral
47 64%

Dissatisfied
4 5%

Highly Dissatisfied
1 1%

Total 75 100%

Inference:

21% of the respondents are highly satisfied with the time taken by the staff to complete
their requirement, 9% of the respondents are satisfied, 64% of the respondents are
neutral, 5% of the respondents are dissatisfied, and 1% of the respondents are highly
dissatisfied

91
CHART 21

SATISFACTION WITH THE TIME TAKEN BY THE STAFF TO COMPLETE


THEIR REQUIREMENT

TABLE 22

92
SATISFACTION WITH THE UPDATES GIVEN TO THEM REGARDING
VARIOUS NEW SERVICE

Options No of respondent Percentage %

Highly Satisfied 7 9%

Satisfied
19 25%

Neutral
32 43%

Dissatisfied
9 12%

Highly Dissatisfied
8 11%

Total 75 100%

Inference:

9% of the respondents are highly satisfied with the updates given to them regarding
various new services, 25% of the respondents are satisfied, 43% of the respondents are
neutral, 12% of the respondents are dissatisfied, and 11% of the respondents are highly
dissatisfied

CHART 22

SATISFACTION WITH THE UPDATES GIVEN TO THEM REGARDING


VARIOUS NEW SERVICE

93
CHI – SQUARE ANALYSIS

H0 (Null hypothesis) = There is no significant relationship between gender of the


respondents and purpose of Foreign Exchange

94
H1 (Alternate hypothesis) = There is dependency between gender of the respondents and
purpose of Foreign Exchange

OBSERVED FREQUENCY:

Gender/ Reason for Forex Male Female Total

Personal 7 10 17

Official 15 43 58

Total 22 53 75

EXPECTED FREQUENCY:

Gender/ Reason for Forex Male Female Total

Personal 4.99 12.01 17

95
Official 17.01 40.99 58

Total 22 53 75

CALCULATION:

O E O-E (O-E)2 (O-E) 2/ E

7 4.99 2.01 4.04 0.81

10 12.01 -2.01 4.04 0.34

15 17.01 -2.01 4.04 0.24

43 40.99 2.01 4.04 0.10

∑ [(O-E) 2 / E] 1.48

96
FORMULA:

CHI SQUARE = ∑ [(O-E) 2 / E]

O – Observed frequency

E – Expected frequency

(O – E) = Difference between observed frequency and expected frequency.

(O – E) =Square of the difference

Degree of freedom = (R-1) (C-1)

= (2-1) (2-1)

= 1

At 5% level of significance the table value is 3.841

Calculated value = 1.48

Table value > calculated value

H0 is accepted.

Inference: Hence there is no dependency between gender of the respondents and purpose
of Foreign Exchange

97
CHAPTER 5

FINDINGS OF THE STUDY

 4% of the respondents are less than 20 years of age, 17% of them are 21-25 years
old, 29% of them are 26-35 years old, 19% of the respondents are between 36-50
years of age and the rest 31% of the respondents are more than 50 years old.

 29% of the respondents are male and the rest 71% of them are female respondents

 22% of the respondents are merchant exporters, 36% of the respondents are
manufacturer exporter, 23% of them are importers and the rest 19% of them are
other type of companies

 23% of the respondents are having more than 5-15 years of experience in logistics
business, 35% of the respondents are having 15-25 years, and 25% of the
respondents are less than 5 years experienced and 17% are having more than 25
years of experience in logistics business.

 From the above table 24% of the respondents involved in yearly shipments, 35%
of the respondents use monthly shipments, 24% ship weekly and 17% send daily
shipments

 23% of the respondents do FOREX for personal purposes and the rest 77% of
them said they do it for official reasons.

 45% of the respondents do selling transaction in foreign exchange, 55% of the


respondents do buying in foreign exchange

 20% of the respondents said they involve in Forex every month, 35% of them said
once in 3 months, 17% of them said once in 6 months, 28% of them said only in
the last quarter of the year they do forex.

98
 7% of the respondents said risk is considered at the time of Forex, 3% of them
said they will consider return and the rest respondents said both risk and returns
are considered.

 31% of the respondents having relationship with companies involved in export


and import regarding foreign exchange for less than 6 months, 45% of the
respondents’ relationship is between 6 months to 2 years, 13% of the respondents
are in-between 2-5 years and the rest 11% of the respondents are having more
than 5 years of experience.

 9% of the respondents strongly agree that they are fully aware of the facilities
provided by I companies involved in export and import, 35% of them agree this,
43% of the respondents neither agree nor disagree this, 4% of the respondents
disagree this and the rest 9% of the respondents strongly disagree this

 19% of the respondents are Highly satisfied with accessibility of the branch
visited, 27% of the respondents are satisfied with the branch visited, 43% of the
respondent are neutral in the branch visited, 9% of the respondents are dissatisfied
with the branch visited, 2% of the respondents highly dissatisfied with the
accessibility of the branch visited

 21% of the respondents are highly satisfied with the staff’s ability of
understanding their requirement, 19% of the respondents are satisfied, 55% of the
respondents are neutral, 5% of the respondents are dissatisfied with this

 13% of the respondents are highly satisfied with the clarification given to their
queries, 15% of the respondents are satisfied, 54% of the respondents are neutral,
15% of the respondents are dissatisfied, and 3% of the respondents are highly
dissatisfied

99
SUGGESTIONS & CONCLUSION

The objective of the study was to evaluate ‘The Effect of Exchange Rate on Trade flow’
through primary data analysis. We have applied questionnaire sampling data collection
method and find out the customers’ satisfaction towards the trade flow of companies
involved in export and import

Many exporters are not aware of the various policies of Forex. The companies involved
in export and import should make the available the information regarding the various
policies. Companies involved in export and import should focus on and increase its
operations in currency changing as there is a lot of space in this activity, as many
specialized players have entered in this activity.

Companies involved in export and import should promote and co-sponsor workshop
seminar on import and export business credit facilities available for export and import of
goods and services, risk management while exporting and importing, various
opportunities available for benefits of existing and potential exporters. Today customers
need fast services, so bank must try to increase efficiency, quality of services and
minimum transaction time of settlement. The company should adopt other option to
system when it is down or not able to use. This will save the labour hours and transaction
will not stop at that time. The employees of companies involved in export and import
cannot adjust to high system and technology so they need training to get accustomed to it
and perform efficiently. Companies should provide the facility to open foreign deposit a/c
at all branches. They must try to know and satisfy its customer needs better. Companies
involved in export and import should try to attempt in good faith to resolve any disputes
or differences with customers by setting up complaint redressal cells within the
organisation. To provide customers with accurate and timely disclosure of terms, costs,
rights and liabilities as regards loan transactions. To spread general awareness about
potential risks in contracting loans and encourage customers to take independent financial
advice and not act only on representation from the organisation.

100
BIBLIOGRAPHY

 Jorge Braga de Macedo (2004)” Trade and Financial Interdependence Under


Flexible Exchange Rates: the Pacific Area “NBER Working Paper No. W1517

 José Manuel Campa and Linda S. Goldberg(2004) “Exchange Rate Pass-Through


into Import Prices “CEPR Discussion Paper No. 4391

 Martin J. Bailey(2006) Trade and Investment Performance Under Floating


Exchange Rates: The U.S. Experience IMF Working Paper No. 88/37

 Menzie David Chinn(2005)” A Primer on Real Effective Exchange Rates:


Determinants, Overvaluation, Trade Flows and Competitive Devaluation “Open
Economies Review, Forthcoming

 Michael B. Devereux and Graham Voss (2007)” Exchange Rate Regimes,


Specialization and Trade” Volume HKIMR Working Paper No. 22/2006

 Michael W. Klein and Jay Shambaugh(2004) Fixed Exchange Rates and Trade
NBER Working Paper No. W10696

 Sebastian Edwards(2001) Real Exchange Rate Variability: an Empirical Analysis


of the Developing countries Case NBER Working Paper No. W1930

 Jonathan Ostry(2004) The Balance of Trade, the Terms of Trade, and the Real
Exchange Rate: An Intertemporal Optimizing Framework IMF Working Paper
No. 88/2

 Sven Arndt and Alexander Huemer(2006) Trade, Production Networks and the
Exchange Rate

 Terence Agbeyegbe , Janet G. Stotsky and Asegedech WoldeMariam(2006) Trade


Liberalization, Exchange Rate Changes, and Tax Revenue in Sub-Saharan Africa
IMF Working Paper No. WP/04/178

 William H. Branson(2007) Currency Baskets and Real Effective Exchange Rates


NBER Working Paper No. W0666
101
 Yunus Aksoy and Hanno N. Lustig(2007) Exchange Rates, Prices and
International Trade in a Model of Endogenous Market Structure Manchester
School, Vol. 75, No. 2, pp. 160-192, March 2007

 www.exim.bank.com

 www.,infodriveindia.com

 www.lme.com/glossary.asp

 www.ssrn.com

 www.wikipedia.com

 www.rbi.com

QUESTIONNAIRE

1. Name: ……………………….
102
2. Age

a. Less than 20 Years


b. 21-25 Years
c. 26 – 35 Years
d. 36 – 50 Years
e. More than 50 Years

3. Gender

a. Male

b. Female

4. Type of the company:

a. Merchant exporter

b. Manufacturer exporter

c. Importer

d. Others (please specify) ____________________

5. How many containers do you ship per annum/month?

a. 20ft______
b. 40ft/ 40’high cube_______

6. How many years are you in export business?

a. <5 years

103
b. 5-15 years
c. 15-25 years
d. 25 years

7. In what frequency your shipments take place in Logistics?

a. Yearly
b. Monthly
c. Weekly
d. Daily

8. Purpose of Foreign Exchange

a. Personal
b. Official

9. Which transaction of foreign exchange you are involved in?

a. Selling
b. Buying

10. When do you make Forex?

a. Every Month
b. Once in Three Months
c. Once in Six Months
d. Only in the Last Quarter of the Year

11. What is the most important factor you consider at the time of FOREX?

a. Risk

104
b. Return
c. Both

12. Are you aware of different strategies available in Foreign Exchange?

a. Yes
b. No

13. Who is your financial advisor?

a. Self
b. Relatives
c. Friends
d. Financial Consultants

14. For how many years you are involved in Forex with companies involved in
export and import?

a. Less than 6 Months

b. 6 months – 2 Years

c. 2 years – 5 Years

d. More than 5 Years

15. Are you aware of the facilities provided by companies involved in export and
import?

105
a. Strongly agree
b. Agree
c. Neither Agree nor disagree
d. Disagree
e. Highly Disagree

16. The foreign exchange service you wants

a. Foreign currency
b. Wire transfer.
c. Foreign currency demand draft
d. Traveler’s cheque

17. The level of satisfaction with the foreign exchange rates

a. Highly Satisfied
b. Satisfied
c. Neutral
d. Dissatisfied
e. Highly Dissatisfied

18. Satisfaction level with the accessibility of the branch visited

a. Highly Satisfied
b. Satisfied
c. Neutral
d. Dissatisfied
e. Highly Dissatisfied

19. Satisfaction with the staff’s ability of understanding their requirement

106
a. Highly Satisfied
b. Satisfied
c. Neutral
d. Dissatisfied
e. Highly Dissatisfied

20. Satisfaction with the accuracy in documentation

a. Highly Satisfied
b. Satisfied
c. Neutral
d. Dissatisfied
e. Highly Dissatisfied

21. Satisfaction with the clarification given to their queries

a. Highly Satisfied
b. Satisfied
c. Neutral
d. Dissatisfied
e. Highly Dissatisfied

107
22. Satisfaction with the time taken by the staff to complete their requirement

a. Highly Satisfied
b. Satisfied
c. Neutral
d. Dissatisfied
e. Highly Dissatisfied

23. Satisfaction with the updates given to them regarding various new service

a. Highly Satisfied
b. Satisfied
c. Neutral
d. Dissatisfied
e. Highly Dissatisfied

24. Suggestions, (if any) ……………………………………..

108