Prof S P Garg

Jaipuria Institute of Management , Jaipur

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 “Globalization is about producing
where it is most cost effective
,sourcing capital from where it’s
cheapest and selling it where it is most
profitable.”
N R Narayana Murthy
Toward A Better Future

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Trade across the borders involve Payments
and Receipts in Foreign Exchange
 Banking System as intermediaries between
foreign exchange inflows and outflows
 Transfer of money and process of transfer
 Process of transfer varies

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Forex Market
 As per BIS Study : In April 2010, Global
Forex Market Daily Turnover : $ 4 trillion
(20% higher than in April 2007)
 Significant Contributors: Mutual Funds,
Pension Funds, Hedge Funds,Insurance
Funds
 Top Currencies : US$, Euro , Japanese Yen
 Euro & Yen recorded highest rise and GBP
Recorded highest decline
 USD –EURO : HIGHEST SHARE among all
currency Pairs (28%)
National Workshop on Export-Import &
Forex Mechanism- 19 Oct, 2010
 65% cross border transactions
 35 % local transactions
 Indian Rupee share in global forex market

increased to 0.9%
 Share $ 27.4 billon per day
 USD-INR Pair Currency turn over more than

23%

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 IMPORT MECHANISM
 Good received in India and Forex remitted out

of India
 Importer is Purchaser of Forex and Bank is

SELLER
 Obligations on both

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Banks deal in documents ,not in goods
 Buyer and Seller rarely meet each other
 Deal on the basis of documents and papers
 Possibilities of documents

misunderstood/misconstrued

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Important publications of International
Chamber of Commerce (ICC)):
 UCPDC 600 : for Documentary Credit
 URC 522: for Collection Documents
 ISBP 681: SUPPORT PUBLICATION
 INCOTERMS 2000(13 Trade Terms) Now 2010

 Role of FEDAI (Foreign Exchange Dealers’

Association of India) is a non-profit making body
formed in 1958 with the approval of RBI

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Export Credit
 Export finance is governed by various Acts and
guidelines issued by various departments
/organisations:
 EXIM Policy

• Foreign Trade policy

• FEMA (TO BE STUDIED IN CONJUCTION WITH OTHER
ACTS/GUIDELINES
 FEDAI Rules
 Reserve Bank of India
 Export Credit Guarantee Corporation (ECGC) rules

• International Chamber of Commerce (ICC), Paris(165

countries Members)
 KYC POLICY

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Import Finance
 facilities are subject to the prevalent rules of the Banks/ RBI
guidelines.
The various facilities provided are:
 Collection of import bill.
 Opening of Import L/Cs (Sight/ DA)
 Financing of import by way of Foreign Currency Loans
 Issuing Guarantees etc. on behalf of importers.
 COLLECTION OF IMPORT BILLS:
 LETTER OF CREDIT:
 granted to the importers after assessing their requirement/
credit worthiness/ financial strength and other parameters.
 BANK GUARANTEES: (Performance /Financial)
 on behalf of importers/ other customers issuance of
guarantees in favour of beneficiaries abroad.

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Characteristics of foreign exchange market

An Over The Counter market:

 
-  No physical presence in the same sense
as a stock exchange or commodity market

- The participants deal among themselves

and settle their transactions directly

- There is no exchange or clearing house

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
No single location – no barriers
 
-  FX market is not located in a single building
-  No specific market place exists
-  FX market has few restrictions in this
modern world
-  FX market is global in nature / character
- While the market does not exist at each and
every center in the world, it is accessible
from any part of the world

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 foreign exchange:
An expression to denote foreign currency
  Also covers the method by which a currency of
one country is exchanged for that of another.
Guidelines relating to foreign exchange
management
 All foreign exchange transactions are to be routed
through Authorised Dealers for whom guidelines
are issued by RBI under the provisions of Foreign
Exchange Management Act .FEDAI governs
operational aspects

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Exchange rates fluctuate very frequently

Settlement of transactions normally does not

take place simultaneously

Highly liquid market

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Authorised Dealers (AD) licences :
 AD I :banks, all India financial institutions and
a few co-operative banks to undertake
foreign exchange transactions in India(87)
 AD II: Money Changers licences alongwith
other activities :Full Fledged/Restricted
 ADIII: Institutional licences to a large number
of established firms, companies, hotels,
shops, etc

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Maxims:
 Cause & Effect Relationship
 No one can receive money unless some one

pays
 Payment must always precede receipt.
 Credit is a natural corollary
 Location of Account
 The currency of the country never leaves its

borders where it is a legal tender.

 Transaction flow would take place for that

currency in that Country only.

National Workshop on Export-Import &
Forex Mechanism- 19 Oct, 2010
 Purchase and Sale :
 With reference to what a bank does
 All sales mean sale of foreign currency to

others
 All purchase mean purchase of foreign

currency from others

 Cover Operations: Squaring off the position

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
Transaction Date: The date on which a trade
occurs
Ready or cash – To be settled on the same day
Tom – To be settled on the next working day
to the date of transaction(1 day for
Dollar/Canada )
Spot – To be settled on the second working
day from the date of contract
Forward – To be settled at a date farther than
the spot date
 

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 No of Days :
 360/365 Days as Base
 In International Banking generally 360 days

for calculation purposes

 Calendar of Holidays
 Information to calculate maturity dates, Value

dates, follow up deliveries

 International Style of Amount : hundreds,

thousands, millions,billions

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 NOSTRO Account:
 Nostro is derived from the latin term "ours."
 our account with you
 A foreign currency account maintained by a

bank in India with a bank abroad

 BOI’s US$ ACCOUNT WITH CITI BANK

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 VOSTRO account:
 Vostro is latin for yours

 Your account with us

 A rupee account of a foreign bank (abroad)
with a bank in India
 CITI BANK RUPEE ACCOUNT WITH BANK OF
INDIA

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
 Role of Society for Worldwide Interbank
Financial Telecommunication(S.W.I.F.T )
 To provide communications platform,

products and services that allow institutions

to connect and exchange financial
information securely and reliably.
 To enable institutions to automate and

standardize financial transactions, thereby

lowering costs, reducing operational risk and
eliminating inefficiencies from their
operations.
National Workshop on Export-Import &
Forex Mechanism- 19 Oct, 2010
 ONLY IF YOU ARE

G: Growth oriented
L : Linked
O : Organizational Belongingness
B : Building Bridges
A : Attitude
L : Leadership

GLOBAL
National Workshop on Export-Import &
Forex Mechanism- 19 Oct, 2010
  Ifyou don't create a BRAND for
yourself, your competition will be
happy to do it for you
 Brands to Last: Build a Winning and

Enduring Brand

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010
Wishing You All The Best In Your Endeavours

for suggestions/feedback/assistance
spgarg@jimj.ac.in
Mob: 093092 92080

National Workshop on Export-Import &

Forex Mechanism- 19 Oct, 2010